Small Caps | Jan 22 2013
-IRI coverage initiated with Hold
-Offers high tech exposure
-Blue chip customer base
By Eva Brocklehurst
Software developer, Integrated Research ((IRI)), presents opportunities for exposure to the high tech arena according to Moelis. The Australian based company, established in 2007, provides monitoring and reporting functions for critical IT infrastructure, payments and communications. IRI claims to "make your business irresistIble to your customers". Moelis has initiated coverage with a Hold rating and target price of $1.45.
The company has warned that first half profit will likely be $2.5m-2.9m against $3.6m previously (ie down 20-30%) but Moelis explains this as largely attributable to the lumpy nature of the company's contracts. Management has said the sales pipeline is very strong and the shortfall in licence sales in the first half will likely be made up in the second. This should deliver growth in FY13. IRI customers include financial institutions, stock exchanges, telcos and governments. Its revenue breakdown is typically 20% per annum of revenue spent on R&D and 30% as maintenance. IRI specialises in business-to-business and most of its clients are recommended by other clients.
Moelis says the significant opportunities available were demonstrated by the net profit growth of 21% in FY12 that followed a 39% increase in FY11. The company's main segment, Unified Communications (around 44% of revenue), delivered a 31% constant currency revenue increase in FY12. The broker says this demonstrates the opportunities available within an immature high growth segment driven by the growth in size, complexity and critical nature of networks, particularly in the Americas. Infrastructure, the second major segment, (around 42% of revenue), comprises the traditional Prognosis Nonstop software. This experienced a 5% decline in revenue reflecting what is now a mature global market, according to Moelis.
What attracts the broker is the significant opportunities available to Unified Communications software within a high growth (15% pa) international segment valued at over $500 million. This is driven by the need for multiple methods of communication as well as the company's stated target to increase the current 5% global market share to 25% by 2017. Despite some recent weakness, IRI’s share price is up over 180% over the past year. Moelis says its value metrics are well deserved and the return on equity is over 30%.
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