Recent weakness in the share price of Civica, possibly prompted by recent director selling, offers investors the opportunity to buy into an exciting growth story at a reasonable price.
Expanding Civica, which supplies software and services to the UK, US and Australian public sector markets, recently reassured investors with its February AGM statement. And Investec analyst Gareth Evans says investors shouldn’t be unduly worried by recent selling from chief executive Simon Downing and finance director Mike Stoddard, emphasising that the decision to sell shares rather than exercise options was tax driven.
The ‘fundamental tenets’ of Evans’ investment stance remain unchanged. He sees a significant opportunity for the group as local authority procurement trends towards shared services, and argues the group’s ‘ROI-based product and services sales’ should be resilient to any pressure for reductions in local authority spending. Furthermore, Building Schools for the Future (BSF) looks a great growth opportunity, with more and more authorities beginning to announce their preferred suppliers.
Last year, Civica reported improved normalised pre-tax profits of £16.1m (£10.4), ahead of forecasts, along with 67% growth in the order book to £91m. For the current year to September, Evans is looking for growth in normalised pre-tax profits to £18.3m, from a top-line £152.7m (£125m), giving 19.7p of earnings and a likely 2.5p payout.
Based on those numbers, Civica trades on 12.5 times earnings with modest income appeal, too low for a business with great organic and acquisitive prospects in a consolidating market. Buy.
