Strong annual results from Civica, which supplies software and services to the UK, US and Australian public sector markets, matched or beat forecasts at the operating, pre-tax and EPS level, despite lower-than-expected sales.

Chief executive Simon Downing reported improved ‘normalised’ pre-tax profits of £16.1m (£10.4m) for the year to September, ahead of the £15.9m forecast, and growth in earnings from 15.9p to 19.5p, above the 18.4p figure in the market. Sales growth was a respectable 18 per cent to £125m, and the order book grew by 67 per cent to £91m.

In another year of progress, the consulting, own-software and managed services divisions all did well. Consulting revenues rose 60 per cent to £26.2m, Civica’s own-IP software sales burgeoned by 28 per cent to £21.5m, and managed services proved a highlight, with revenues ramping up to £26m (£15.3m), with the lion’s share of the growth coming from February acquisition Comino, bought for £51.1m in cash.

House broker Investec says the ‘managed services sell’ is picking up pace with local authority customers increasingly looking to outsource IT functionality. Since the year-end, Civica has also snared a major new contract with SELMS (South East Library Management Services). The one weak spot was the ‘enforcement’ sector – basically the police – where Civica encountered tougher trading.

For September 2007, Investec forecasts a further rise in profits to £20.4m and earnings of 21.9p, placing the shares on a forward multiple of 11.7, a curious discount to the sector average. Civica looks well positioned to grow organically and do further deals in a public sector IT market likely to see further consolidation. Buy.