We might be forgiven for thinking that the world’s postal services are dying on their feet thanks to email and other modern ways of communicating and connecting. However the industry is managing to grow thanks to e-commerce parcels and the provision of financial and digital services. Escher (AIM: ESC) is a specialist postal industry software supplier whose systems enable post offices to manage customer transactions in the evolving digital world.
To get an idea of the services offered you can watch this brief video from Escher customer Canada Post. It’s also interesting to see what a post office might look like without queues!
The recent results showed welcome growth in recurring revenues which are now half the total, up from a third four years ago. This reflects maintenance and support revenues related to past installations. Due to the specialist nature of the industry, customer retention is good and there’s also scope to sell more products to a customer once they have been won, given the breadth of services offered. For example, a loyalty product was sold to Saudi Post last year and South Africa took a secure digital communication platform. Repeat revenues are also good because sales cycles for new licenses can be lengthy with the company looking to sign two new customers each year.
Overall sales were flat in 2016 as implementation revenue declined following the completion of a major project. However margins are making progress as the mix improves in favour of maintenance and upselling to existing customers. At the ebitda level they rose to 25.2 per cent last year from 18.2 per cent in the prior period. Cash flow was positive and debt has been eliminated quicker than expected. The results encouraged broker Panmure to upgrade the current year by 10 per cent. This puts the stock on a current year p/e of 18 which looks reasonable.