Mortice (AIM: MORT), the Anglo-Indian outsourcer, has released a positive trading update which has led to upgrades. The shares are up 9 per cent at a new high of 100p as a result. The company states that due to the strong performance of both existing and acquired businesses, results to March will be ‘materially ahead’ of expectations.
When we spoke recently to Mortice founder and Chairman Manjit Rajain he confirmed that the long-term outlook for India is very positive, with strong economic growth and the trend to outsourcing, especially in the public sector, still in its infancy. This is reiterated in the update where the company details some of its contract wins which include J&K Bank, Amazon and Kotak Mahindra Bank. The O&G acquisition in the UK has also performed well and will be strengthened by April’s purchase of Manchester-based Elite Cleaning. The sales pipeline is said to be good and there’s momentum in the business.
Revenues grew 35 per cent last year and costs have been well controlled. Accordingly broker finnCap has upgraded profits by 16 per cent for the year just ended and by 13 per cent for the current year. The company does carry some debt, with the acquisitions partly offset by a small placing which repaid some expensive borrowings. Net debt ended the financial year at $13.6 million, which looks OK in the context of a market cap of $70 million and represents a ratio of 1.5 times EBITDA.
The acquisitions in the UK seem to be going well and management’s desire to add know-how from this more mature market to the group’s Indian business is understandable. However the UK earnings will tend to dilute the rating placed on the group, given the much higher inherent growth rate in India. Nevertheless the upgrades are an endorsement of management’s successful execution and a p/e of 14 for the current year looks attractive. finnCap has raised its target price to 120p.