KBC Advanced Technologies

Contracts continue to flow in at energy sector consultant and software specialist KBC, despite prevailing uncertainties across the international refining industry.

In its latest update KBC, which helps refinery owners manage risk and maximise profits, reiterated calendar 2009 results would meet market expectations – analysts are looking for lower year-on-year profits of £5.1m pre-tax, 5.92p of earnings and a 1.5p dividend. Encouragingly, KBC said more than £55m worth of contracts gushed in last year, a welcome 7% increase over 2008 which translated into a year-end ‘workload backlog’ of £40m plus, north of the £39m backlog reported a year earlier. Furthermore, KBC cheered with news of £4m net cash in the year-end coffers, more than doubled from the half-year.

Healthy software sales were enjoyed during the fourth quarter, the highlight being a new contract with longstanding client Petrobras, the Brazilian state oil giant, worth more than US$4m, for KBC's refinery simulation software product. Additional work was won with Sinopec in China and TNK-BP in Russia, licences were renewed with Repsol in South America and Europe and consultant utilisation levels also improved.

With loyal blue chip customers, KBC is more than holding its own in a challenging refining industry that is seeing investment and expansion in the emerging markets of Asia, Africa and South America, yet margin pressure in North America and parts of Europe, where there is overcapacity and recessionary forces are at play.

Nevertheless, creditable results were achieved in the half to June, with KBC making pre-tax profits of £2.4m (2008: £3m), on turnover of £27.1m (£24.4m), and upping the dividend 30% to 0.45p. We consider the shares, backed by Growth Company Investor at 44.5p in 2007 and selling for less than seven times 2009’s likely earnings, offer significant improvement potential, given the flexibility of KBC's service offering and its diverse geographic coverage. Sit tight.