Dillistone

Dillistone, the software and services supplier to the high-end search and selection industry, has that oversold look.

Supplying its FILEFINDER technology to many global executive search giants, City-headquartered Dillistone has reassured calendar 2009 results (set for release in April) will meet forecasts. Investors should expect temporarily reduced pre-tax profits and earnings of £1m and 12.8p for 2009, on £4m (2008: £4.6m) turnover. Moreover, the strongly cash generative counter with a robust balance sheet has insisted the annual dividend will be maintained at 10.5p (consisting of a further interim payout of 7p, added to the 3.5p paid out at the half year).

Amid tougher trading in international recruitment markets, the company has found it harder to win new FILEFINDER deals, although contract wins have continued to flow in, among them a December deal worth more than £150,000 with an unnamed though significant executive search group.

At first glance, interim results to June, unveiled back in September, were disappointing, showing a 28% sales reverse to £1.82m and a 50% decline in pre-tax profit to £470,000. However, the company continued to generate cash and high-visibility recurring revenues, up 12% to £1.2m in the half, grew as a proportion of the top line to 66%.

Economic conditions notwithstanding, a return to growth is on the cards for 2010, with profits of £1.2m and 14.9p of earnings expected, from sales of £4.2m. Recommended by Growth Company Investor at 175p in 2008, Dillistone shares, which have plummeted from an AIM peak of around 300p in 2007, are undervalued and worth holding or even snapping up for recovery. They sell for less than eight times this year’s likely earnings, and offer a strongly supported yield of 9%.