K3 Business Technology

Acquisitive software services firm K3 (KBT) has delivered a resilient set of interim results, despite weakness in the retail sector. The AIM listed counter is the UK's largest provider of Microsoft based business solutions and a leading provider of supply chain solutions.

K3 has amassed a customer base that spans 1,800 clients with up to 100 new customers joining every year. Retention levels are strong, with almost £20 million a year of recurring revenues. In the six months to December sales increased 5% to £24.7m as pre-tax profits edged ahead 8% to £4.2m.

The UK retail market is tough due to deal slippage, however, it still secured eight new contracts worth £3.4m and is focusing on selling more of its own high margin products. Driven by the acquisition of Pebblestone last year its operations in Holland are storming ahead - here, profits more than doubled to £750,000. A store opening programme by retail giant IKEA is providing a good spur to growth. The manufacturing software arm suffered a slight dip in revenues due to competitive trading but enjoys decent repeat business.

An area for expansion will be the ongoing shift by customers moving their IT requirements towards cloud computing, saving costs as a result. K3 recently agreed a deal with leading Enterprise Resource Planning (ERP) software outfit SYSPRO to provide hosted SaaS (software as a service) on an exclusive basis.

K3 has secured a £7.5m revolving credit facility to help finance future acquisitions. A recent deal is the £1.2m purchase of Sense Enterprise - a profitable supplier of ERP software with 40 customers. In an interview with Growth Company Investor chief executive Andy Makeham enthused 'we have a broadly based business and plenty of scope to expand'. Broker Canaccord genuity predicts 2011 pre-tax profits of £8.2m and EPS of 24.6p. We last urged readers to buy at 109.5p in March 2010, the shares have almost doubled since. Hold.