Public sector software specialist IBS OPENSystems, backed by respected fund manager Katie Potts among others, delighted investors with strong profits growth for the third consecutive half-year since its AIM arrival in 2005.

Up against a strong comparative period, the provider of solutions to local government and social housing bodies reported a jump in PBT to £3.2m (£2.47m) for the seasonally weaker half to June driven by improved gross margins of 63% (59%). Sales growth was modest – up 4% to £9.5m – though recurring revenues grew 26% to £3.9m. Furthermore, IBS closed the half with £9.2m cash, up from £8.7m at year-end and £7.6m a year ago, comfortably allowing for increased interim dividends of 1p (0.85p). ‘We’ve always generated cash very strongly,’ explained finance director Karl Pott, pointing out that ‘our costs are relatively fixed and there’s operational gearing in this business’.

Highlights of the half included new business wins in both the local government and social housing sectors, with significant orders received from the likes of Wycombe District Council, Northampton Borough Council and the ISOS Group. Housing management system sales to seven new social housing providers helped IBS take a larger, though still small, share of a market where mergers and partnerships continue to throw up opportunities. IBS has successfully won new business as the supplier of the ‘core system’ to several newly merged social housing bodies and held onto business in mergers situations where it was an incumbent supplier.

For December 2007, house broker Numis envisages healthy PBT growth to £7.8m (£7.2m), earnings of 13.3p and a 3.3p payout, placing the shares on an undemanding forward p/e of 14.6, with a prospective yield of 1.7%, strongly backed by terrific cash flow.

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