Tikit Group

Shares in Tikit, recommended by Growth Company Investor at 80p in 2003 and trading north of 340p a year ago, have fallen to 208.5p amid the smaller companies sell-off. But the falls look substantially overdone for several reasons.

Firstly, the company, which provides consultancy services and software to the top 200 UK and European law and accounting firms, has a good track record of organic growth, supplemented through acquisitions. Secondly, it dominates a market niche that is itself fairly well insulated from the vagaries of the wider economy. Furthermore, recent comment from leading legal firms suggests that their fees are showing resilience to slowdown, which is good news for Tikit. Law firms are better placed than most to ride out tough times, due to the diversity of their income streams and the counter-cyclical elements of their business.

A recent pre-close update from Tikit, covering the first half to June, contained many positives. Trading was said to be ahead of the previous year, with Tikit continuing to generate cash – significantly there was £2.55m of net cash in the coffers at the end of December – and the April acquisition of TfB was also said to be progressing well. While management noted some signs of delays to capital projects in the legal sector, it added that healthy levels of business were being seen as it entered the traditionally stronger second half.

For the year, house broker Charles Stanley forecasts growth in pre-tax profits from £3.4m to £4.5m, ahead of £5.5m for December 2009, giving earnings of 23p and 27.3p respectively. Those estimates place the dividend-paying shares on undemanding prospective price-to-earnings multiples of 9.1 and 7.6. In our view, they remain very good value and existing investors should consider topping up their holdings.

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