SQS Software Quality Systems

Companies: SQS   
08/03/2007

Europe’s largest software testing specialist, SQS, is growing almost four times faster than the IT services market and final results confirm it deserves more recognition.

Adding UK-based competitor Cresta to its British operations last July went some way towards raising Germany-based SQS’s profile and added bulk. In the year to December the enlarged group grew turnover from continuing operations by 44.2% to €78.9m (£53.8m), with organic growth at 18%. Visibility is excellent, with 75% repeat revenues. Furthermore, the group won a record 100 new clients during the year to take its total to around 400 active clients, including BP, Lloyds TSB, DaimlerChrysler and Airbus.

Underlying adjusted pre-tax profit increased by 44% to €5.3m and earnings by 27.3% to €0.28. Furthermore a dividend equivalent to 19p should be paid or, if German law forbids, an equivalent share buy-back completed.

Inclusion of Cresta for the full year would have seen the group produce revenues of €92m and, as SQS is improving cash flow, signing better deals and coaxing further organic growth. Altium has upgraded forecast sales for 2007 and 2008 to £100.3m and £110.8m respectively. Further investment in sales and marketing means profit expectations remain at £7.8m and £10m, and earnings at 31.4p and 32.4p per share.

Despite organic growth averaging more than 13% over the last three years in a market growing at over 5%, SQS has been under-rated. To a degree this can be explained by the company’s relatively small size, foreign origin and relatively low free float. However, the February acquisition of rival RelQ at 1.3 times revenues indicates that SQS, if an equivalent offer was made for it, could have a value of more than £80m.

There is plenty of growth out there for the taking and the shares, up 6.7% today to 208.5p, are still far too cheap. SQS is a strong buy.

Oliver Haill

People who read this article also read ...
14/03/2007
08/03/2007
06/03/2007
05/03/2007
05/03/2007

AIM£36.87m 214.50p 1.50p
Other company articles:
08/03/2007
06/10/2006
13/09/2006
06/02/2006
20/09/2005

Sponsored Listings

Looking for Help with Investments? Latest offers from a variety of the UK's favourite investment specialists.

Find Investment Resources at Ask.com Whatever type of investment you're looking for, find it with Ask.com. Browse for a wide range of investment resources in seconds.

Tax Exempt Savings - Pois.co.uk Use your £25 per month tax-exempt Friendly Society allowance.

Recommendations

Nationwide Accident Repair Services

BUY

French Connection

AVOID

Dolphin Capital Investors

BUY

Vividas

Group NBT

BUY

Yule Catto

SELL

Interior Services

HOLD

Powerleague

BUY/HOLD

WSP Group

ADD

Tangent Communications

BUY
AIM