Drama over as eg Solutions transformed

A series of boardroom dramas in 2013 left eg Solutions in a mess, but reinstated CEO Elizabeth Gooch has turned the back office software company around. An impressive number of contract wins shows demand is there and a year of further investment should tee up eg for rapid growth next year.

Expanding from the UK financial services sector into telecoms, utilities and local government has certainly paid off. Rather than the typical two or three contract wins a year, eg won ten this time. However, nine were won in the first half, so the second six months was quiet. But its contracted order book for the next two years has grown by over a quarter to £7.6 million, with its pipeline for the next four years up by nearly £2 million in the past few months to £15.4 million.

"This year has been a year of transformation," Gooch told Interactive Investor. "It has also been a year of capitalising on investments that were made pre-2013, so we invested in a number of strategies that would improve our prospects going forwards. Having spent many years building a product and developing a market, that's all come into fruition in the last financial year and that is evidenced largely in the increased number of contract wins."

In 2013, industry heavyweight John O'Connell was brought in as non-executive chairman to help run the company. He decided to oust founder and brains of the business Gooch, and the company subsequently lost £1.4 million in the 12 months. But Gooch is back, and on a roll.

Sales rose 69% in the year ended January to £7.5 million and gross profit margin grew from 65% to 70%. A £1.5 million loss turned into a pre-tax profit of £407,000, giving EPS of 3.5p, and net cash now stands at £4.3 million after a £3.2 million placing and £1.7 million from operating activities.

So, what lies ahead? "A lot of hard work," explains Gooch. "You go from hero to zero with results; you are a hero for a day and then you are back in the real world and have to start again. I think we are in a great place to structure the business properly to take it forward - moving it from a £4-5 million turnover business to a £9-10 million turnover business requires different structures and processes."

Gooch is also planning to continue eg's international expansion and product development in the mobile arena. House broker finnCap expects sales of £8.8 million in 2016, but a pre-tax loss of £300,000.

Lorne Daniel, an analyst at broker finnCap, is impressed:

"We increase our target price to 105p as the company gives investors greater visibility on the value in the company. The year to January 2016 will be one of investment, but EBITDA in FY 2017 is forecast to exceed £1.5 million and a 12x EV/EBITDA multiple in line with sector peers suggests a 105p target price. Given the huge market opportunity, we feel this remains cheap."

The shares rallied by as much as 16% to 79p on Wednesday.

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