Tuesday, 1 September 2009

COA Solutions - 'Steady as she goes'

(By Richard Holway and Philip Carnelley 5.00pm Tuesday 1st Sept 09) According to TechMarketView research, business application provider, COA Solutions, is one of the Top 20 software providers to the UK market and is one of the very largest privately owned, UK HQed, software companies. Subscribers can read more about their business and heritage in our 27th Aug 08 post - COA announces annual results.

COA Solutions has just issued its R&A for the year to 31st March 09 showing revenues up 7% at £59.8m, operating profit up 2.5% at £12.2m and EBITDA up 3% at £12.8m. However, if you strip out the effects of recent acquisitions – of eProcurement company Belmin (Mar 08) and HR specialist ASR Computers (Apr 08) - it would look as if organic revenues were flat. With an EBITDA margin of 21%, a conversion in excess of 100% from EBITDA to operating cash flow and an ‘annuity revenue’ base in excess of 51% of annual revenues, COA is in as good a state as any to weather the storm. Resilience comes from a mix of public and private customers (circa 50:50) and industries: no single industry is more than 20% of revenue.

In many ways COA’s current trading is symptomatic of the market as a whole. The good bit is its loyal customer base – now supplying over 90% of its revenues. They are keeping their systems and adding more and more functionality. Indeed, COA reports the pipeline is holding up well. The ‘problem’ is with ‘new’ name business. Also there has been a drop off in the larger contracts although there has been an uptick in the £200-£400K prospects of late. Decision making timescales are still an issue. This set of descriptions about current trading is pretty much the norm amongst others to whom we talk.

As to next year, COA expects another flat year. However, increased use of Vietnam as its offshore base, the cutting out of duplicate costs from the recent acquisitions and general cost savings, should result in good double-digit EBITDA growth.

We asked Fiona Timothy (exec Chairman) the usual questions about further acquisitions but don’t sense any on the immediate horizon. Undoubtedly COA would be a buyer if anything decent at an equally decent price came along. COA had expected more divestments forced by banks, private equity and other investment institutions. But maybe they don’t want to realise the inevitable writedowns? Problem is that the longer they leave it the worse it might become. But we know of old that COA is not the kind of company to do deals for the sake of them.

We also asked about Cloud but again sensed that few of COA customers were putting any pressure on them to move that way. Public sector clients are less keen than private sector. We can understand that for much of COA’s applications but we’d always seen HR as a natural ‘next area’ for Cloud. But not at COA apparently.

So, we expect another year of ‘steady as she goes’. Maybe in today’s trading environment that’s a real result!

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