Monday, 9 November 2009

Advanced Computer Software has healthy first half

(By Tola Sargeant, Monday 9th Nov. 2009, 09:30) Advanced Computer Software (ACS), an AIM-listed provider of software and IT services to the UK primary care sector, has revealed strong growth in the six months to 31 Aug ‘09. Its interim results show revenue in the period was £11.0m. EBITDA came in at £2.6m and pre-tax profit was £1.9m, a 17.6% margin.

There are no comparable figures for the previous period since ACS was formed by a reverse takeover of Out of Hours software specialists Adastra in July 2008. However, according to ACS, Adastra reported a turnover of £7.2m in H109, which is 21% up on the same period prior to acquisition. That’s pretty impressive in a market which is characterised by low single digit growth - it is being driven by Adastra’s expansion into Urgent Care and Equitable Access Centres.

ACS’ recent acquisitions are also beginning to pull their weight. Hosting and managed services business BSG contributed £3.6m of revenue over 11 weeks in the period and Staffplan, a provider of roster software for community nurses, contributed £0.2m in the seven weeks from acquisition to 31 Aug ’09. The Group’s most recent acquisition, offshore development capability Oak Labs India, fell outside the period (see also ACS tries and Indian take-away).

But it would be wrong to think that ACS is only about inorganic growth. Organic growth through product innovation remains important to ACS and Adastra has launched three new products for nursing and community care in recent months. Cross-selling between the acquisitions will also be key to the Group’s future success. Indeed, this strategy is already paying dividends, as with the use of BSG’s hosting skills to offer Adastra’s new products on a software-as-a-service (SaaS) basis.

That said, ACS is keen to play a major role in consolidating the fragmented UK primary care software and services market and we don’t see CEO Vin Murria resting on her laurels. She told me this morning she sees two businesses a week at the moment but most have unrealistic price expectations – perhaps a tougher market in 2010 will encourage some more sensible pricing. When ACS does expand it's likely to be into areas like billing, accounting software or business intelligence that will come into their own in a market focused on ROI, KPIs and efficiency (as well as the odd bolt-on acquisition in the clinical space).

Although ACS is relatively well positioned to withstand tougher market conditions, with 65% recurring revenue, Vin is not expecting an easy ride next year. She is predicting a ‘big squeeze’ in the market. We couldn’t agree more, but it’s reassuring to see businesses like ACS planning accordingly rather than living in denial.

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