Objective Corporation (ASX:OCL), a developer of enterprise content management and governance solutions, saw its shares surge over 25% to a fresh record high this week on the back of preliminary full year results.
The veteran software provider revealed a 1% drop in revenue, which came in at $62 million. That didn’t phase the market, though, as FY2018’s top-line was boosted by a large one-off consulting project. Moreover, that work was replaced by higher margin software revenue which helped boost net profit by a solid 23%.
With the business continuing to transition to a subscription model, a 15% rise in annual recurring revenue was also of note, as was a further strengthening of the balance sheet with a 61% rise in the company’s cash reserves. Indeed, around 10% of the company’s total market capitalisation is in cash.
The company continues to reinvest its strong cash flows into product development and enhancement; a key factor in helping to sustain the group’s competitive edge. $12.7 million was invested here, or 20% of revenues, with all spending expensed on the income statement (as usual).
Although the company didn’t provide any forward guidance, CEO and founder Tony Walls said the company would continue to enhance its product offering and spoke to the potential this represented for increasing revenue per customer.
Following the share price surge this week, Objective Corp. is now trading on a price to earnings ratio (P/E) of approximately 36 and a trailing yield of 2.8%, or just over 4% when grossed up for franking credits. That’s far from egregious, especially given the company’s strong balance sheet, reliable earnings and the current low rate environment.
Nevertheless, according to the community consensus on Strawman, shares currently sit a tad over fair value. Click below to learn more.
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