Shares in Gresham Computing (LSE: GHT), the software and services company, are up by 2% today after it released an encouraging set of half year results.
The key takeaway is that Gresham is trading in-line with expectations and has been able to deliver a rise in pretax profit in the first half of the current financial year. In fact, Gresham’s pretax profit increased from £597,000 in the first half of 2014 to £647,000 in the first half of 2015. That’s a rise of 8.4% and was delivered due to a strong surge in revenue which more than offset higher operating costs.
Encouraging for investors in Gresham is news that its Clareti Transaction Control (CTC) software product is now the company’s largest product by revenue, with it accounting for 31% of revenue in the first half of the year. This appears to confirm Gresham’s decision to focus a significant proportion of its resources (in terms of both investment and sales resources) on this one product and, with revenue for CTC jumping by 247%, it appears to be a very strong growth area for the business.
Meanwhile, Gresham continues to have no debt on its balance sheet and remains confident in its outlook. Looking ahead, it is forecast to increase its bottom line by an incredible 110% in the current year, followed by a further 37% next year. And, while it trades on a rather rich price to earnings (P/E) ratio of 26.2, such strong growth prospects mean that Gresham has a price to earnings growth (PEG) ratio of just 0.5. Therefore, its shares could continue the run that has seen them rise by 18% since the turn of the year.
Of course, other stocks in the software services sector also have considerable potential. For example, Micro Focus (LSE: MCRO) is forecast to grow its bottom line by 4% in the current year and by a further 8% next year. Although these figures may be considerably lower than those of Gresham, Micro Focus offers superb stability, size and scale, with its earnings having risen in each of the last four years and its financial strength being evidenced via a yield of 2.5%. In addition, Micro Focus trades on a PEG ratio of 1.9 which, for a company with such strong finances and an excellent track record, appears to represent good value for money.
However, telecoms peer Vodafone (LSE: VOD) also has the potential to deliver strong share price growth. That’s at least partly because the situation in Europe, which is a key market for the business, continues to improve. Because of this, Vodafone is expected to increase its bottom line by 21% next year, which puts the company’s shares on a PEG ratio of just 1.8.
Furthermore, Vodafone continues to be one of the most appealing income stocks in the FTSE 350, with its yield currently standing at 4.8% and being expected to rise ahead of inflation over the medium to long term. And, as the largest of the three businesses, it has the greatest size, scale and diversity and, as a result, should be able to provide the greatest resilience and stability over the long run.
