Nasstar (LSE: NASA) stepped to fresh 18-month highs in Monday trading after an approving-if-hardly-spectacular reception to interim results.
The stock was last 1% higher on the day after announcing that revenues grew 47% during January-June, to £11.9m, or 8% on an underlying basis. But the cloud computing specialist saw pre-tax losses swell to £1m from £770,000 a year earlier due to the impact of its ‘Nasstar 10-19’ restructuring programme.
Chief executive Nigel Redwood took a chipper tone, however, and commented: “The… programme has gained significant traction [in the first half] and I am delighted that we have seen the results of the initiatives materialise in these positive results, with Nasstar truly becoming one company in structure and name.” As a result trading in the first half of the year came in line with expectations.
Redwood added: “New business has been strong and I am pleased to see contracted recurring revenue continue to grow and especially encouraged by the proof of concept that we are currently engaged in for a 1,000 user organisation.
“This demonstrates further that our delivery model is becoming increasingly attractive to the upper quartile of the SME market place.”
The company’s three-year Nasstar 10-19 strategy is designed to improve operational efficiencies and protect recurring revenues, a critical issue given the competitive nature of its industry. Repeated sales in the first half accounted for 90% of total turnover versus 88% in the corresponding 2016 period, and it secured new orders worth £139,000 of monthly recurring revenue in the period.
And the tech titan’s adjusted EBITDA margin increased to 22% of revenues from 20% previously, putting it closer to the 25% target Nasstar hopes to achieve by the close of 2019.
With Nasstar’s restructuring strategy clearly firing on all cylinders, the City expects the company to finally flip back into the black in 2017 after many years of profits failure, with earnings of 0.5p per share. This compares with last year’s losses of 0.3p.
And the bottom line is expected to keep on igniting, with a 20% improvement forecast in 2018, to 0.6p.
While Nasstar’s forward P/E ratio may look a tad toppy on paper — a reading of 19.2 times sails above the widely-regarded value watermark of 15 times — such multiples are not rare in the tech sector given the potential for brilliant profits growth. Indeed, I reckon the company is worthy of a close look right now.
Keywords Studios (LSE: KWS), like Nasstar, is another great growth stock dealing on heady valuations.
The company, which provides technical assistance to the world’s biggest video game developers, is predicted to generate earnings growth of 44% and 23% in 2017 and 2018 respectively. As a result, Keywords deals on a prospective earnings multiple of 49 times.
Still, the Dublin firm’s brilliant sales record could arguably make it worthy of such premiums. It saw revenues blast 50% higher between January and June, to €63.8m, a result that caused adjusted pre-tax profit to rise 60% year-on-year to €9.6m.
And I reckon its ambitious growth strategy (it is heavily engaged in M&A, and boosted its facilities in India and Japan in the first half) should keep revenues moving higher.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.