2012 annual profit

Objective Corporation reported a 49% improvement in reported profit to $4.6 million in the year to 30 June 2012. The enterprise content management ("ECM") software provider generated a credible annual result albeit profit after tax dropped from $2.8 million in the first half to $1.8 million in the second half of 2012.

The highlights from the result included the $9.02 million operating cashflow and the 2.5 cents per share in dividends declared. The low-lights were the weaker second half profit generation and continued lack of annual revenue growth.

At 40 cents Objective Corporation trades on attractive Sales/Market-cap (1 times) and Sales/Enterprise Value (1.5 times) ratios. Its 2012 price to fully taxed earnings ratio is reasonable at 10.9 times. The company's EV/EBIT multiple at 5 times looks cheap but not outrageously so.

The business model appears sub-scale with EBIT margins showing considerable variability in half yearly periods. This variability is explained by the lumpiness of enterprise license sales and the lengthy sales cycle. The company's revenues have flat-lined at $40 million since 2009 although this can be partly explained by a steep decline in UK software revenues. The overall business has however strengthened over recent years with annual support or maintenance charges now representing around half of total revenues.

Annualized earnings before interest and tax cratered in 2007, before recovering and now bobbles between $5 and $6 million. Top line revenues have grown at a miserly 3.5 percent per annum over the last 8 years. The combination of some revenue growth and more consistent EBIT margins inline with quality Australian software peers will see this stock re-rated. The company has guided growth in the 2013 financial year.

Have a look at this graph of Objectives business results since 2004. http://australiansmall-capcompanies.blogspot.com.au/2012/08/objective-corporation-ocl-2012-annual.html