Objective Corporation shares hit all-time high following profit guidance

By Trevor Hoey. Published at Jan 13, 2017, in Features

Shares in IT services group, Objective Corporation (ASX: OCL) surged 22.5 cents on Friday morning, representing a gain of 13%. This was in response to the release of management’s profit guidance for the first half of fiscal 2017 which featured year-on-year net profit growth of circa 150%.

It should be noted that historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

Chief Executive, Tony Walls commented, “The first half of the financial year has seen a very positive performance by the company and the outlook for the second half continues to look favourable”.

The company has traditionally been conservative with its guidance, suggesting that management’s reference to a ‘favourable’ second half result could be downplaying what may translate into a very robust full-year result.

With regard to Objective’s operations, there are similarities with IPH which experienced a strong share price run on the previous day. Both companies provide IT services that are more non-discretionary in nature given they relate to security of information and proprietary assets, as well as providing financial benefits that evolve from improved efficiencies.

This generally translates into better stability of revenues, as well as resilience at times when industry conditions are challenging.

Looking across the group’s revenue segments, the main income generator, ECM Solutions grew revenues by 25%. Interestingly, Gregg Taylor from Blue Ocean Equities flagged a good performance from this area of the company’s business when he ran the ruler across the stock in the second half of 2016.

More specifically Taylor noted that Objective is currently launching its revolutionary next generation core software ECM 10 into Microsoft Office 365, a product suite he believes has enormous potential.

At that stage he said the ECM 10 product release along with significant recent contract wins was expected to deliver strong earnings growth starting in fiscal 2017, with substantial upside to be realised from the company’s new business lines, Objective Connect and Objective Keystone.

At that stage his price target was $2.50 with a strategic target of $3.20 in the event that anticipated upside from initiatives in train were realised.

Consequently, today’s rally could be the start of a more substantial run, and it is worth noting that this morning’s high of $2.10 is equal to the company’s all-time high, and a push past this level could attract the interest of technical analysts.

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