Reporting Season: Reckon reports strong cloud revenue, profit growth

By Trevor Hoey. Published at Aug 7, 2018, in Features

Name: Reckon Ltd

Market Capitalisation: $97 million

Last Closing Price: 86 cents

In a challenging six month period to June 30, 2018, Reckon (ASX:RKN) generated an underlying net profit of $5.9 million representing year-on-year growth of 9 per cent.

As Reckon reports on a calendar year basis, this represented the company’s interim result.

Reckon provides accounting software to global small to medium enterprises with over 800,000 businesses having used it software.

The company also is engaged in providing practice management accounting software.

Expenditure on product development for the continuing business has reduced by seven per cent, thereby improving cash generation, and this together with the elimination of the cash drag from the now de-merged Document Management Business assisted in enabling debt reduction of $7 million in the half year.

Reckon declared a fully franked interim dividend of three cents.

Business Group

Cloud revenue grew strongly, up by eight per cent and now represents 42 per cent of this division’s available revenue.

The number of cloud users is now 51,000.

However, the company continues to be impacted by a reduction in desktop revenue as clients move to the cloud.

Whilst this inhibits overall revenue growth in the short-term, it provides an opportunity to convert existing non-paying customers to the cloud subscription products over the coming years.

Reckon signed its first white label distribution agreement with IPA (Institute of Public Accountants) during the period, a group with 35,000 members, who in turn reach more than one million clients in Australia.

Those considering this stock shouldn’t make assumptions regarding future sales, nor should they base investment decisions on performances to date. Those considering this stock should seek independent financial advice.

Practice Management – Accountant Group

While subscription revenue in this division grew two per cent it was hampered by the sale process as clients held off committing to new business pending the completion of the sale.

Upfront and service revenue in the half year was negatively impacted for the same reason.

A major release of the Practice Management module occurred in the half year, and provided another significant step in the company’s ‘cloudification’ strategy, with integrated online/mobile timesheet functionality and a “client hub” cloud view of the client data added to the product in this release.

Outlook

Management remains positive that future growth will be achieved in all divisions through the development of new products which in turn are expected to open new markets to assist this growth over the coming years.

Reckon didn’t provide guidance for the full year, but consensus forecasts for the 12 months to December 31, 2018 point to earnings per share of 8.9 cents.

With the company having generated earnings per share of 5.2 cents in the first half, this looks within its reach even though there is normally a first half skew in earnings.

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