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Reckon this company looks good

Reckon (ASX: RKN) has released a sound set of interim results for the half year ending June 2013. While top line revenue growth was low at just 3%, net profit after tax (NPAT) and earnings per share (EPS) grew 10% and 11% respectively while the board raised the interim dividend by 7%.

Here are the numbers:

  • Revenue: $49.5 million
  • NPAT: $10.2 million
  • EPS: 7.9 cents
  • Dividend declared: 4 cents

Reckon’s products include well known accounting software Quickbooks and Quicken. These products compete with the likes of MYOB and enjoy high customer loyalty and recurring revenue streams.

Reckon operates across four divisions. The business division provides hosted, enterprise and content products to the small and medium sized business market. The division partners with over 6,000 accounting practices and has more than 600,000 registered businesses using its software. The professional division provides practice management software to accounting firms. The division has been refocused with a recurring revenue model based on subscription and maintenance fees. The nQueue Billback division and the newly acquired Virtual Cabinet division provide solutions to enhance business operations primarily for accountants and lawyers both in Australia and globally.

Shareholders will be pleased to see that the company also announced a buy-back of up to 10% of its shares as part of a strategy to manage its capital base. In explaining its reasons for undertaking a buyback, the company stated that, “Reckon continues to generate strong operating cash flows that is more than sufficient to fund ongoing capital requirements and regular dividend payments to shareholders.”

Foolish takeaway

Since 2006 Reckon has grown revenue and EBITDA each year. In fact growth has been so good that EBITDA for the current half year is greater than the full-year EBITDA in 2007 — which is impressive! One reason growth can be so impressive at software firms like Reckon is the leverage their business models enjoy. Once software is developed there is usually a very low incremental cost to supply the software to an extra customer allowing profit margins to expand. It’s because of this business model that earnings growth and ultimately share price growth — for stocks including Reckon, Hansen Technologies (ASX: HSN) and Technology One (ASX: TNE), which have returned 133%, 203% and 147% respectively, has been so impressive.

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Motley Fool contributor Tim McArthur owns shares in Hansen Technologies.

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