Watch these 3 software services companies

Computers and mobile devices have become so much a big part of many people’s lives, you really can’t appreciate how much you use them, unless you go camping or your battery dies on you. These three companies provide services that keep businesses, financial markets, investors and even IT systems going and they get paid well for it.

Technology One Limited (ASX: TNE) is an enterprise software provider and consultancy service for business, government and financial services. It has been steadily growing its business, which can be seen by the 14.4% average annual compound growth of NPAT and increased revenue over the past 10 years.

Its Connected Intelligence software platform is designed for each aspect of business and organisation such as HR, supply chain and performance management. Its next platform, Ci2, is browser based and designed for smart mobile usage, so customers can use it on the go. It will be released in 2014, attracting new users as well as retaining current ones with a wider service offering.

Its share price has risen about 53% over the past 12 months. It has a 26.4 PE and sports a 30.7% ROE. Its consistently growing free cash flow allows it to spend on research and development (R&D), yet maintain a very low gross gearing.

Iress Ltd  (ASX: IRE) operates two main divisions, one for financial markets in which it provides trading, order management, information and portfolio systems. The other is for providing wealth management and financial planning software, such as its XPLAN platform, used extensively by wealth managers and investment businesses.

Over the past five years the total shareholder return has been an average 18.4% annually. In its half-year report from August, it said that group profit was $17.8 million, or 8.9% down from the previous period.

In September it announced that it was buying UK-based Avelo Financial Services, a leading technology provider for wealth management and investing. About 95% of the UK’s top financial advisors and corporate advisors use Avelo, according to the announcement, and it has 32,000 registered users.

Another strong software services company is Integrated Research Limited (ASX: IRI). With a high ROE of 30.2% and zero debt, it achieved an 18.6% net profit margin in 2013 on $49.4 million revenue. Its total shareholder return for the past five years was an average annual 49.2%.

It’s main product is called Prognosis, and it monitors and manages critical IT infrastructure, payments and communications. It also completes financial management for ATM, POS, phone and internet banking transaction applications.

Its share price had a great run from $0.50 to about $1.50 over the 12 months to January 2013. It then went on a downtrend until this month, when the share price jumped after the announcement that it anticipated its half-year profit after tax would be in the range of $4.4 million to $4.8 million, much higher than the $2.8 million of the previous corresponding period.

Foolish takeaway

Software technology may be difficult to understand, but consistent and strong earnings are appreciated by every investor. It is a fast-paced industry and companies have to invest in R&D to keep their position and create new services as new software advances allow.

We all are doing more and more on our mobile devices and in the cloud. So companies in this sector can look towards further growth and high-profit margins.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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