Should you buy ASG Group Limited?

ASG Group Limited (ASX:ASZ) has continued to grow its exposure to cloud services.

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IT solutions provider ASG Group Limited (ASX: ASZ) which is a popular stock amongst small cap fund managers has slipped 2.8% on Tuesday after reporting its interim profit results. Despite the drop today, ASG has been a stellar performer over the past year with the stock rising around 65%, against a rise in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) of 9%.

Here are the key numbers:

  • Revenue increased 1.4% to $80.1 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) increased to $10.1 million (after excluding a $1 million profit on the sale of a data centre)
  • Net profit after tax came in at $5.7 million, however, this included a number of one-offs

Providing some comfort to investors is that $145 million of revenue is already locked in for FY 2015. Importantly, $23 million of this revenue is for "new managed services", which relates to ASG's aim to position itself as a major provider of cloud-based services.

With the company still not paying a dividend the stock might not appeal to income-seeking investors, however, given the improving business performance, shareholders may not have to wait much longer before dividends begin to flow.

Management has provided guidance for net debt of less than $10 million by 30 June 2015 and the group is on track to achieve a stronger EBITDA in the second half than the reported $11.1 million achieved in the first half.

With approximately 207 million shares on issue and the stock trading at 70 cents, ASG is valued at $145 million.

Consensus earnings forecasts (provided by Morningstar) suggest ASG will earn five cents per share (cps) for the full year (the group reported earnings per share of 2.77 cents for the half, but as noted the interim result included significant one-off items), which implies the stock is trading on a price-to-earnings ratio of 14x. Importantly, the consensus estimate increases to 6.7 cps in FY 2016 which represents growth of 34.2% year-on-year.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.  

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