Information technology consultancy UXC Limited (ASX: UXC) is on a comeback trail with the stock surging to a near 10-month high after management announced a raft of new contract wins that are worth in excess of $100 million.
We are likely to see consensus upgrades on the back of the news as analysts have forecast little growth for the stock in the current financial year due to its cloudy outlook and worries about the group’s lack of organic growth.
This is why today’s announcement is so significant, and the message wasn’t lost on the market with the stock surging 9.2% to 89 cents a share. This takes its share price gain to 18.7% for the past year, which is nearly 24% ahead of the S&P/ASX 200 Info Tech Index (Index: ^AXIJ) (ASX: XIJ).
UXC said it had won five contracts that includes deals with Transpower New Zealand, an unnamed “global listed beverage company”, water treatment and chemical distributor Ixom, a NSW government agency and an Australian based construction company.
The work involves implementing or maintaining databases and enterprise resource planning systems, or technical support.
More than 60% of the value of the contracts represents new customer revenue streams and UXC believes there is further cross selling opportunities to the new contract wins.
While UXC is expected to meet consensus earnings per share (EPS) of around 6.3 cents for 2014-15, analysts have only penciled in a 6.4% increase in EPS to 6.7 cents for the current financial year on the back of an expected 4.5% increase in revenue to around $720 million.
Any increase in sales will have a larger impact on UXC’s bottom line due to its operating leverage and I think the stock is heading above $1.
At a dollar, I suspect the stock will still be on an undemanding price-earnings multiple of under 15x for 2015-16 (post consensus upgrade) and it will still be yielding over 7% when franking credits are included.
UXC will post its full year result on August 20.
UXC isn’t the only IT consultancy to deliver good news to shareholders. Data#3 Limited (ASX: DTL) also shot the lights out with its pleasing market update last week. You can read what my colleague Ryan Newman had to say about the announcement here.
I am expecting UXC to generate a total return of around 20% over the next 12 months. That may not seem like much to some and those looking for a bigger bang should sign up below for a free report from the Motley Fool on the best small cap stocks to own for 2015-16.
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Motley Fool contributor Brendon Lau has no position in any stocks mentioned. Follow me on Twitter - https://twitter.com/brenlau
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.