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Why the UXC Limited profit result sent shares to a 52-week high

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What: Information technology (IT) company UXC Limited (ASX: UXC) has seen its share price touch a fresh 52-week high of $1.08 per share after announcing a solid set of full year results.

For the year ended June 30 2015, revenues gained 7%, net profit after tax soared 47% to $23.1 million and the full year dividend grew 41% to 5.32 cents per share (cps).

So What: The results are pleasing in light of the difficult operating environment that much of the IT services sector has been under for the past few years. UXC’s result led to a 36% improvement in return on equity to 9.9% which highlights the leverage the group has from a heavy fixed cost base to higher revenues.

Other highlights from the result included the growing level of annuity revenues which now account for 29% of the overall portfolio and the improving trend in the group’s business performance, which saw UXC produce a particularly strong second half result.

Now What: The outlook for the current year provided by UXC included the following:

“In light of the Directors’ confidence in the future earnings capacity of the company, the Directors have considered UXC’s dividend policy and have increased the range of the payout ratio based on net profit after tax from continuing operations from 60-75% to 60-80%.”

The above statement bodes well for investor confidence in the maintainability and possible increase of the current dividend. Likewise, company guidance that it already has 53% of its full year FY16 revenue target through annuity contracts and a backlog of contracted orders bodes well for its full year earnings outlook.

On an earnings per share basis, UXC achieved 7 cps. With the share price slipping back to $1, on the tail of significant falls in the  S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), investors can today acquire shares in UXC on a trailing price-to-earnings ratio of 14.3x and with a trailing fully franked dividend yield of 5.3%.

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Motley Fool contributor Tim McArthur owns shares in UXC Limited. 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.

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