News that accounting software provider Myob Group Ltd (ASX: MYO) exceeded its financial forecast with record user and cloud subscription growth had investors cheering.
The recently floated company posted a 14% rise in pro forma half-year earnings before interest, tax, depreciation and amortisation (EBITDA) to $72 million and an 8% increase in sales to $161 million. T
his prompted the company's share price to spike 6.8% to $3.31 and there's good reason why investors should be excited. MYOB reported a record uptake of its cloud-based solutions with subscriptions hitting 142,000 in June and climbing further to 150,000 in early August.
Cloud-based software is seen as the way of the future with the software residing on the internet and not an individual's computer. Clients prefer this model as it lowers their costs of doing business but traditional accounting software providers like MYOB and Reckon Limited (ASX: RKN) have been slower to embrace this trend compared with more nimble entrants like XERO FPO NZ (ASX: XRO).
MYOB's results show it is catching up with the company boasting it has 528,000 paying users, which not only represents a 10% year-on-year increase, but was ahead of the prospectus forecast. Management reiterated its full-year prospectus guidance for a 7.9% increase in sales to $323 million and 17.2% uplift in EBITDA to $150.6 million for the year ending December 2015.
The company expects further growth in the first half of 2016 with revenue for the 12 months to June next year reaching $336.4 million and EBITDA of $160.7 million.
MYOB is also expected to pay its first dividend when it releases its full year results in February next year, which puts the stock on a forecast yield of around 3% and a price-earnings multiple of 23.6x for 2016. The outlook for the company is bolstered by its reported high customer retention rates with recurring revenue making up 94% of the group's first half sales.
The growing recurring revenue base has been further supported by a 5% increase in the average revenue per user in the small to medium enterprises (SME) segment.
In the first half of 2015, MYOB has launched several new solutions including MYOB Advanced, the first cloud-based enterprise resource planning (ERP) solution developed in Australasia and MYOB smart bills in MYOB Accounting Live.
The company invested over $115 million in research and development in the past three years and will continue to invest 13-16% of its revenue to drive innovation in the cloud to enable its accountant client base to access the same functionality with the benefits of working online.
There's still a long way to go for MYOB to prove itself with the stock still trading below its initial public offer price of $3.65 a share, but at least the company is taking a step in the right direction.
