Why has the SMS Management & Technology Limited share price soared?

Credit: Creativity103

The share price of SMS Management & Technology Limited (ASX: SMX) has jumped over 10% by lunchtime today to $2.55 after the information technology provider reported a set of interim financial results which pleased investors.

Here’s what SMS reported on Thursday:

  • Revenue slipped 5% to $168 million with the fall blamed on an unexpected client decision to terminate a large transformation project, time lag in anticipated start dates of managed services engagements, and delays with contract finalisation during the transition to the new organisational structure
  • Earnings before interest, tax, depreciation and amortisation dropped 19% to $11 million
  • The EBITDA margin contracted from 15.6% to 13.3% for the SMS Consulting division
  • Net profit after tax was down 18% to $7.1 million
  • Diluted earnings per share declined to 10.1 cents per share (cps) from 12.1 cps
  • Return on capital employed slipped to 16.8%
  • Net debt was just $7.5 million
  • Billable utilisation slipped to 82% from 84% in the prior corresponding period
  • Contract wins during the period totalled $214 million
  • A fully franked dividend of 6.5 cps has been declared by the board. SMS’s shares will trade ex-dividend on March 17 with payment on April 8.

Attractive pricing

The IT services sector is an interesting hunting ground for investors seeking value given the seemingly undemanding multiples which many stocks are trading on.

RXP Services Ltd (ASX: RXP) recently released a strong set of interim results, yet the stock continues to trade on a price-to-earnings (PE) multiple of just 7.6 times.

With respect to SMS, while no specific guidance figures were provided by SMS’s management, based on an analyst consensus forecast for earnings per share of 24.7 cps for the full year, SMS is trading on a PE of 10.3 times.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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