Technology services business Melbourne IT (ASX: MLB) this morning reported solid results for the half year ending June 2017. Revenue increased 11% to $91.7 million, while net profits increased 259% to $7.9 million.
However, the reported profit line is impacted by gains from the sale of business units as well as acquisitions, so we pay heed to the underlying numbers which adjust for one off and non-recurring income and expenses. On an underlying basis, operating profits (EBITDA) increased 58% to $16.8 million, and earnings per share (EPS) saw a 48% lift-off to 6.8 cents. Pleasingly, margins improved thanks to sale of lower margin business units and growth in higher margin segments.
Digging into the reporting segments, Enterprise Services (ES) delivered strong growth with revenue increasing by 43% and EBITDA increasing by 22%. Annuity and repeatable style revenue accounted for 83% of the revenue. Pleasingly, cross sell opportunities across Cloud, Mobile, and Data Analytics units accounted for 10% of the revenue growth.
The Small and Medium Business (SMB) revenue decreased 8% to $47.9 million but EBITDA grew 39% to $9.3 million. The drop off in revenue was partly due to the sale of the company's international domain name reseller business.
Melbourne IT had $23.4 million in cash and $160.8 million in debt. The company declared a fully franked interim dividend of 3.5 cents, up 75% over the prior corresponding period.
For full year 2017, the company reiterated its guidance of 39% growth in underlying EBITDA and 27% growth in underlying EPS over 2016 numbers. As I write this, shares are changing hands for about 16.5 times the company's guidance for full-year earnings. That strikes us to be a reasonable price for a high-quality business with a good deal of forward earnings visibility.
