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Why I think Integrated Research Limited (ASX:IRI) shares look a buy today

This morning software billings business Integrated Research Limited (ASX: IRI) reported a net profit of $19.2 million on revenue of $91.2 million for the financial year ending June 30, 2018. The revenue was flat on the prior year, while the profit edged 4% higher.

Integrated Research will pay a final dividend of 3 cents per share taking total annual dividends to 6.5 cents per share on earnings of 11.2 cents per share. The group’s balance sheet is also in good shape with $11.2 million net cash in hand as at June 30 2018.

The operating profit (EBITDA) margin landed 1% lower than the prior year, but still at a healthy 40% thanks to the attractive economics boasted by this software provider. The operating margin (profit/revenue) came in at a decent 20%, with this technology business investing heavily in product development for growth.

By Integrated Research’s high standards this was something of a soft year with the group blaming the flat revenue growth on a “cyclical downswing” on spending by clients in the infrastructure division, while its European operations underperformed in a result attributed to poor “internal execution”.

Still the group’s core Unified Communications and and Contact Centre (UC) business continues to perform well, with an impressive list of blue-chip clients around the world.

It flagged new sales over the year to the likes of Visa Inc, PayPal, Deloitte, Euroclear, BHP Billiton Limited (ASX: BHP) and Coles supermarkets operated by Wesfarmers Ltd (ASX: WES).

Not only does Integrated Research have a blue-chip client list, it also counts U.S. tech giants Cisco Inc. and Microsoft Inc. as among its business partners, which adds to its sales reach and the strength of its competitive position.

The group’s CEO John Merakovsy commented: “The growth outlook for Integrated Research is very positive, we now have 88% of our revenue recurring, retention rates greater than 95%,, and a proven ability to acquire new customers, including 72 in FY18”.

That should be music to the ears of investors that own a business that boasts a return on equity of 33%, with its valuation up 160% over the past three years.

The recent pullback in the share price as a result of short-term hiccups means the group is changing hands for 24x trailing earnings at $2.67, which looks a good opportunity for what is one of the best tech-driven growth businesses on the local market.

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Motley Fool contributor Tom Richardson owns shares in Visa Inc.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Integrated Research Limited. 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 Scott Phillips.

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