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Why the Reckon share price rocketed 11% higher on Tuesday

One of the best performers on the All Ordinaries index on Tuesday was the Reckon Limited (ASX: RKN) share price.

The accounting software company’s shares finished the day 11% higher at 72 cents.

Why did Reckon’s shares rocket higher?

Investors were scrambling to get hold of the company’s shares on Tuesday after it released its half year results.

During the six months to June 30, Reckon delivered EBITDA growth of 4.3% despite its heavy investment in sales and marketing to target growth opportunities.

Management advised that this solid result was driven by the successful execution of plans put in place over the past few years.

During the half the company’s Business Group segment experienced a substantial ramp up in the adoption of cloud products. It saw Cloud users increase by 21% to 62,000, with new adds for the first half of 2019 more than double the second half of FY 2018.

The segment continues to transition desktop users to the cloud and is being adversely impacted by the mix effect of a lower ARPU on the cloud products. However, good progress is being made with the transition. At the end of the half 46% of available revenue was from the cloud.

The company’s Legal Group segment more than doubled its EBITDA during the half. Management was particularly pleased with this result as it is also transitioning from an upfront sales model to a subscription model. The driver of this result was its scan product which continues to show good potential and is driving new sales opportunities.

Finally, Reckon’s Accountants Group segment has stabilised following the aborted sale in 2018 to MYOB Group. And despite competition from MYOB, Xero Limited (ASX: XRO), and Quickbooks, Reckon APS remains the product of choice for large accounting firms with 7 of the top 10 firms in Australia as clients.

Reckon Group’s CEO, Sam Allert, said: “The strategy put in place is delivering the desired results, driving growth particularly in the uptake of cloud products. There is no doubt that our execution of a functional and affordable Single Touch Payroll solution has been well-timed to leverage the government’s introduction of the new reporting requirement.”

Overall, I thought this was a reasonably solid result from Reckon. However, I would still choose Xero ahead of it due to the quality of its operations, robust business model, and international expansion opportunity.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. 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 Scott Phillips.

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