Reckon share price leaps 9% on half year results, merger news

The Reckon share price has jumped nearly 9% this morning on the software business' half year results and a merger announcement.

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The Reckon Limited (ASX: RKN) share price has jumped 8.8% this morning after the software business released its half year results and announced a merger involving its legal group. The rise in the Reckon share price was prompted by resilient results for the six months to 30 June 2020 which reflected growth despite the impact of the COVID-19 pandemic. 

What does Reckon do? 

Reckon's Business Group provides accounting, payroll, and point of sale software to businesses on a subscription basis. The Practice Management Groups provide practice management software to accounting and legal firms. Running a software-as-a-service (SaaS) business model, Reckon reports that 94% of revenue is now subscription revenue. 

How did Reckon perform? 

Reckon recorded resilient results for 1H20. Group revenue grew by 2% over the prior corresponding period driven by strong growth in the Business Group. The Business Group saw a 6% increase in revenue for the half, with cloud revenue growing strongly. Cloud revenue was up 23% with the number of cloud users reaching 87,000, up 41%. A free payroll app was launched in May and already has over 35,000 users. The paid app launched at the same time has over 2,000 users. Other mobile apps are planned for launch in the second half to continue the cloud/mobile strategy. 

In the accounting Practice Management Group, the customer base showed great stability with Reckon's product entrenched as a product of choice among major accounting firms. New revenue growth was hampered by the pandemic as the division relies on on-site sales and installation activity. It was a similar situation for the legal Practice Management Group – the customer base was stable but new revenue growth was flattened by COVID-19. Nonetheless, Reckon says the sales pipeline remains strong. 

What about the merger? 

Reckon has announced it will by merging its Legal Group with Zebraworks, a United States based start up developing an integration platform to move legal firms to the cloud. The combined business will target the US legal practice management industry, providing Reckon with the opportunity to expand the smallest part of the group. Reckon will own 70% of the merged entity with all Zebraworks IP and other assets rolled into the merged entity. Reckon CEO Sam Allert said, "We have given serious consideration to the future strategy for the Legal Group and we now are excited to see this come to fruition… We look forward to executing on the potential of the merged entity in a substantial global market." 

About the Reckon share price

At the time of writing, the Reckon share price is trading at 74 cents which is an 85% increase on its March low of 40 cents. The Reckon share price is, however, still 3.9% down in year-to-date trading.

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. 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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