SMS, CSG and Oakton: IT service providers in the spotlight

It's hard to tell if the sector has turned a corner yet.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's a busy week for investors who follow firms that provide services in the information technology space, with a number of leading IT service providers reporting full year results.

The $350 million SMS Management & Technology (ASX: SMX) has released its results and they weren't particularly pretty, although the market had been forewarned on what to expect. Revenues fell 17% to $278.5 million and net profit after tax plummeted 31% to $21.1 million. Diluted earnings per share were 30.1 cents and dividends for the full year amounted to 25.5 cents and down from 30.5 cents in 2012.

Also reporting this week was CSG (ASX: CSV) which has a market capitalisation of $275 million. CSG last year moved away from the IT consulting sector by selling off its major division to instead focus on print equipment sales and services. This has left the balance sheet in a much stronger position and allowed the company to carry out both a share buyback and capital return, however the accounts do leave some question marks hanging over the firm and the market didn't appear particularly pleased with the result, sending the firm down nearly 5% in early trade.

Meanwhile the $110 million Oakton (OKN) reported a 6% drop in revenue to $162 million and a 12% drop in adjusted net profit after tax to $9.16 million, which corresponds to 10 cents of diluted earnings per share. Like SMS, Oakton reduced its dividend for the full year to 9.5 cents, down from 11 cents in the prior year. Oakton's management has moved to cut costs to protect earnings by boosting billable hours from Oakton's Indian office where the firm increased usage to 20% of production from 10% in 2012.

Foolish takeaway

In its results SMS's management stated that in the second half the company saw "further market deterioration and the season spike in demand usually seen in Q4 did not materialise." Management also stated that a rebound in client demand in the first half of financial year 2014 was unlikely. Oakton's management expressed a similar view in its outlook statement, suggesting challenging market conditions for at least the rest of calendar year 2013.

With the IT sector continuing to face headwinds now may not be the time for investors to pile in to the sector. However firms can only put off spending on critical IT systems for so long, which means at some point the tide should turn for the industry.

With many companies reducing their dividends, investors need to be very selective in buying stocks for yield. Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading


Motley Fool contributor Tim McArthur owns a share in SMS Management & Technology.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »