This morning IT services business Melbourne IT Limited (ASX: MLB) reported a net profit after tax of $14 million on revenue of $197.8 million for the year ending December 31 2017. The profit and revenue were up an impressive 31% and 17% over the prior corresponding half. Underlying EBITDA or operating income also grew an impressive 36% at $38.6 million to put the group on an EBITDA margin around 20%.
The group will pay a final dividend of 7 cents per share to take full year dividend to 11 cents per share which places it on a handy trailing yield of 3.5% plus the tax effective benefits of franking credits.
Adjusted earnings per share for the year came in at 17 cents, which means the stock trades on an undemanding 18x given it now appears to be growing at healthy rates.
The group is also bullish on its outlook for 2018 with the CEO forecasting that revenue will grow at least in line with the 17% delivered in 2017, while "underlying EBITDA" is forecast to "temporarily grow at a slower pace" as the business "digests the investments made in 2018".
Moreover, the ebullient CEO is also forecasting that underlying profit and EBITDA growth will "accelerate" in 2019.
In the small-cap world forecasts are all well and good, but's it's actually meeting or beating them that counts with Melbourne IT's share price falls today probably a result of investor disappointment over the strength of the forecast growth believe it or not.
It's also targeting "underlying EBITDA" of $41.5 million to $45.5 million in 2018. While "underlying undiluted EPS" is forecast to be between 17.3cps to 19.6cps. If the company hits the mid-point of its guidance the stock will change hands for 17.2x forward earnings based on a $3.11 share price.
Thanks to generally growing demand for IT consulting services like cloud support and data analytics, Melbourne IT retains a generally robust outlook.
Of course risks remain over the lack of a moat or competitive advantage. While net debt of $54.8 million is another key risk that investors should not discount lightly as it stands at just under 1.5x trailing adjusted EBITDA. This is moderate and something to keep a close eye on.
Overall though this looks a decent business on a reasonable valuation with a healthy yield. As a small-cap investor you can't ask for much more than that.
