Why the Reckon share price is flat on underlying NPAT up 3%

Reckon Ltd (ASX: RKN) posted its full-year 2018 (FY18) results this morning with underlying NPAT growth and a $0.03 dividend after a challenging year.

| More on:
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

Reckon Limited (ASX: RKN) put a difficult 2018 behind it to a post a solid result in its full-year earnings (FY18) this morning.

The company increased its underlying net profit after tax (NPAT) by 3% YoY to $8.8 million despite a 6% decrease in revenue to $75.4 million during the year. The major driver was the legal (-5%) and other revenue (-23%) line items which saw Group EBITDA decline by 2% to $30.6 million.

Cloud revenue was up 8% in FY18 with ~54,000 cloud users, while management noted the continued reduction in desktop revenue due to a user-led transition towards the cloud.

The company was busy innovating during the year, launching its point-of-sale (PoS) product in 2018 and acquiring online medical practice management product, Better Clinics, in July 2018.

The group increased net assets by 19.09% to $15.60 million despite a ~$3.00 million decrease in total assets during the year. The group repaid $6.04 million of borrowings which saw a net cash outflow from financing activities of $9.43 million for the year while operating cash flow increased by $1.2 million to $10.88 million after the de-merger of its Document Management division in 2017.

In a big win for shareholders, the Board approved the reinstatement of the company's dividend policy, paying out a fully-franked $0.03 per share in September 2018, equating to a dividend yield of around 4.50%. The stock saw a steady increase in its dividend from $0.04 per share in 2006 to a peak of $0.09 (60% franked) in 2015, but business profitability saw this cut in 2016 and 2017.

The stock was up 6.06% yesterday ahead of the earnings announcement and I suspect the $0.03 dividend may not be enough to keep that price high. While the 4.48% year-to-date gain looks good on paper, in the context of a 55.47% decline since January 2018, it's clear that this is more temporary speculation than good fundamentals.

Foolish takeaway

While Reckon has posted a decent result this morning, it's a stock that has continued to slide since 2016 and is trading at a P/E multiple of 36x. The company operates in a competitive industry and has found it difficult to keep pace with technological advances.

While today's result should mitigate huge losses on the market, I'd be steering clear and looking at other Information Technology stocks including Appen Ltd (ASX: APX) or Altium Ltd (ASX: ALU).

Motley Fool contributor Lachlan Hall does not own shares in any of the companies mentioned. The Motley Fool Australia owns shares of Altium and Appen Ltd. 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.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a rough start to the week today.

Read more »

Happy man working on his laptop.
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these shares.

Read more »

Two funeral workers with a laptop surrounded by cofins.
Broker Notes

Macquarie just forecast this ASX 300 dividend share could surge 37%. Here's why

Atop its passive income payouts, Macquarie expects this ASX dividend stock could leap 37% in a year.

Read more »

A person in a gorilla suit leaps really high holding a banana, nearly doing the splits.
Share Gainers

Up 1,238% in a year, why is this ASX gold stock surging again on Monday?

The ASX gold stock is now well into ten-bagger range and still rising fast today.

Read more »

A happy investor sits at his desk in front of his laptop and does the mexican wave with his arms to celebrate the returns from his ASX dividend shares
Share Gainers

Why EOS, Gorilla Gold, Lendlease, and OFX shares are charging higher today

These shares are starting the week on a positive note. But why?

Read more »

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Share Fallers

Why Appen, DroneShield, Gentrack, and New Hope shares are dropping today

These shares are starting the week in the red. But why?

Read more »

An unhappy man in a suit sits at his desk with his arms crossed staring at his laptop screen as the PointsBet share price falls
Materials Shares

Does Macquarie rate James Hardie shares a buy, hold or sell?

The company is set to report FY25 earnings this week.

Read more »

A man looking at his laptop and thinking.
Industrials Shares

Which ASX 200 industrials stock does Macquarie expect to sink 40% over the next 12 months?

Can this name build it's way out of such negative sentiment?

Read more »