Microgen’s trading update for the six months to 30 June 2011 hints that its legacy financial systems software division is holding up given its statement that the division “continued to show resilience in a flat market”. Whether that means the decline in revenue has reduced (it was down 3% in FY10 compared to the previous year) or has remained steady will not be clear until the six month results are released on 21 July.
References to high levels of recurring revenue and strong margins suggest the financial software business line is not growing but this is not unexpected. Growth within the company comes from the Aptitude business process management platform division (see Microgen – you can’t argue with cash).
H1 performance is expected to be ahead of Microgen’s expectations, due to new clients and existing customers extending their use of the Aptitude platform. It is anticipated that earnings for the full year will be ahead of current market expectations.
The cash situation makes for the most interesting reading with the cash balance up to £26.9m (from £25m), and that’s after returning £8.6m to shareholders over the past 12 months.
Microgen is benefitting from a legacy division that generates high operating profit margins. This is not something that it can rely on long term but the company does have the growing BPM business line and the hope that its growth will compensate for declines in the financial business. Microgen is comfortable at the moment but cannot be complacent.
Microgen chairman Martyn Ratcliffe seems to have a bit of a magic touch as his ‘other’ business, outsourced R&D venture Sagentia, also looks to be performing above expectations, according to its recent trading update. Helping Ratcliffe on the Sagentia board is new Phoenix CEO, David Courtley (see Phoenix courts Courtley).