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Advanced Computer Software: exploiting the need for efficiency

Last updated: 07:24 16 Nov 2011 EST, First published: 08:24 16 Nov 2011 EST

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In times of austerity, organisations both public and private, need to focus not only on cutting back staff (as well as other expensive resources) but also on how to get their operations to work more efficiently, if they are to continue to deliver the services required of them.

In the UK, much attention has turned to inefficiency in public sector bodies and the National Health Service (the biggest public sector organisation of them all) is often a key subject of debate among politicians, the media and the public at large.

Software and IT services firms such as Advanced Computer Software (LON:ASW) are taking advantage of the opportunity that a focus on public sector inefficiency presents and it has a particular focus on the NHS.

Advanced Computer Software supplies patient management software to the healthcare sector and back office systems for business and organisations that are both in the public and commercial sectors. The firm’s annual turnover is more than £95 million, with 850 staff serving approximately 7,000 customers in the UK. Around 50 per cent of the company’s revenues currently come from the public sector, which chief executive Vin Murria describes as “a nice balance”.

Originally established to consolidate the fragmented ‘primary care’ software market, the group now comprises three divisions aimed at addressing the needs of both public and private sector organisations.

Its Health and Care division sells a range of products to the National Health Service and the private sector, including: patient workflow and case management for social care providers; mobile applications for care in the community; and rostering applications for social care settings. Its Business Solutions division supplies accounting, payroll, human resources and document management systems to local authorities and health organisations as well as a range of companies across the commercial sector.

Underpinning both of these divisions is the 365 Managed Services division. This supports the firm’s software portfolio as well as providing managed services to a wide range of customers. Thanks to its technology platform, Advanced Computer Software is able to offer IT capability in a variety of ways to customers, including the provision of hosted Cloud-based systems such as ‘Software as a Service’ (SaaS).

This last ‘managed services’ capability helped the firm to claim a larger chunk of the prize when in October this year it signed a 10-year, £17 million contract with Northern Ireland’s Department of Health, Social Care and Public Safety.

The deal is to supply a province-wide finance, procurement and logistics IT system. This is part of Northern Ireland’s ‘Business Services Transformation Programme’ and is aimed at saving the province’s health and social care services more than £4 million per annum over a 10-year contract.

According to Murria, since Advanced Computer Software can now take managed services into our data centres the firm’s Northern Ireland deal is around £6-£7 million more than it would have been otherwise. A previous deal with NHS Scotland was worth just £11 million by comparison. “Because we didn’t have managed services capability at the time, those revenues went elsewhere,” she says.

Meanwhile, Murria is excited about the iNurse deal that Advance Computer Software signed in the summer with Vodafone that will help give the firm exposure to a market worth many millions of pounds. 

Murria says that the firm’s iNurse product and relationship with Vodafone means “we are unique in the marketplace within the care community” and that there are potentially 500,000 nurses in the UK who can use Advanced Computer Software’s mobile system to manage their workflow. “It’s like field service management but with NHS compliance and medical information associated with it,” she explains.

Health organisations would pay the firm between £125 and £150 per nurse to use its system, meaning a potential mobile market worth more than £60 million. Murria adds: “We aim to get 20 per cent of that market within the next four years.”

But while Advanced Computer Software is happy to add on capabilities that give it healthy margins and the opportunity for further growth, it is not sentimental about businesses that do not have the potential to deliver these things. Two months ago the firm improved its balance sheet by selling its Cedar HR Software business to Capita Group for £15 million.

The business, which supplies rostering and duty management software to 30 UK police forces, became part of Advanced Computer Software as a result of the group’s acquisition of COA solutions in February 2010. It was regarded as “non-core” by Murria and she felt it had got as big as it was going to get. “I’m not interested in things that aren’t going to go anywhere,” she says.

This week, Advanced Computer Software Group announced robust half-year results in which the firm reported a seven-per cent increase in revenue during the six months to August 31 and 14 per cent growth in adjust pre-tax profit.

Group revenue for the first half was £47.3 million (H1 2011: £44.2 million) while adjusted pre-tax profit came in at £10.4 million (H1 2011: £9.1 million). Adjusted earnings per share were up nine per cent at 2.4 pence.

Brokers followed up the results with positive comments about the firm.

In a research note titled “Encouraging set of interims”, independent broker Collins Stewart commented: “Against a backdrop in its core markets that is flat at best, it is clear that ACS is winning market share. Its integrated portfolio of software solutions and service are playing well to the general theme of increased efficiency and cost reduction. We are particularly pleased to see the Business Solutions division recording organic growth in the period as we had previously pencilled in flat revenues for the full year.”

Collins Stewart added that it expects margins “to continue their upwards trajectory on the back of cross-selling and leveraging of its hosting capabilities”.

House broker Singer Capital Markets noted that the firm reduced its net debt to £10 million following the disposal of the non-core Cedar HR Software business. It also noted that opportunities remain both within and outside of the public sector as customers continue to look for ways to improve efficiency and cut costs. “With the strong execution we have seen so far, a good order book, and nearly 60 per cent recurring revenues, we are confident of a positive outturn for the rest of the year,” it said

Collins Stewart forecasts sales of £96.6 million for the year to February 2012, compared to the £95.3 million that Advanced Computer Software generated in its last financial year. EBITDA is estimated at £24.5 million (2011: £24.1 million).

Collins Stewart has set a target price of 56 pence for the shares, which were trading for 43.1 pence each at lunchtime today.

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