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magazineMore upside left in Sopheon’s lifecycle
Surrey-based Sopheon (SPE:AIM) is transforming. It supplies software that streamlines the research and development process for clients and provides product lifecycle management tools.
The company used to be a provider of process automation products but has emerged as an innovation management solutions provider that helps enterprises manage all aspects of their new product development lifecycle. This means making smarter business decisions about which products to develop and how to bring them to market faster.
Sopheon has more than 200 customers with 60,000 users across 50 countries, including blue chip organisations such as NASA, Merck and BASF.
Results for 2016 showed pre-tax profit of $2.7m on revenue up 11% to $23.2m, including a 21% increase in recurring revenue to $9.9m. More recurring income is crucial since it helps smooth traditional lumpy one-off licences.
Licences are still important but recent wins appear to suggest more in number, but of lower value, again making the company less exposed to single wins. It revealed 20 licence wins as of 8 June versus 14 a year ago, with recurring revenue up to $17.5m. In other words, it has two thirds of this year’s expected $26m sales bagged with more than half the year still to run.
Beyond its backyard
Sopheon is also gaining some success in expanding beyond its traditional industrial engineering-type space, particularly in areas like consumer goods, food/drink and technology. It is also looking closely at insurance, automotive and other industries.
The share price move has been nothing short of astonishing, soaring from 62.5p in March 2016. It set a new record at 502.9p on 24 March this year. But forecasts have risen to match. A year ago FinnCap was anticipating pre-tax profit of $2.3m this year to 31 December 2017. The current estimate is $3m, so 30% higher.
Having eased back since March, the stock is now trading on a 2017 price to earnings multiple of 13.5, falling to 10.7 in 2018. FinnCap has a 620p target price, implying 88% upside for the shares over the next year. Non-executive director Stuart Silcock, who has a stake worth more than £900,000 in the business, bought another £9,500 worth of shares on 13 June. That’s an encouraging sign. (SF)
Sopheon (SPE:AIM) 330p
Stop loss: 231p
Market cap: £24.4m
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