Middlesex-based Tax Systems (TAX:AIM) plans to concentrate on opportunities within its existing customer base, putting its more ambitious expansion plans to one side.

The company supplies corporate tax reporting, planning and forecasting software that automates much of the compliance nitty gritty.

Tax Systems listed on the AIM market through a reverse takeover by investment company, Eco City Vehicles, which allowed the founders to exit the business.

When new management took over day-to-day operations in July 2016 they implemented a series of changes, bolstering its sales, technology development and senior management.

Running the show is Gavin Lyons, the chief executive officer and part of the MXC Capital (MXCP:AIM) mini merchant bank.

Management has subsequently discovered a wealth of growth opportunities among its existing customer base. The company has more than 1,000 corporates and large accountancy firms as clients, including 23 of the top 25 UK accounting firms and 43 of the FTSE 100.

This means that previously announced plans to expand into the mid-market space, and overseas, are being temporarily mothballed.

Exception may be made depending on available resources and opportunities to move into new markets alongside projects with existing customers.

Business tax reporting is going digital

Part of the reasoning behind this strategic decision is the increasingly strict regulatory pressures being handed down by HMRC.

The government agency is pushing through a £1.3bn Making Tax Digital programme, which will see the phasing of mandatory quarterly reporting from 2018.

The programme is subject to the same emphasis from the new government, although that seems highly likely regardless of who settles in at Number 10.

Tax Systems is operating in a high barrier to entry market and having developed a sticky product set, the company has been a cash cow for several years. The emphasis has turned to growth now it is a publicly-listed business.

‘Regulatory drivers, along with internal pressures within large corporates and accountancy firms, certainly provide plenty of leads for a now proactive sales team to go after,’ says Philip Carse, analyst at IT consultant Megabuyte.

FinnCap’s Andrew Darley anticipates £5m of adjusted pre-tax profit for the year to 31 December 2017, on £14.7m of revenue. Those forecasts move up to £5.7m in profit and £15.8m in revenue for 2018.

This seems to be the right time and place for Tax Systems, and the shares offer a combination of security and growth. Buy at 74.5p.

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