Small, profitable and paying dividends, billing software supplier Cerillion (CER:AIM) isn't your average type of technology business. It's a new name to the stock market, it only joined AIM on 18 March at 76p per share for a £22.4 million market value but it's made a good early start.
The shares have jumped about 7.5% in early trade today after the company reported a $2.4 million contract with an existing telecoms customer for a 'major upgrade to the Cerillion platform.' It puts the shares at 92p, or 21%-plus ahead since float.
The telecoms and wider communications industry is Cerillion's main backyard but CEO Louis Hall has already begun the push into new vertical markets, things like publishing and digital media, local government, financial services and, in our opinions the very obvious opportunity, utilities space, where it currently has 'a smattering' of customers right now. This done through a main direct-to-enterprise suite or increasing on a SaaS (software-as-a-service) model through its Cerillion Skyline model.
It's a good start but early days but Cerillion looks like a company to watch closely. It's been around for a while, previously managed behind the curtain of private equity ownership, but Hall has a lot of experience and has led the business since its management buyout from IT integrator Logica back in 1999.
One of the bigger concerns might be the typically long sales cycles, especially in the telecoms space, which is notorious for slow decision making. But Cerilllion has seemingly handled that issue well so far. Last year, to 30 September 2015, the company added 5% to sales at just over £14 million although pre-tax profit was largely flat at £2.14 million, once you strip out one-off gains in the previous year.
But the billings space is complex and growing and Cerillion would appear to have genuine opportunities to take an increasingly bigger slice of the estimated $7 billion overall cake. 'Cerillion aims to pay out a third to a half of the group’s free cash flow as dividends each year,' notes Megabuyte analyst Lee Prout. According to the company, £8.5 million of cash has been generated in the last seven years.