Scotland-based technology company Craneware (CRW:AIM) has shot down its stock market doubters with a timely trading update that will renew confidence in this growth story.

Telling the market today not only that trading is going great guns, but that cash flows are typically robust, is doing wonders for the share price. The stock has rallied more than 9% to £23.50 on 21 December, although that still leaves the share price roughly a third down on the near £35.00 levels before October’s market correction.

Key information from today’s update is confirmation that Craneware expects both revenue and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to increase by between 15 and 20% in the six months to 31 December.

Those half year figures are due for publication on 5 March 2019.

SPOOKED OVER GROWTH

Investors have been worried about the ability of many UK growth companies to maintain their traction. That in turn has led to a significant de-rating, particularly of companies trading on higher price to earnings (PE) multiples such as Craneware.

At the end of September, Craneware stock was trading at £34.50 implying a PE ratio of 63.5 based on forecast earnings of 54.3p per share ($0.688) for the year to 30 June 2019. That rating fell to 52.3 on roughly 66p of earnings ($0.836) anticipated for 2020 by analysts at Peel Hunt.

While those estimate expectations have remained unchanged throughout, as of yesterday’s close the share price had slumped to £21.50.

Even after today’s rally the 2020 PE stands at 35.6.

The PE rating has remained relatively high because of Craneware’s high proportion of predictable recurring revenues, its ability to win new business by lost cost referrals and its impressive track record for cash flows.

The company tells investors today that it anticipates more than 100% of operating profits this year to convert into cash, typically a sign of a very high quality and robust business model.

Like this? Read more about Craneware here.

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Issue Date: 21 Dec 2018