Earnings season rolls on and this week we take a look at one of our company’s results from the portfolio in Reckon Limited (ASX: RKN) and another who has been in the process of rebranding in FleetPartners Group Limited (ASX: FPR) formerly known as Eclipx Group Limited.
Reckon Limited (ASX: RKN) a market leading software provider to small to medium sized businesses and legal professionals released their first half results on Tuesday lifting the share price over 10% in the session.
The company, known for its accounting and legal software delivered growth in group revenue of 4% compared to the previous corresponding period (PCP) to $28.2 million of which $25.8 million was considered recurring revenue. Net Profit After Tax (NPAT) rose 16% to $3.8 million driven by further R&D expenditure resulting in a lower effective tax rate.
Legal Group Subscription Growth
The Legal Group has achieved impressive subscription revenue growth, with a 19% increase to $5.3 million (13% in constant currency terms).
Notably, this marks the fifth consecutive half of subscription revenue growth since H1 2021. The company's focus on investing in cloud-based software products and persistent sales and marketing efforts in the expansive US legal market are aimed at tapping into law firms that continue to rely on traditional desktop software. Currently, Reckon serves 497 clients, including 8 of the top 25 law firms in the US and 5 of the leading 7 law firms in Canada.
Reckon Group CEO, Mr Sam Allert was bullish on the growth:
“The performance of our Legal Group is an obvious highlight and presents considerable upside opportunity for Reckon given the size of the addressable market in the US and UK, the quality and stickiness of the customers and the traction we are achieving with our technology. This is a direct result of our commitment to leverage R&D investments into an expanded and improved product offering, and is clearly yielding results.”
Balance Sheet Strength & Dividend
Reckon strategically enhanced its balance sheet by utilising strong cash flow, clearing $2.7 million in debt and lowering net debt to $0.3 million — an astute decision given the current economic climate.
While cash and equivalents experienced a slight decrease from $1.2 million to $1.1 million, the group's operating cash flow remained solid at $3.8 million, even after accounting for $7.3 million in development expenses. This financial stability not only led to significant debt reduction but also facilitated a 2.5 cent fully franked dividend for shareholders. The Board plans to maintain an annual dividend at the half-year mark moving forward.
Following a release of solid results and its commitment to ongoing innovation, and strategic investments shareholders can be optimistic of future company outperformance.
A Quick Look at FleetPartners Group
FleetPartners Group Limited (ASX: FPR) is one of Australia’s leading providers of fleet management services and operates in Australia and New Zealand.
The Group’s products include a comprehensive range of motor vehicle fleet services, such as vehicle acquisition, leasing, in-life fleet management and remarketing. Previously known as Eclipx Group, FleetPartners Group rebranded itself in March to align with its ‘accelerate’ strategy with the aim to enhance efficiencies and profitability over the next three years by streamlining operations, consolidating systems and eliminating brand and process duplication.
The company has seen its share performance improve as the transition to electric vehicles (EV’s) gains momentum across Australia and New Zealand. Demand for EV’s has also been bolstered by government subsidies, particularly around Fringe Benefits Tax (FBT) exemptions to EV’s within corporate fleets, raising further awareness around the benefits of novated leasing.
The company provided an update on its Q3 performance in July which saw New Business Writings (NBW) for the year-to-date period ending June 30, 2023, increase around 1.5 times compared to pre-Covid FY19 levels. Despite challenges in new vehicle supply, $195 million of NBW was recorded in Q3 2023, marking a 26% increase over Q3 2022 (excluding sale and leasebacks). Electric and plugin hybrid vehicles represented 45% of Novated NBW for the month of June 2023 and 36% for Q3.
FleetPartners NBW order pipeline stands at 3.2 times indexed to September 2019 levels, reflecting strong orders growth surpassing deliveries. Assets under Management or Financed (AUMOF) reached $2 billion, growing 3% from September 2022.
Importantly, given the current environment, the Group's 90+ day arrears remained low at 34 basis points, showing a 1 basis point improvement since March 31, 2023, and staying below the average since September 2016. Share buybacks totalled $14 million by June 30, 2023, out of the $43 million declared with the 1H23 results.
With a successful rebranding and strategic shift towards EV’s, the company stands to benefit from several industry tailwinds.
Disclaimer: Reckon Limited (ASX: RKN) and FleetPartners Group Limited (ASX: FPR) are currently held in TAMIM Fund: Australia Small Cap Income
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