Tough times could be behind Xpertise
The aftermath of the dotcom bubble was painful for many companies and technology training group Xpertise was no exception. Its shares soared to the equivalent of 680p at one point, though it was never a big company.
Then a switch in Government training policy wrongfooted one of its key subsidiaries and left it struggling to recover.
Fast forward to 2007, however, and Xpertise appears to be back on the right track.
After a swingeing one-for-80 share consolidation in March 2006, the firm now has just 5.3m shares in issue.
They have almost doubled in value over six months to close of business on Friday to 94½p;, valuing the group at just £5m. That does not seem high for a group which had sales of £16m last year, on which it broadly broke even.
Xpertise's core business is IT training. It has a total of seven training centres around the country, with 30 full-time instructors and 100 associates.
Last year they completed 58,000 training days. Charges range from £350 for a one-day course to £1,445 for five days.
Many of them are highly specialist and aimed at professional IT staff - training the trainers. But the competition is tough.
'The whole area is highly competitive,' says managing director Ian Johnson.
Stuart Forshaw, at Xpertise's broker Daniel Stewart, values the UK IT training market - excluding 'vendor trainers' like IBM - at about £400m and reckons Xpertise has a 3.8% share.
Competitors include Parity, Azlan and QA/Interquad. Johnson was part of a management team which bought into Xpertise in 1993 and took it public six years later by reversing into shell company Dalkeith Inns - just in time for the boom.
Unfortunately, a business Xpertise had acquired hit trouble when the Government axed Training and Enterprise Councils, which were its main clients.
It was sold off, Xpertise ran up a £4m annual loss and its shares slumped.
After Johnson moved up from finance director, however, the company moved into profit in 2005 and was able to make some bolt-on acquisitions. Four years ago it bought Power Education from quoted Lynx Group, which took a 21.85% stake in return, with Lynx chief executive Richard Last becoming Xpertise's chairman. The group has landed some highly encouraging contracts in recent months.
These include a three-year Government contract and a preferred supplier agreement with Computacenter - together worth £4.5m a year - and three more contracts, which should add £1m a year to the top line.
Daniel Stewart forecasts sales of £19.8m this year and £21.5m in 2008, with profits (before exceptionals) of £650,000 and then £870,000. Earnings per share would be 12.3p, rising to 16.4p.
That puts the shares on 7.7 times current and only 5.8 times prospective earnings.
Dividends, dropped years ago, may be restored at some point. The group has £1.1m net cash and £2m of tax losses to offset against future earnings.
The IT industry is prone to sudden changes and tends to be too shambolic to deserve a premium rating. Competition is keen, and Xpertise's relations with important and much bigger customers, such as Microsoft, are crucial.
The cautious would be well advised to sit it out until this latest bout of market jitters has worked its way through the system.
That said, its recent track record is encouraging. If it delivers as Daniel Stewart expects, the shares look cheap.
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