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Today (October 9), the UK's small stock Netcall (LSE: NET) has presented an exciting full year results report.
I would think about it as something I might buy if I wasn't fully invested with no spare cash.
It's an attractive field
The business operates as a provider of intelligent automation and customer engagement software. That's promising because software is a sub-sector of the market that has produced a lot of fund-raising businesses over the past few years.
However, smaller companies come with higher risks. It has a market capitalization of just £141m and is based in FTSE AIM All-Share Index.
Earnings and dividend prices can be volatile for small companies. Netcall itself has been posting some declines in annual revenue in 2018 and 2019. There has been a recovery in business since then, but it is always possible for a company to reach a bad stage of trading in the future.
Still, today's results are up, and I like the balance sheet that looks solid, showing a smaller balance of cash than total debt.
But good value can be more than cheap or low financial numbers. Business growth prospects and quality factors can play a big role as well. Such considerations are at the heart of the strategy used by investment star Warren Buffett, for example.
The salary is growing at the front
With Netcall, City analysts expect an increase in earnings of almost 14% in the current trading year until June 2025. That is encouraging, and I hope that the business can increase the growth rate in the following years as it introduces the cloud. service offering.
Meanwhile, chief executive James Ormondroyd said the year just ended (until June 2024) was one of strong performance. The positive numbers in the report support that statement, such as a 9% increase in annual revenue and 7% in profit.
There is a growing demand for the company's cloud services and that increases revenue visibility and strong cash flow, Ormondroyd said.
Business done “important” is advancing its product offerings including the launch of a new cloud-based communications center solution called Liberty Converse CX. In addition, Netcall is integrating GenAI capabilities across its comprehensive Liberty platform.
A brilliant acquisition strategy
Along with organic progress, the company made three bolt acquisitions during the year, which improved the firm's market position and “open up new opportunities”.
Looking ahead, Ormondroyd said sales momentum continued into the new financial year. There is a “strong” pipeline and product pipeline, and the rate of revenue continues to grow.
Things are going well for the business, I would say, and it may have a long road ahead. However, the market has recognized such attractions. With the share price close to 88p, the forward price ratio – or P/E – for the current trading year is around 24 – which is very high.
Despite the valuation risk, I think Netcall is worth serious research and consideration and would sit well in a diversified long-term growth-oriented portfolio.
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