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Today (October 9), UK small cap stocks net call (LSE:NET) delivered a pleasing full-year results report.
I would seriously consider it as a potential purchase if I wasn't already fully invested and out of extra money.
An attractive sector
The company operates as a provider of intelligent automation and customer engagement software. This is promising because software is a subsector of the market that has produced some multi-growth businesses in recent years.
However, smaller companies carry high risks. It has a market capitalization of just £141 million and lives in the FTSE AIM All-Share Index.
Earnings and share prices can be volatile in smaller companies. Netcall itself recorded some dramatic declines in annual profits in 2018 and 2019. There has been a business recovery since then, but it is always possible that the company could hit a rough patch in business in the future.
However, today's results are optimistic and I like the solid-looking balance sheet, showing a strong net cash position rather than net debt.
But good value can be more than just low or cheap financial numbers. A company's growth prospects and qualitative factors can also play an important role. Such considerations are the basis of the strategy employed by investing superstar Warren Buffett, for example.
Earnings growth ahead
With Netcall, City analysts expect an increase in profits of almost 14% for the current business year to June 2025. This is encouraging, and my hope is that the company can maintain its growth rate in the years ahead as you deploy your cloud-based platform. service offering.
Meanwhile, chief executive James Ormondroyd said the year just ended (to June 2024) had been one of strong results. Positive numbers in the report back up that claim, including a 9% year-over-year increase in revenue and a 7% year-over-year increase in profits.
There is growing demand for the company's cloud services and that is driving greater revenue visibility and strong cash flow, Ormondroyd said.
The business done “significant” is moving forward with its product offering, including the launch of a new cloud contact center solution called Liberty Converse CX. On top of that, Netcall is integrating GenAI capabilities into its broader Liberty platform.
A vibrant acquisition strategy
In addition to organic progress, the company made three additional acquisitions during the year, which improve the company's position in the market and “open new opportunities”.
Looking ahead, Ormondroyd said the positive sales momentum has continued into the new financial year. there is a “robust” product roadmap and project pipeline, and the level of recurring revenue is growing.
Things are going well for the business, I would say, and it may have a long road of growth ahead of it. However, the market has noticed such attractions. With the share price close to 88p, the forecast price-to-earnings (or P/E) ratio for the current trading year is almost 24, which is quite high.
Despite the valuation risk, I believe Netcall deserves further research and consideration and could fit well into a long-term diversified portfolio focused on growth.
