September 5, 2011 7:09 pm

Kofax weakened by second-half results

Shares in Kofax fell by 17 per cent after a decline in second-half sales dragged down full-year revenues at the UK document scanning group.

Kofax full-year results to June 30
Sales Pre-tax profit Diluted earnings per share Dividend
$243.9m $26m 19.7 cents
↑12% 44% ↑93%

In July, Kofax warned that a slow second half would result in the group not meeting full-year revenue expectations of 14 per cent organic growth.

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On Monday, the FTSE 250 imaging software company said full-year revenues had only risen organically by 10 per cent to $243.9m, disappointing some analysts.

“Kofax’s results are slightly below our [downgraded] forecasts,” said David Toms, an analyst at Numis. “We see a clear risk that costs are ramped up in an attempt to drive growth, but any revenue shortfall in this situation could lead to a second, much more severe, warning.”

Reynolds Bish, Kofax chief executive, attributed the recent slowdown in trading to “increased volatility in the overall economic environment”.

“People were clearly disappointed by the slowdown that we experienced in the second half of the year, even though we had cautioned that it was going to be slower than the first half, but they somewhat didn’t believe us,” he said.

The share price fall came as Kofax announced plans to list across the Atlantic in order “to become a more US-centric business”.

Kofax, which already earns more than half its revenues from the Americas, on Monday said it would seek a US listing on the Nasdaq exchange no earlier than June 30 next year.

“US markets are much more attuned and appreciative of technology companies and particularly software companies,” Mr Bish said of the move.

He noted that in the UK, there is a dwindling population of comparative kinds of groups, “which makes it challenging for people to assess the value of the company”.

Kofax, which sold off its legacy hardware business earlier in the year, already has a strong presence in the US and employs roughly 600 of its 1,000 staff in the country, with senior management headquartered in Irvine, southern California.

In the 12 months to June 30, pre-tax profit rose from $18.1m to $26m, while diluted earnings per share almost doubled from 10.2 cents to 19.7 cents. No dividend was recommended.

FT Comment

Kofax’s figures and outlook inspired little confidence among analysts, with the group’s slip in licensing revenue growth – down by 6 per cent in the second half – causing concerns. The announcement of a possible US listing did little to distract investors from the figures, pulling down the shares by 17 per cent, or 56.5p, to close at 274.5p. Mr Bish’s explanation that analysts “somewhat didn’t believe” the extent of Kofax’s trading slowdown could be a sign that the group’s communication with the City is lacking. The group’s forward price/earnings ratio of 11 has fallen from above 16 since its July trading update, and is below the sector average of 13.7. However, potential investors would be wise to hold off buying the stock until Kofax’s outlook becomes clearer.

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