Microgen News | The Twelfth Magpie

This growing small-cap could be about to unlock value for investors

Kevin Godbold — Mon, 25 Mar 2019 11:32:09 +0000

Small-cap software company Microgen (LSE: MCGN) delivered decent full-year results today and announced a strategy that looks set to unlock value for investors. Read on to find out more…

The firm owns the Aptitude Software brand, aimed at helping company chief financial officers streamline finance operations, address regulatory requirements and deliver strategic insights to their bosses “in a range of industries.” It also has the Microgen Financial Systems brand, which targets the global wealth management sector and application management services requirements.

Unlocking value and opportunity

The fastest-growing division is Aptitude Software, and today the firm announced plans to demerge the Microgen Financial Systems business, which I think is a move that could unlock value for shareholders from here. Indeed, rebooted entrepreneurial drive could see each independent enterprise thrive from where they are now.

In the strategic update announcement, the directors explain that historically both businesses benefitted from back-office administration synergies within the company. But because Aptitude Software has been growing so well, the benefits of it being in the wider company structure have reduced because the finance, legal and human resources functions have been embedded into each business unit “to provide greater and more tailored support for their growth.”

If approved by shareholders, the demerger is planned for 2019. The directors reckon the newly independent Microgen Financial Systems will prosper under its dedicated management team. Meanwhile, the company plans to change its name in April from Microgen to Aptitude Software Group to “reflect the new focus of the group.” I think exciting times could be ahead for shareholders because simplification and focus is almost always a good thing in business, and this move could enhance investor total returns going forward.

Good trading and outlook

The full-year results report reveals overall revenue grew 12% during 2018 and half of that advance was driven by organic business. Adjusted earnings per share moved 8% higher and the directors signalled their confidence in the outlook by pushing up the full-year dividend by 6%.

The outlook for both divisions is positive. Aptitude Software delivered around 51% of 2018’s operating profit and Microgen Financial Systems, 49%. With the firm’s earnings spread almost equally, I think it’s a great time to free each division as independent companies.

The stock has been moving up through most of March in anticipation of today’s results and, at the current share price close to 452p, the forward-looking earnings multiple sits just below 22. The anticipated dividend yield is a little under 1.8%.

That’s a full-looking valuation, but the dividend has advanced around 65% over the past five years, reflecting the firm’s decent rate of growth. I think there could be a lot more to come in terms of total investor returns and I rate the shares as very interesting. Microgen strikes me as being one to keep a close eye on.

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Kevin Godbold has no position in any share mentioned.

These 2 small-caps could make you rich

Rupert Hargreaves — Thu, 23 Aug 2018 13:20:53 +0000

Shares in software & services provider Sopheon (LSE: SPE) have surged in value over the past 24 months. Since the beginning of August 2017, the stock has added 232%, outperforming the FTSE 100 by 222%.

But can this small-cap continue to beat the market? Today I’m going to try to answer this question.

Growth revival

Looking at the company’s historical numbers, it is immediately clear why shares in Sopheon have done so well over the past two years.

The group didn’t break even until 2015. Another healthy year of growth in 2016, convinced the market Sopheon’s profitability was sustainable. Since then, the firm has gone from strength to strength.

Today, the group has reported that pre-tax profit hit $2.9m in the six months to the end of June, up 62% year-on-year. Revenue for the period increased by around 27% to $15.9m.

Unfortunately, sales and marketing expenses also jumped, rising 17% to $4.1m. Although, it is unsurprising that costs have grown as the business has expanded.

For the full-year, Sopheon is now expecting revenue of $27.2m, down slightly from the $28.5m reported for 2017, but significantly above the $23.5m guidance given at the time of the company’s annual general meeting in June.

If this momentum continues, I reckon the company could end up beating its own forecasts. Indeed, the firm notes in its half-year report that performance was better than expected as “both the market, and our reputation and position, continue to advance.” Put another way, it looks as if Sopheon is benefitting from a snowball effect.

Management is so confident of the outlook for the business, earlier in the year the firm declared its first ever dividend of 2.5p per share.

Sopheon is making all the right noises, and I believe the company’s growth is only just getting started. With this being the case, I’m not put off by the stock’s forward P/E of 23.7. With $15.5m of net cash on the balance sheet as well, this business seems to have less risk than many of its fast-growing tech peers.

Complex business

With a market cap of around £100m, Sopheon might be too small for some investors. If you’re looking for a bigger tech play, Microgen (LSE: MCGN) is one of my favourite picks in the space.

It offers a highly technical and specialist service to customers in the financial services sector. It provides software to help fund managers administer assets under management, among other things.

As the volume of regulation the financial services sector has to deal with has increased, demand for Microgen’s products has jumped. Net profit has doubled over the past five years. Analysts are expecting a slight decline in EPS this year, but growth is expected to return in 2019. The figures indicate that the stock is trading at a 2019 P/E of around 21, which I reckon is a fair price for this business.

In fact, you could argue the company deserves a higher multiple because it’s clients are unlikely to switch products regularly due to the complexity of changing over an entire computer system and the possibility of customer data loss. As Microgen continues to grow, the shares could head much higher in the years ahead.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Two stocks I’d buy for my retirement accounts instead of the FTSE 100

Ian Pierce — Mon, 23 Jul 2018 09:30:29 +0000

Compared with American investors who are lucky enough to have their most popular large-cap index, the S&P 500, generally represent a pretty solid proxy for their economy as a whole, I reckon UK investors are significantly worse off. This is because of the FTSE 100’s overexposure to oil majors, miners and financials with substantial underexposure to fast-growing segments of the economy like technology and healthcare. With this in mind, the FTSE 100 is not an index I’d like to own for the long-term.

A small-cap diamond in the rough

Instead, with decades to go before my own retirement needs, I’d look towards companies with high growth potential like software provider Microgen (LSE: MCGN). The company sells two types of software, one that is used by wealth managers for back-office functions and the other that is used by finance departments for a variety of functions.

The company’s growth is being driven by Microgen branching out into serving new industries, designing new programmes to deepen its relationship with customers, and a general increase in regulatory requirements that leads businesses to pay for specialised software from industry experts rather than doing things in-house.

The company’s half-year results released this morning show the positive effects of these changes as revenue for the period jumped 23% on a reported basis to £34.9m with organic growth of 11%. Adjusted operating profits rose at a slower clip by 12% to £7.4m. But as the company moves towards generating more of its revenue from high-margin recurring sales, there’s plenty of potential for greater profit growth.

Microgen’s shares aren’t cheap at 21 times forward earnings, but with high growth potential, an attractive business model and cash on hand, I reckon this isn’t a ridiculous price to pay.

An exciting new IPO

Another software provider that I believe has long-term potential is newly-public Avast (LSE: AVST). The company may well be familiar to readers as it’s the largest provider of consumer-facing anti-virus software.

While most of its 435m users only use the free barebones anti-virus software, plenty of consumers and small businesses pay for its product. Over just the past three years, the group’s revenue has ballooned from $251m to $652m thanks to organic growth and acquisitions. Investors will also like that recurring revenue made up 88% of group sales in 2017, allowing management to comfortably pour considerable sums into marketing and R&D budgets that should support long-term growth.

As the importance of cybersecurity awareness rises among consumers and businesses, the group has a clear growth trajectory, albeit with plenty of competitors. However, its market leadership should be a huge competitive advantage over the long term through high consumer brand awareness and substantial financial firepower.

I like Avast’s long-term potential, but as a relatively new IPO I’m also happy to let the company report a few quarters of results before diving in and buying shares. But with considerable growth prospects, a high degree of insider ownership and proven ability to turn a profit, it’s definitely higher on my watchlist than the FTSE 100.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 secret growth stocks I’d buy and hold for 10 years

Rupert Hargreaves — Thu, 08 Mar 2018 12:00:00 +0000

Companies that provide a critical business service for other firms often make the best investments as their revenues are sticky. In other words, itthey’res unlikely to disappear overnight as clients can’t switch to other offerings easily.

This is why I believe Alfa Financial Software (LSE: ALFA) and Microgen (LSE: MCGN) are perfect buy-and-forget growth stocks to hold for the next 10 years.

Profits double

Today Alfa reported its first annual results since its IPO last year, showcasing its strengths. The company, which provides “mission critical software for the asset finance industry,” announced today that revenue for 2017 rose 20% to £88m, or 9% year-on-year to £86m at constant currency. Pre-tax profit surged to £34m, double last year’s reported figure of £17m.

However, it seems that the market is displeased with management’s growth outlook. Due to currency fluctuations, growth is expected to slow in 2018. Specifically, alongside today’s numbers, CEO Andrew Denton said a backdrop of a weakening dollar means the board expects to report low double-digit top line growth on a budget rate, or mid double-digit growth on a constant currency basis. It seems investors have also been disappointed by the lack of a dividend announcement for the year.

Still, despite this downbeat outlook, the long-term opportunity ahead of Alfa, and its peer Microgen, is tremendous. For example, Alfa estimates its addressable software market is over $3bn, compared to its current revenue run-rate of £88m ($123m).

City analysts are expecting the firm’s earnings per share to jump 15% for 2018 after last year’s surge in profitability. And as long as Alfa continues to provide a professional service to clients, I believe earnings can continue to grow at a double-digit rate for the foreseeable future.

Growth through acquisitions

Bolt-on acquisitions are another tactic Alfa can use to boost growth. Microgen has chosen this route, using organic cash flow to buy up growth. In August of last year, the firm announced the acquisition of RevStream Inc, a California-based provider of revenue management enterprise software expanding its portfolio of mission-critical software businesses.

Following this deal, and others like it, the firm’s adjusted earnings per share increased by 39% to 17.1p for 2017, smashing City estimates of 15.2p. After this strong performance, it looks as if analysts are behind the curve with the company as they were expecting earnings per share of 18.3p for 2018. Considering 2017’s outperformance, I wouldn’t be surprised if analysts revised their forecasts for future growth substantially higher in the months ahead.

Unfortunately, the one problem with both Microgen and Alfa is that the shares currently command a high valuation. Shares in Microgen are trading at a forward P/E of 27.8 and Alfa is trading at a forward P/E of just under 40. While high, these valuations reflect the bespoke and sticky nature of these businesses’ revenue streams and future growth potential.

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2 growth stocks that could double your money

Roland Head — Wed, 07 Mar 2018 10:55:09 +0000

Software businesses can be fantastic growth investments. If they become more popular, they can sell more licences with very little additional investment. These incremental sales can be almost pure profit.

Today I’m looking at two specialist software groups that have become very successful. I believe that both have the potential to deliver big gains for investors.

Keeping track of the cash

Running a big business is as much about financial management as operational execution. Successful companies usually have good financial controls.

Microgen (LSE: MCGN) is one of the world’s leading providers of the software used by chief financial officers for financial analytics, compliance and reporting. The group also provides systems used by wealth management firms to administer funds and trusts.

Although this isn’t a start-up, it’s still growing fast. Organic sales rose by 37% last year, while total revenue was boosted by acquisitions and rose by 46% to £62.6m.

Looking at the bottom line, I can see that operating profit rose by 35% to £11.1m, giving a healthy operating margin of 17.6%. Earnings rose by 55% to 16.4p per share and shareholders will enjoy a total dividend of 6.25p per share, an increase of 25% from 2016.

Can this stock keep rising?

Today’s strong results were broadly in-line with expectations and the shares only rose by 2% in early trade. The good news is that recent strong momentum is expected to continue.

Analysts have pencilled in earnings per share growth of 20% for 2018 and a 17% hike to the dividend. This leaves the stock trading on a 2018 forecast P/E of 27, with a prospective yield of 1.4%. That’s not cheap, but in my view this is a quality business in a growing market. I believe these shares could still be a profitable long-term buy.

Enterprise-grade marketing

Microgen’s customers are generally quite sticky, as a lot of work can be required to move to a rival. That’s also true of my next stock, online marketing specialist dotDigital Group (LSE: DOTD).

This firm produces dotmailer, an enterprise grade online marketing system that’s built around email marketing. This may seem old fashioned, but it’s still surprisingly profitable. Last year, this £250m company generated an operating margin of 25% on sales of £32m.

Partners with whom dotDigital integrates include Shopify, Magento and Salesforce.

The firm released its half-year results last week, triggering a slide that’s seen the shares fall by 14% in eight days. Is this a buying opportunity, or a sign that growth might be slowing?

I might buy

Sales rose by 25% to £18.8m during the six months to 31 December, while gross profit rose by 20% to £15.6m during the period. However, operating profit only rose by 1.8% to £4.4m.

The difference in growth rates between these two measures of profit was due to a big increase in administrative expenses, which rose by 26% to £11.1m.

Will this extra spending drive future profit growth, or is it a sign of bloat? I’d need to do more research to be sure, but it’s worth remembering that dotDigital has delivered average sales and earnings growth of more than 20% per year since 2012. This is a company that’s delivered on its promises.

Although the shares trade on a forecast P/E of 28, I’d continue to hold and might buy if they dip below 80p.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 opportunities to make a million which won’t last for long

Rupert Hargreaves — Wed, 20 Dec 2017 12:59:59 +0000

If you want to make a million from shares, the best way to do so is to buy stocks that have a robust business model, competitive advantage and record of achieving excellent returns for investors.

With this in mind, I’ve picked out Microgen (LSE: MCGN) and Avation (LSE: AVAP) as two stocks that I believe could generate enormous returns for investors in the years ahead.

Increasing shareholder returns

Avation leases planes to airlines, a business which has grown tremendously in recent years.

Leasing companies like this can achieve a lower cost of financing than larger carriers, and their size means that they can buy planes at lower prices from manufacturers. Because airlines sign multi-year leases, income is stable and predictable. Meanwhile, cash generated from operations can be used to grow the business, as well as being returned to investors.

According to a pre-AGM statement published by Avation today, at the end of 2017, the group’s fleet will contain 37 aircraft worth over $1bn. The average aircraft age is 2.9 years and the average weighted lease duration is 7.9 years. For the 2017 financial year, management is forecasting total lease revenue growth of 32% to $94.2m and pre-tax profit growth of 18% to $21.4m.

Over the past five years, reinvestment of lease income into its operations has seen its book value per share grow at a rate of 16% per annum. Over the same period, the shares have continually traded at a discount to book, but the discount has closed in recent months.

If the firm can continue to reinvest at this rate, and the shares continue to trade at a price-to-book ratio of 0.9, the shares could return 16% or more per annum going forward. Add in the company’s 2.1% dividend yield, and you get a total return of 18% per annum. At this rate, you could double your money every four years.

Specialist provider

Microgen provides financial management software applications, which is a highly lucrative business. As more regulations are placed on the financial services industry, companies that can help enterprises to make sense of all the requirements, are seeing sales boom.

Indeed, for 2015 and 2016 Microgen’s earnings exploded by 28% and 34% respectively and City analysts are expecting growth of 24% for 2017, followed by 20% for 2018.

If the company can hit these targets, I believe that there could be further gains ahead for the stock. While the shares might seem expensive, trading at a forward P/E of 30, this value does not seem to be too demanding considering the growth on offer here. What’s more, due to the specialist nature of the service Microgen provides, clients tend to be sticky, so the likelihood that sales will vanish overnight is low.

And just like Avation, to help complement growth, Microgen is reinvesting earnings into the business. Bolt-on acquisitions are helping the firm expand its existing offering and expand into new areas. The latest deal was the £10m acquisition of US-based RevStream, a provider of revenue management enterprise software.

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Could these two small-cap growth champions make you a million?

Rupert Hargreaves — Wed, 18 Oct 2017 08:58:40 +0000

Eckoh (LSE: ECK) is not your typical growth stock. After a successful 2013 and 2014, the company floundered for two years before finally waking up at the beginning of this year.

Year-to-date shares in the company have gained 40% thanks to improved trading, and it looks as if this is set to continue. According to a trading update from the firm today, for the six months to the end of September, the group achieved double-digit percentage year-on-year growth in both revenue and gross profit.

In the UK, trading is going to plan with revenue coming in at a similar level to the same period last year. Heading into the second half, management reports that the firm has a robust pipeline of deals in progress. Over in the US, where management has been concentrating on growth, the push is going well with seven contract wins worth $5.1m secured during the half year, up from three wins worth $2.7m the year before.

Since 2014 when Eckoh entered the US market, the firm has won 30 contracts and growth is picking up. The company has secured the same volume of contracts during the past six months as were won during the full 12-month period ending 31 March 2017.

Global leader

Eckoh is a global provider of secure payment products and customer contact solutions, which include the group’s patented CallGuard software that can be deployed on a client’s site to remove sensitive personal and payment data from contact centres. The company is capitalising on the shift away from brick & mortar stores towards an online shopping experience as consumers seek more for less. And as this market expands, City analysts are expecting big things from the firm.

Indeed, the they are forecasting earnings per share growth of 172% for the fiscal year ending 31 March 2018, followed by growth of 16% for the following financial year. Looking at today’s trading update, it would appear that the company is on track to hit these targets. Even though the shares look pricey, trading at a forward P/E of 31.5, considering Eckoh’s explosive growth rate, I believe investors will be able to pocket a healthy profit even buying at this level.

Exceptional level of demand

Another top growth champion is Microgen (LSE: MCGN). Over the past year, its shares have risen 140% as demand for the company’s services has exploded.

The tech company reported earnings growth of 28% and 34% for 2015 and 2016, respectively. It looks as if the group is on track to report a similar performance this year. At the beginning of July, management reported that there had been an “exceptional level of demand” for its Aptitude Software, which is designed for the financial services industry.

I believe that as regulators demand more of financial firms, all of which are trying to keep costs low, companies like Microgen will benefit as software takes the place of humans. And the City seems to agree. Analysts are projecting earnings per share growth of 24% for 2017 and 20% for 2018 justifying the high valuation of 28.7 times forward earnings. But considering the high level of demand for the latest products, I believe that the firm could smash City expectations for this year, which would mean that this valuation is out of date.

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Two hot small-cap stocks I’d buy today

Peter Stephens — Thu, 06 Jul 2017 15:03:21 +0000

While outperforming the wider index is never easy, it is possible for investors to generate higher returns than the FTSE 100. Clearly, it can take time for outperformance to become evident. However, there are a number of shares which could do so in the long run. Here are two smaller companies which may be relatively risky. But their potential returns could make them attractive at their current share price levels.

Impressive performance

Reporting on Thursday was IT services and solutions company Microgen (LSE: MCGN). The company’s share price gained over 15% due to the strong progress made in the first half of the year. Its financial performance is ahead of the Board’s original expectations for the period, while margins have been maintained in line with those from the prior year.

The company’s two business lines are executing on their strategies, with Aptitude Software delivering organic growth and Microgen Financial Services continuing its transition towards being focused on the Trust & Fund Administration market.

Looking ahead, the company is confident that the strong performance from the first half of the year will continue throughout the remainder of the year. Therefore, it has raised guidance for the current year. It is expected to report a rise in earnings of 13% in the next financial year, which puts it on a price-to-earnings growth (PEG) ratio of just 1.6. This suggests that further share price growth could be ahead even after today’s sharp rise.

Beyond next year, the potential for high demand for the company’s Aptitude Software division’s products and services could lead to a purple patch for the business. Therefore, while still a relatively small entity with above-average risks, now could be the right time to buy it for the long term.

Improving outlook

Also offering upside potential in the long run is spend control and e-procurement solution provider, Proactis (LSE: PHD). The company has delivered double-digit earnings growth in each of the last four years. This shows that it has a sound strategy which has ultimately proven to be highly successful.

Its outlook is also positive, with the company forecast to post a rise in its bottom line of 13% in the current year. It is expected to follow this with growth of 23% next year, which suggests that investor sentiment could improve over the medium term. Despite its positive outlook, Proactis trades on a PEG ratio of just 0.7 at the present time. This indicates that it has a wide margin of safety and could therefore deliver a rising share price even if its outlook is downgraded to some degree.

While the stock only yields 0.8% right now, dividend growth of 10% is forecast for next year. This shows that the company’s management team is upbeat about its future performance, and this could be reflected in improving financial performance as well as more positive investor sentiment.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why I’d buy these 2 rising tech stocks

Jack Tang — Fri, 23 Jun 2017 15:11:07 +0000

As technology disruption continues to impact the business landscape, I’m taking a look at investing in these two under-the-radar small-cap technology shares.

Carving a niche

First up is Ideagen (LSE: IDEA), an information management software company. It is a serious player in highly regulated industries, with a particular focus on GRC (Governance, Risk and Compliance) and Content and Clinical solutions within the Life Sciences, Aviation and Financial sectors.

And while this puts in competition with some of the big players in industry like IBM, Oracle and SAP, Ideagen’s focus on its core markets and complete information lifecycle solutions has earned it a reliable customer base that includes many big blue-chip names, such as BAE Systems, Emirates, Royal Dutch Shell and the European Central Bank.

Although its shares are up a staggering 62% over the past 52-weeks, they have come off a bit in recent weeks, which could mean that this may be a good time to step in.

The company is set to announce its full-year results on 18 July, but in a pre-close trading update, Ideagen said it expected earnings to be in line with market expectations, with organic revenue growth of approximately 10%.

City analysts expect Ideagen to punch growth to the tune of 14% for the year to 30 April 2017, with a further 28% increase anticipated for this year. These estimates suggest shares in the company currently trade at an expected P/E of 28, with a forward P/E of 21.9 on this year’s expected earnings.

Structural growth

Another company worth considering in the same industry is Microgen (LSE: MCGN). Shares in it are up 71% year-to-date, following a strong financial performance in 2016 and news of significant new contract wins over the past year. For the 2016 full year, Microgen reported overall revenue growth of 35% to £43m, as adjusted earnings-per-share (EPS) increased by 34% to 12.3p.

Looking ahead, I reckon Microgen has a couple things going for it. First, a growing number of companies increasingly realise that they pretty much have to invest more in financial management applications in order to modernise their finance IT infrastructure and address increasingly strict regulatory reporting requirements. This should drive structural growth in the market, with Microgen’s recent strong run of new contract gains proving there’s a significant place for niche players as the market expands.

Second, the company is increasing investment to develop additional specialised financial management software applications as new opportunities are identified. There’s room for expansion as it diversifies to different parts of the asset and governance spectrum and its acquisition-led growth strategy could help it to strengthen its position in the financial services and wealth management software market.

In the near term, City analysts expect Microgen’s bottom line to grow by 3% this year, with a further increase of 13% in 2018. This leaves shares in the company trading at 25.1 times its expected earnings this year, and 22.2 times its expected earnings in 2018.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is it too late to buy these rocketing small-caps?

Roland Head — Fri, 21 Apr 2017 10:52:27 +0000

An 11% share price fall in one morning may not seem like the “rocketing” performance mentioned in the title of this article. But it’s worth remembering that even after today’s drop, specialist currency manager Record (LSE: REC) is still worth 50% more than it was six months ago.

Today’s fourth-quarter update showed that the firm’s assets under management equivalent (AUME) rose by 2.8% to $58.2m during the three months to 31 March. I suspect today’s sharp fall was triggered by news that the firm’s client count fell from 64 to 59 during the quarter.

Although Record had warned of this in its previous update, today’s statement also revealed that a much larger client, representing $1.2bn of AUME, has given notice to leave during the current quarter.

A troubled business?

Record’s business is extremely profitable. Net cash of £36.2m was reported at the end of September and the company’s commentary suggested that Record might pay a special dividend in addition to the forecast yield of 1.6p per share. For income investors, Record ought to be attractive.

The company’s weakness appears to be delivering consistent growth. Customers who sign up for the group’s currency hedging and investment bring with them a lot of cash. The average AUME per client is $986m, according to today’s figures.

However, Record’s clients don’t seem as loyal as you might expect for a specialist business. Gains from new clients often seem to be cancelled out by losses from departing ones.

I’m not entirely sure why they don’t stick around. I’d want to do further research into the nature of the firm’s clients before deciding to invest. But with the stock trading on a forecast P/E of 15.5 and offering a prospective yield of 3.8%, I don’t think the valuation is excessive. I’d rate Record as a hold.

A true growth stock

IT services and software provider Microgen (LSE: MCGN) is more of a traditional growth stock than Record. Revenue rose by 35% to £43m last year, while the group’s operating profit rose by 55% to £8.2m. The firm’s share price has risen by 57% so far in 2017.

Its business has two main divisions. Aptitude Software provides financial control and reporting software that’s apparently used by many large companies in the telecoms and financial sectors. Aptitude is now targeting a move into the US healthcare sector, which I’d imagine could be a lucrative market. Its revenue rose by 58% to £26.4m last year, which suggests the business still has plenty of room to grow.

Microgen’s other division focuses on financial software for wealth management and payment firms. Revenue from this business rose by a more modest 9.2% to £16.6m last year. However, 80% of this revenue is recurring, so it should provide reliable cash generation to support growth elsewhere.

Microgen stock doesn’t look cheap. The shares trade on a 2017 forecast P/E of 23, falling to a P/E of 20 for 2018. But broker forecasts for the group have risen substantially following the firm’s last two sets of results. The group’s cash-backed dividend — which yields 1.7% — is also a welcome sign of financial discipline.

If Microgen’s profits continue to beat expectations, then the stock could look cheap at current levels in a couple of years’ time.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.