Craneware shares hit by profit warning

SHARES in software outfit Craneware dropped 12 per cent yesterday after the Edinburgh-based technology firm revealed that it won’t sign a large deal in its current financial year, triggering a profit warning.

Craneware's Keith Neilson. Picture: Neil Hanna
Craneware's Keith Neilson. Picture: Neil Hanna

The rout slashed £12 million from the company’s market value, despite management reassuring investors that profits would still beat last year’s haul.

Aim-quoted Craneware writes billing software that helps hospitals in the United States to make sure they charge patients and their health insurers the correct amounts.

Chief executive Keith Neilson told The Scotsman: “We’re still seeing strong growth from our bread-and-butter business, which is individual hospitals and small groups.

“But we’ve not seen any deals with the larger hospital groups coming through this year.

“It’s a small blip on the big scale of things.”

Contracts with individual hospitals and smaller groups are normally worth up to $500,000 (£325,000) each, while deals with larger operators can be worth up to about $20 million.

Neilson blamed the lack of deals with big groups during the year to 30 June on corporate activity within the sector, with larger healthcare providers involved in acquisitions.

Revenues in the year to 30 June, 2012, had increased by 8 per cent to $41.1m, while adjusted profits had risen by 8 per cent to $11.9m. Craneware now thinks that its turnover in its current financial year will be between $41m and $42m, with its adjusted profits sitting at somewhere between $11.9m to $12.6m.

Neilson contrasted the situation with profit warnings in January and July last year, when even the smaller contracts had slowed down due to changes within the US healthcare system.

He said: “We’ve now seen those smaller contracts coming back, we’ve just not landed one of the bigger contracts in this financial year.”

Alexandra Jarvis, an analyst at house broker Peel Hunt, said: “We are stripping out larger deals from our forecasts, resulting in downgrades to 2014 and 2015 but with the aim of increasing confidence in forecasts and the quality of revenues.”

Peel Hunt slashed its forecasts by 22 per cent and 25 per cent for the next two years, but noted: “Approximately eight or nine large deals – a number of which are very material – remain in play.”

Investec analyst James Goodman upgraded his rating on the stock from “hold” to “buy”.

“Craneware’s recurring licence model offers very high levels of revenue visibility and, with large deals now purely as upside to estimates, we see the valuation as being based on very prudent forecasts,” said Goodman. “With the miss out of the way, we feel the current level is a good entry point.”

Craneware closed down 46p at 330p.