The Citadel Group Ltd (ASX: CGL) share price certainly had a rollercoaster of a day on Thursday following the release of its full year results.
After being down as much as 10% in morning trade, the information management software company’s shares climbed 2.5% in afternoon trade before ending the day with a 2% decline to $4.46.
What happened in FY 2020?
Citadel was a positive performer in FY 2020 and delivered strong sales and operating earnings growth over the year.
For the 12 months ended 30 June 2020, Citadel posted a 29.4% increase in total revenue to $128.4 million. This was driven by a 35.7% increase in software revenue to $47.5 million and a 26.7% lift in services revenue to $80.1 million.
The company experienced a slight contraction in its earnings before interest, tax, depreciation and amortisation (EBITDA) margin to 22.7% during the year due to the Noventus acquisition. Nevertheless, Citadel still delivered strong EBITDA growth of 25.3% to $29.2 million in FY 2020.
However, this didn’t flow through to the bottom line. It recorded a 90.8% decline in statutory net profit after tax from continuing operations to $1 million. This was the result of a 53.8% increase in depreciation and amortisation to $12.3 million and a 110% lift in finance costs to $2.1 million, which was offset slightly by a lower tax expense.
On an underlying basis, net profit after tax would have been $11.6 million, up 6.4% year on year.
Despite the decline in statutory profit, the Citadel board has held firm with its 6 cents per share final dividend. This brings its full year dividend to a fully franked 10.8 cents per share, which is flat year on year.
“A transformational year”.
Commenting on the FY 2020 results, Citadel’s CEO and Managing Director, Mark McConnell, said: “FY20 was a transformational year for Citadel. In April 2020 we acquired and have successfully integrated Wellbeing Software, accelerating our shift in earnings mix towards long term global enterprise software contracts with high quality recurring revenue streams.”
“An oversubscribed equity raising supported the acquisition, and we have successfully navigated through the global COVID-19 pandemic without accessing the Federal JobKeeper program. Throughout this period of global instability, we have delivered a strong financial result for our shareholders,” he added.
FY 2021 outlook.
While no guidance was given for the year ahead, the company’s CEO spoke broadly about its longer term targets.
Mr McConnell said: “We are targeting top line organic growth from our Software division of 15% plus over the long term, and 5-10% organic growth from our Services division. Our large and qualified pipeline of opportunities now exceeds $800 million, 90% of which is software in nature. We also have a strong M&A pipeline focused on scalable software opportunities that build on our current capabilities.”
“I am very pleased with the way our team has responded to the significant challenges that FY20 has presented. Our ongoing transformational program is resulting in a clear shift in the earnings mix to high quality recurring software revenue. Our dedicated executive team are driving this change strategy to deliver a business with a high percentage of recurring software-based revenues across a diverse and global client base that over the medium term will lead to improved margins,” he concluded.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Citadel Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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