Analysts believe the chances of a share price re-rating for AIM-listed Eckoh (ECK:AIM) rest on its US Secure Payments business.
‘This area remains the growth driver within the US operations,’ said Canaccord Genuity, with growth of ‘well over 20%’ penciled in for full year 2023. The analysts calculate scope for Eckoh stock to rally more than 14% in the coming months to 88p, having eased back to 77p.
GROWING PAYMENTS NICHE
Eckoh provides secure payment products that remove personal and payment data from contact centres and IT environments. It also provides customer contact solutions that enable enquiries and transactions to be performed on the customer’s device of choice.
In November 2015, Eckoh acquired PSS to help expand beyond its UK home into the US market, and the subsequent acquisition of Klick2Contact (in July 2016) added live web help capabilities. Eckoh sells all of its products in the UK but is concentrating on the Secure Payments solutions in the US due to the size of the market opportunity.
In an update for the full year to 31 March 2021, Eckoh confirmed that Secure Payments contracts worth $11.6 million were won last year, up from $10.7 million the previous year. Overall, Eckoh said trading was in line with market expectations, with Canaccord forecasting £6 million of earnings before interest, tax, depreciation and amortisation on £31 million revenue.
CLOUD DEMAND
Interestingly, $9.3 million of those new Secure Payments deals were secured since September 2020, showing the strong recovery of the business from the initial pandemic shutdown, while more than 80% of the contracts won (about 50% of the revenue) were for cloud-based solutions.
‘The trend towards Cloud contracts for Secure Payments continues and although this means moderately less upfront cash it provides excellent visibility of revenues,’ said Canaccord.
Canaccord’s share price target of 88p reflects a premium of 15% to 20% on an enterprise value to sales valuation (annualised to December 2022) versus the UK IT sector’s 5.5-times. ‘We believe Eckoh shares should trade at this premium since the non Covid-19 sales growth and profit margin are both above the sector average,’ said Canaccord.
