Broker snap: Strong sales growth expected at Clarity

29th Jun 2010 09:17

Even house broker Arbuthnot was surprised at the strength of full year results announced yesterday by Clarity Commerce Solutions, the sales and ticketing software developer."The conversion of some of the large pipeline of sales prospects stemming from the release of the new ClarityLive suite of software products resulted in Clarity beating our FY2010 [fiscal 2010] expectations, with PBT [profit before tax] of £1.9m vs. our £1.8m forecast," the broker said.Arbuthnot is expecting further growth in profits next year no that the business is better structured to convert its sales pipeline into contracts.The broker is forecasting a leap in sales revenue in fiscal 2011 to £24.4m from £19,1m in the year to 31 March 2010. In an interview with Sharecast on Monday chief executive Ken Smith said the company was "comfortable" with this forecast."We value Clarity on a FY2011E P/E [fiscal 2011 price/earnings ratio] of 10.0x, which equates to a share price target of 55p. Our EPS [earnings per share] forecasts factor in a tax rate moving to 28%, although the substantial tax losses in the UK subsidiary should continue to help the cash position," the broker said.The valuation is predicated on Clarity continuing to be able to use its software platform to win more customers in existing and new markets."Clarity now has a much stronger balance sheet and while we have not forecast a dividend for FY2011, there is no constraint on one being paid," the broker said.Chief executive officer Ken Smith said the company would consult shareholders over the dividend but indicated that, if he had his way, the company would pay "something modest" next year by way of making a "coming of age" statement.Arbuthnot has maintained its "strong buy" rating for Clarity.