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Reckon (ASX:RKN) gained the most of any company releasing results on Tuesday, with a 15% share price gain. This was in spite of revenues from the accounting and legal software business only growing 4%, while its profit rose 16%, which was primarily due to a lower effective tax rate as a result of higher R&D spend.
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3 reasons why Reckon’s results were well received
We think there were three reasons why Reckon’s results were well received. Firstly, the company slashed its net debt from $2.8m to $0.3m, a reduction of 90%. Secondly, Reckon paid a dividend of 2.5c per share. At yesterday’s 52c closing price, this represents an impressive yield of 4.8%. While it is only 4.3% at today’s share price (59c as at 11am), it is still an impressive yield for a technology stock.
Third, although the quantity of revenue wasn’t growing that strong, the quality certainly did. The company’s Business Group saw a 6% lift in cloud revenues even in spite of the decline in user numbers after discontinuing a free payroll app. And Legal Group subscription group rose 19% to $5.3m. This entity now serves 497 clients with 8 of the 25 largest law firms in the US and 5 of the top 7 in Canada.
Keep in mind that Reckon uses the calendar year and so this is only the half-yearly result. So we will see this growth reflected in its full year results, which will be due in February. The company is arguably better positioned in the US market than Xero, where that tech giant is relatively under penetrated.
Shareholders are set for some good times ahead, although there are several risks including industry competition and investor sentiment towards tech stocks taking a turn for the worse once again.
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