Got this in my email in box y'day...
Worth holding for time being....

Buy Portrait Software at 14.25p

A tip from The AIM & PLUS Newsletter

THE BUSINESS
Portrait Software (PST) was founded back in 1986, listed on AIM in 2002 and, after a problematic period a few years ago, the company is forecast to grow its earnings at a rapid rate over the medium term Formerly known as AIT Group, the company provides customer interaction optimisation (CIO) software to organisations, mostly in the financial sector, through the Microsoft.net framework. Revenues come from licence sales, maintenance & support services and professional services. On a geographical basis the company sells mostly to Europe and North America but also to China, Brazil., Japan, Australia and New Zealand.

The companys software platform has three elements to it. Portrait Foundation, as the name suggests, is the core of the offering which lets companies design and manage their CIO programmes. Collaborative Customer Analytics, which is based on technology from analytics company Quadstone, which was acquired in 2005, helps to predict customer behaviour using data analysis techniques. Finally, Interaction Optimiser, uses real time data to help businesses make decisions during interactions with customers. The software offerings are sold to companies either directly or indirectly through Portraits partner network who use the Foundation platform to build better applications for companies in a faster time than they could do it themselves.

Companies use CIO software in order to sell more to their customers, taking the philosophy that selling to an existing customer is less expensive than attracting and selling to new ones. Portraits software enables companies to use information that they have about their customers in order to better understand their needs and to use this information to its benefit during interactions with the customer. For example a bank may use the software to suggest a product to advertise to a customer who is using an ATM machine. Personal information such as gender, transaction habits and age can be used to tailor a specific advert that the customer is more likely to respond to than a more general advert. CIO software is also used by companies to improve their customers experience, to increase retention rates and to respond to cut down costs.

Back in 2002 the company, under its old name AIT Group, almost went out of business due to severe debt problems. In 2001 it acquired US business IMA for a cash consideration of $16.5 million, which severely stretched its financial resources. The shaky market conditions of the time did not help matters and realising that the company was in trouble many customers stopped buying from AIT . After a refinancing operation which saw two directors and one of Portraits original founders provide the company with emergency funds AIT eventually got back on its feet but not before changing its management team, which, headed up by turnaround specialist Nick Randall, slashed operating costs and eventually brought the company back into profitability.

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CURRENT TRADING
After the problems that the company had a few years ago it finally managed to release some results that were ahead of market expectations they covered the year to 31st March 2007. Having grown quarter by quarter throughout the year, revenues increased by 24% to 14.4 million. Licence revenues grew by 89% to 3.4 million, revenues from support services rose by 9% to 6.1 million and revenues from services were up by 17% to 4.2 million. By region, sales in North America were up by 11% to 4 million, in Europe were up by 37% to 9.5 million and in the Rest of the World were down by 10% to 0.9 million as a result of the weak dollar. Pre-tax profits before amortisation, exceptional items and share based payments trebled to 0.6 million and fully diluted earnings adjusted for the above charges grew by 333% to 0.52p. Cash balances stood at 4.3 million at the end of the year with net cash of 0.5 million.

Over the period the company moved more towards its strategic goal of being a more applications based business, being able to solve its customers problems rather than simply delivering the tools that allow them to solve the problems. This is a good move for the company as selling more applications increases the companys higher margin software licence and support revenues as a percentage of total income. Since 2002 software sales have increased from just 34% of total revenues to 66% in 2007 and this trend is expected to continue.

A more recent trading statement released at the beginning of September confirmed that the company is continuing to perform well and that it is on track to achieve its growth expectations for the full year. Portrait also announced that it has signed a new deal with an un-named major US bank for its new Interaction Optimizer product, which combines original Portrait technology with Quadstone analytics to enable the company to provide real-time intelligence, which is events driven. This contract is expected to be worth at least $1 million.


OPPORTUNITIES & THREATS
The market for CIO software is estimated to be worth around $10 billion a year and major financial service companies are increasingly recognising the importance that customer interactions are for their business and therefore looking to buy the sort of software products that Portrait offers. There are several other competitors in the industry but they mostly focus on niche areas. Larger companies such as SAP focus on sales force automation while unlisted firms such as Fineos and Lagan are much more sector focused, concentrating on insurance and the public sector respectively. Other analytical software offerings, such as SPSS, are not really a threat to Portrait. They may analyse data and provide quantitative results but Portraits software goes one step beyond by telling companies what to do with that data.

Portrait has a large customer base of over 200 organisations in 23 countries around the world. While most customers are in the financial services sector, notably Nationwide, Lloyds and Merill Lynch the company also sells to firms in the telecoms and public service sectors such as T-Mobile and several police forces. These customers provide recurring revenues of around 70% or 10 million a year and in the past three years Portrait has only lost five customers. Nationwide is Portraits biggest customer and provides around 10% of its revenues every year so losing this contract would materially affect the company. However, this is unlikely as Nationwide is one of Portraits longest customers and changing to a new supplier would be difficult for Nationwide due to high time and integration costs.

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One of Portraits main partners, the US technology company Fiserv, has recently announced the acquisition of CheckFree, a provider of financial e-commerce services and products. With this deal there exists the opportunity to sell more of its technology to Fiserve as it intends to compete with bigger player SAS in the near future by using Portraits.

Portrait has recently received an endorsement from the IT analysts, Gartner by appearing in two of its magic quadrants. The companys Collaborative Customer Analytics offering received a Visionary rating for its analytical abilities. Gartners publications are used by many companies that are considering making an IT purchase and this endorsement will increase the companys profile in the sector. Other industry commentators such as Forrester and Aberdeen also covered the companys products in a positive light in the last financial year. These endorsements add to Portraits Microsoft Gold Partner status which is a reflection of the competency and ability of the company to deliver what it promises. In addition, the company is a Microsoft Global Insurance Value Chain Partner and part of the Microsoft Banking Integration Factory. The strong relationship with Microsoft will offer new opportunities for the group, like it has done in the past, as more firms focus on using the Microsoft.net platform.

For us the main risk for Portrait in growing its revenues over the next few years is down to execution. The companys technology is proven and the challenge now is to develop new applications and to establish new partnership agreements to expand the product range into the international markets. Portrait has made good progress on this recently by developing several new products and Fiserves acquisition provides instant access into increasing the coverage of its products on a global scale.

RECOMMENDATION
As well as being a turnaround specialist, CEO, Nick Randall is also highly ambitious about growing Portrait. He told us that the company could potentially treble its market value within three years. We think that the current share price reflects the companys troubled past and not the growth prospects going forward. With the recent trading statement stating that the company is on track to meet growth expectations for the year it should post revenues of 16 million for the year ending 31st March 2008, with pre-tax profits of 1 million and earnings of 1.1p. On a current year multiple of 12.95 this might look to be fully priced. However, in 2008/9 when the company should continue to increase the proportion of software sales its operational gearing will kick in and on the back of forecast revenues of 19 million, Portrait should make pre-tax profits of 1.4 million and earnings of 1.9p a share. With good support from recurring revenues, a high customer renewal rate and good growth prospects we believe that the company can achieve this. A one year forward multiple of just 7.5 times does not fully value the rapid rate of earnings growth that is forecast. A more realistic rating of 15 infers a price target of around 28.5p. BUY.

Key Data

EPIC: PST
Market: AIM
Spread: 13.5p - 15p (10%)

*The value of property is generally a matter of the valuer's opinion rather than fact.

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This share is now showing some signs of life in the run up to the finals due end of June-ish... a few small buys are appearing...suggest this will double from here (imho, dyor).. trading stements and aquisitions have been good.

anyone else in PST ?

bit more of a tick up today..perhaps it's looking good for half decent results ?

And let's hope they have now been able to close that key deal with a significant partner that they couldn't do in time for Q4 recognition !

nice upward momentum going on here b4 next Tuesday's results...perhaps word is that the're excellent and the "significant" deal is closed!

just need it to go 16p+ so I'm in profit at last !