Software company FreeAgent Holdings (LSE: FREE) hasits head in the clouds after todays interim results which showed gross profits soaring 38% to 3m, up from 2.2m one year ago.
The Edinburgh-based company, which has a market capitalisation of 33m and only launched on AiM last month, provides cloud-based software-as-a-service to small businesses.
Todays six-month interims for the six months ended 30 September also showed a turbo-charged 36% risein revenues to 3.6m, continuing its recent run of good form. FreeAgentenjoys a gross profit margin of 84%, and strengthened its balance sheet by paying down 5m of net cash immediately after its IPO, which raised8m of new equity.
Investors looking for small company growth ideaswill prick up their ears at these numbers, so should you liberate a place for FreeAgent in your portfolio? The companys online accounting software is designed to demystify accounting forfreelancers, small business owners and their accountants, and customer numbers aregrowing rapidly.
Accounting practice clients more than doubled from 12,611to 27,137 year-on-year, withdirect client numbers edging up more sedately, from 14,582 to 16,724.Itsaverage customer has less than 10 staff, with monthly fees starting at $10.
Chief executive Ed Molyneaux said the8m proceeds raised from its placing have been used torepay the companys loan facility andsignificantly strengthen itsbalance sheet. It provides us with the opportunity to further invest in customer acquisition activities and product development to enhance our product offering,he added.
Simply producing a tech IPO amid current UK uncertainties is impressive, especially given the recent decision byfinancial software developer Misys to pull out of a planned 750m IPO, blamingadverse market conditions.FreeAgent employs more than 100 full-time staff and incurred a 1.3m loss last year, althoughMolyneaux says it willbe profitable before interest, depreciation, amortization and taxes in 2018.
Software, hard questions
FreeAgentssoftware allows users to automatically generate and submit self-assessment tax returns and should therefore be given a lift by HM Revenue & Customs plans to push small businesses into managing their returns digitally and filing quarterly, rather than annually as at present. However, it operates in a crowded field where theres a host of small business accounting tools, including ClearBooks, Kashflow, Kashoo, and LessAccounting to name but a few,so it doesnt exactlyhave the field to itself.
Theres an ongoingsurge in self-employment and small business growth in the UK, and this could prove a lucrative growth zone. This fledgling company is undoubtedly at the higher end of the risk scale but could be a flier for braver investors. Molyneauxspent 11 years in the Royal Air Force, including two tours of duty as a Harrier pilot, but he seems to have his feet on the ground.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.