MIDAS SHARE TIPS: Everyone's a winner with Proactis Holdings and their e-auctions that cut costs
The economy may be in recovery but most businesses still feel bruised from the financial crisis and are trying to cut costs wherever they can.
Hospitals, schools, local authorities and Government departments are under even more pressure to save money, desperately seeking ways to trim their expenses and bring their budgets in line.
AIM-listed Proactis Holdings helps companies and public sector organisations to cut costs painlessly. The shares are 83½p and should increase considerably over the next three to five years.
Oiling B&Q's wheels: The firm’s procurement is organised using Proactis software
The company, based in Wetherby, West Yorkshire, uses clever software that enables businesses to drive down the cost of goods and services ranging from light bulbs to plastic cups and from electricity to garden maintenance.
The group’s main product centres on e-procurement, where suppliers bid against each other online to work for particular customers. Like an eBay auction in reverse, the winner is generally the supplier offering the lowest price.
However, every firm participating in these auctions has to provide references and other checks so Proactis and its customers know potential suppliers are bona fide.
Cardiff Council is a client, for example, and used Proactis software to organise a tender for taxis to pick up children from outlying areas and take them to school. The auction, which included transporting children with special needs, saved the council £550,000 a year.
Taxi firms providing this service have to be thoroughly vetted and the Proactis system enabled the council to carry out necessary checks on all participants. The council is one of 500 customers, of which about 200 are in the public sector.
Private sector customers include many professional firms, such as lawyers and accountants, and the group works for B&Q and Screwfix parent Kingfisher too, organising the procurement of shelving, IT equipment, water and virtually everything apart from the goods that the company sells to consumers.
Proactis also operates in the US, where one of its customers – a large supermarket chain – managed to save $200million (£128million) using its e-auction system to drive down the cost of items including plastic bags, staff gloves, window-cleaning and even grass cutting.
Now chief executive Rod Jones and finance director Tim Sykes are introducing software to help suppliers, too.
The duo estimates that Proactis customers have between one and two million suppliers, including hundreds of thousands of small firms. Many of these have been particularly hard hit by the financial crisis, since when banks have reined in their horns and firms have struggled to borrow money.
Proactis has developed a system enabling suppliers to be paid early in return for a small discount on the amount they are owed. Invoice factoring is an established industry designed to alleviate small firms’ cashflow problems, but the Proactis approach has several advantages over the status quo.
School run: Cardiff Council used Proactis software to organise a tender for taxis to pick up children from outlying areas and take them to school
First, Proactis knows the suppliers’ customers because these businesses are its own clients. That means it can be confident that suppliers’ invoices will be paid, so it can offer them better terms than traditional factoring groups. It is also much more flexible, so firms can use the system whenever they choose. And the system is fast and easy to use.
Jones and Sykes are launching it now and expect it to develop a head of steam over the next six to 12 months. The payments system is part of a four-pronged strategy to take Proactis from a business valued on the stock market today at just over £30million to £100million by 2020, if not earlier.
The group is taking on at least 40 new customers a year, which clearly boosts sales and profits. It is also actively seeking acquisitions, having completed three in the past 18 months alone. This means it can sell more services to each customer and it is constantly developing new software, which should drive growth.
Proactis’s financial year ended on Friday and a trading statement should be out this week or next with the full results due in the autumn. Analysts expect a 66 per cent increase in sales to £17million and a more than doubling of pre-tax profit from £1.1million to £2.9million. Encouragingly, Proactis pays a dividend, expected to rise from 1.1p last year to 1.2p this.
Midas verdict: Proactis is a fast-growing business and the management is determined to make a success of it. At 83½p, the shares should go far. Buy.
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