MIDAS SHARE TIPS: Elecosoft's clever software is proving popular among almost half the construction firms in Europe
Tall order: The firm's software was used during the construction of The Shard
Almost every homeowner can testify to the misery of renovations. Invariably, they take longer than expected, cost more than was budgeted – and do not look quite the same as the image you had in your mind.
Homeowners are not alone, however. Major building projects are also prone to delays and cost over-runs. Elecosoft produces clever software that aims to alleviate these tiresome construction issues. The company has recently undergone a major transformation and the shares, at 21p, should increase substantially over the next few years.
The firm was renamed earlier this year, having previously been called Eleco. It traces its roots back to 1895 and was listed just a month before the outbreak of the Second World War, by which time it had become an international supplier of specialised building products.
Continuing in this vein for several decades, Eleco branched into technology in 1994 and between 2000 and 2007 acquired several software businesses designed to help contractors become more efficient. Then came the financial crisis, which hit the firm’s construction division hard, while highlighting the resilience of the software business.
Eleco duly sold off its construction operations, changed the management, restructured its debt and has now emerged in its new form.
Elecosoft’s software helps customers in three ways. First, it helps them to visualise what a building is going to look like, using 3D design technology. Second, it helps them manage projects so they run to time. Third, it helps them to calculate the cost so projects are less likely to go over budget.
The business works with 69 of the top 75 contractors in the UK and almost half the construction firms in Europe use its software. Overall, it has about 50,000 customers and its products have been used during the building of The Shard and the London Eye in London as well as the Reichstag in Berlin. More than 40 per cent of revenues come from annual maintenance fees so customers can keep software up to date.
However, most customers only buy one product from the group and the majority of its business comes from just three countries: the UK, Sweden and Germany. That leaves plenty of opportunity to grow, and the company aims to encourage customers to buy more products while making greater inroads into places such as America and the Middle East.
The firm even offers products for self-builders and homeowners, with a range that can be bought online under the 3D Architect brand.
Chief executive Nick Caw, a youthful 43, was appointed last year, having spent the previous seven years in a senior position at Microsoft UK. Before that, he was part of Eleco’s original move into software, so he already knew the business and its people well and could hit the ground running once he returned.
Initial signs are good. Given that Eleco’s software operations were created from a string of acquisitions, the businesses operated quite independently of one another. The UK division specialised in time management, the Swedes on cost and the Germans on visualisation.
Caw has fostered a more unified approach, encouraging people to collaborate so they can go to customers with a package of complementary products. The move is well-timed. Construction firms are keener than ever to become more efficient and regulations are pushing them in that direction.
Half-year results reported this month showed good progress. Despite the weakness of the euro and the Swedish krona against sterling, profits still rose 25 per cent to £500,000 and brokers expect full-year profits of £1 million, rising to £1.5 million in 2016.
There is no dividend at the moment but Caw is keen to introduce one once growth plans really bear fruit.
Midas verdict: Elecosoft is in an exciting part of the construction sector. Few companies offer as many different software services as it does and there are plenty of opportunities to grow. Caw is a sensible operator, who combines ambition with pragmatism and Elecosoft shares should respond well. Buy.
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