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This glaring valuation anomaly is worth exploiting

Shares in a smart sensing and software group are priced on 10 times cash-adjusted earnings and offer a 3.1 per cent dividend yield
June 17, 2024
  • First-half revenue up 10 per cent to £23.5mn
  • Adjusted pre-tax profit down from £4.5mn to £4mn
  • 90 per cent-plus visibility for full-year revenue
  • Directors expect double-digit annual earnings growth
  • Net cash of £54.8mn (41.7p)

First-half results from smart sensing and software group Oxford Metrics (OMG:99p) highlight a glaring mismatch between the positive trading outlook and maintained full-year earnings guidance given by the directors and the cautious stance being taken by investors.

Factoring in order book coverage and a strong sales pipeline that helps underpin more than 90 per cent of Progressive Equity Research’s full-year revenue estimate of £49.3mn, up 11 per cent year on year, analysts predict annual adjusted pre-tax profit will rise from £6.5mn to £7.9mn in the 12 months to 31 March 2025. On this basis, expect 15 per cent higher earnings per share (EPS) of 5.2p and closing net cash of £58.6mn (44.5p), implying the shares could be rated on a bargain basement 10 times cash-adjusted EPS estimates by the financial year-end.

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