Empired should emerge stronger

Empired gets a valuation downgrade but with surging revenues we re-iterate our "buy" call.

Last week, technology services and solutions firm Empired Limited (EPD) announced that earnings margins in the first half were going to be significantly behind market expectations. The announcement advised that management views the lower margin as being caused by a number of “one off” issues, indicating that the longer term investment thesis remains intact. Of course, this is a downgrade to near term earnings, and we must consider that this is unexpected and does create some uncertainty in the business’ ability to execute its growth strategy. However, teething issues are always possible when a business grows its revenue base so significantly and attempts to acquire businesses integrate them and successfully scale its operations to deliver significant new contracts won in the last 12 months.

Our view is that the problems stem from issues with internal systems. While this is a concern, the company’s core products remain strong, with exposure to Microsoft a particular positive at present.



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