I have had GLH on my watchlist for a while. But up until the...

I have had GLH on my watchlist for a while. But up until the announcement this week, I've never owned any.

I think the announcement is significant for their future earnings, and could be a trigger for a rerate. To put the news in context, it will increase revenue by around 15-20% pa. This assumes the revenue is evenly apportioned over the next 5 years. I also like the concluding comment from the CEO... " Our pipeline is strong and we are confident of further new contract wins in the coming months.“"

Certainly the volume that has gone through in the last couple of days indicates that the release is significant. But clearly there is a seller who wants out and is selling into the good news. Perhaps the seller has given up after 2 years of falling revenue and earnings. The company will argue that this is due to the transition to a SAAS model. Rising star research summarizes the situation here.

The recent AGM gave a progress update. There were a lot of encouraging signs that the fall in revenue and earnings have halted. In fact they appear to be growing even after the fall in profits due to the loss of the South Australian contract. "In the first 4 months of this financial year (July‐15 to Oct‐15), management accounts indicate  a 3.1% increase in Licence and Recurring Subscriptions over the previous corresponding  period (July 2014 to Oct 2014). Disregarding the South Australian Government revenue over  the comparison periods, the underlying growth in Licence and Recurring Subscription is  closer to 25%."
This is a really important because last year's recurring income represented 80% of total income during the year.

There are many IT related stocks that make money from projects (EPD, RXP, UXC etc). GLH earns most of their revenue from recurring maintenance and SAAS income. This provides a lot of stability and quality to their earnings base. GLH should attract a higher pe multiple than these project based IT services companies.

At a price of 23c, GLH are trading on pe=7 based on the mid-point of management guidance (eps=3-3.5c). It is important to note they they pay no tax, and have no debt. MC=$7.5m (a nano-cap).