Eureka upgrade; PE of 8x

Empired recently announced a record earnings performance for its fourth quarter and its unaudited full-year result was roughly in line with my forecast. The final audited result is due to be announced on August 27.

The company has grown earnings through the sector weakness, benefiting from acquisitions and a recent capability to deliver larger contracts. The company has not looked back since its key boost to the management team in 2011 and 2012 to assist Managing Director Russell Baskerville. Chief Operating officer Rob McCready has three very capable executives under him who have excellent industry contacts and experience with the business challenge of transitioning towards larger contracts.

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The full-year result was highlighted by a 44% increase in revenue to $67 million and a 58% increase in underlying EBITDA to $5.7 million. The acquisition of OBS was completed in October 2013, adding $32 million of annualised revenue in high-growth services across the East Coast. We are forecasting 250% earnings growth in FY15, due to a full year from acquisitions and recent tender wins that see 45% of targeted revenue contracted.

Management is positioning to be a differentiated IT services company, by providing complete business solutions to clients rather than the traditional consultants and technical labour. They are particularly focused on enhancing capabilities in the higher growth cloud, big data/business analytics, mobile, social and security components of IT.

We maintain a Buy, with EPD trading on a FY15 PE of 8, and the current share price remains at a large discount to my $0.90 valuation and target price (previously $0.85).