Canaccord Genuity stays at 'buy' on Cerillion

Analysts at Canaccord Genuity reiterated their 'buy' rating on software and services firm Cerillion on Monday after the group's trading update revealed that full-year consensus expectations had been "conservative".

Cerillion has now pointed to full-year revenues being slightly ahead of consensus estimates of £32.0m and Canaccord Genuity's £30.8m prediction.

The Canadian bank estimates implied organic growth of roughly 20%, while adjusted pre-tax profits were guided to be "materially ahead of consensus" estimates of approximately £10.0m - benefiting mainly from higher staff utilisation rates lifting gross margins on the back of a "hot" demand environment and aided further by foreign exchange tailwinds.

"Overall, we estimate a 10-20% beat of consensus profit expectations, with adj. operating margins likely relatively stable yoy in the low 30s%," said Canaccord.

"The company closed the year with net cash of ~£20m, equivalent to 7% of the market cap and ahead of our £18m forecast. We estimate this implies free cash flow of almost £10m for the year, suggesting an impressive near-100% conversion of adj. net profit."

Canaccord opted to leave its forecasts unchanged for now and said it will review them with the group's 2022 full-year results, expected to be published in late November.

Reporting by Iain Gilbert at Sharecast.com