Versant Partners on "solid" MKS Q1

This report was published earlier today by Versant Partners on MKS (MKX:TSX). MKS is a Wellington Financial Fund I portfolio co. How many software companies are trading at 8x forward earnings, with a 6% dividend yield?:

EVENT

MKS released Q1/F10 results (July quarter) yesterday.

BOTTOM LINE

The large US$2M+ deal announced in June was included in the quarter and this follows two quarters (Q3 and Q4) with no large deals. As the company pursues larger deals, quarterly license revenue will fluctuate significantly, but we believe it remains well positioned vis-a-vis its competition. In addition, the stock is well supported by a 6% dividend yield, a stock-buyback and an attractive
valuation. We are making minor adjustments to our forecasts and maintain our $11.00 one-year target and BUY recommendation.

FOCUS POINTS

Revenue was $15.7 million, ahead of our $14.8 million forecast. Licence revenue was slightly ahead of forecast, $5.6 million versus
our estimate of $5.5 million.

Profitability also beat expectations with EBITDA margins of 18%, ahead of our forecast of 16%. Adjusted EPS was in line with expectations (US$0.15 vs. our estimate of US$0.15). The board increased the quarterly dividend to US$0.125/share (or US$0.50/share annually) from US$0.10/share (or US$0.40/share annually).

Our target of C$11.00 is based on 7x EV/F2010 (ending April 2010) EBITDA. This equates to 15x F2010 earnings.

MRM
(disclosure – I own MKS)