Avisen, the business management consultancy and performance software provider, released its full year results ended 31 January 2010, a period of substantial corporate development since its reversal into Z Group on 2 February 2009. During the year Avisen made five strategic acquisitions that have had to be integrated resulting in exceptional charges.

Sales revenues increased from GBP2.406 million for the 10-month accounting period ended 31 January 2009 to GBP7.165 million. Gross profit increased from GBP1.303 million to GBP2.354 million although the gross margin contracted from 54.2% to 32.9% due to the broadening out of the business activities although margins should move up again as integration benefits begin to feed through. The enlarged group reported a total operating loss of GBP3.109 million but this was struck after GBP1.339 million of exceptional charges. Consequently the underlying EBITA loss was GBP1.770 million while the underlying EBITDA loss of GBP1.726 million. Net finance costs amounted to GBP6,000 offset by a ‘gain on bargain purchase' of GBP46,000 resulted in a reported pre-tax loss of GBP3.069 million a loss per share of 2.39p.

However, the Avisen story is about a focused buy and build strategy and since the year end the group has disposed of its non-core South African activities and completed the all share GBP11.4 million acquisition of Xploite plc which was effected through a Scheme of Arrangement. The terms of the offer were 3.6 new Avisen Ordinary shares for each Xploite share. Xploite's main operational asset is Storage Fusion, a SRA software business, which strategically compliments and strengthens the group's existing consultancy and software business performance solutions.

The group, following the successful integration of Xploite, has also restructured its executive management with Ian smith, Anthony Weaver and Michael Frank all leaving to pursue other interests while Mark Battles joins as non-Executive Interim Chairman and Claire Milverton becomes full time Chief Financial Officer.

The enlarged group's strategy will be to continue to increase market share in the CPM market through increased service offering; optimise Storage Fusion, which as of last month is apparently breaking even by cross-selling to existing and prospective performance management clients; and further strategic acquisitions.

Xploite strengthened Avisen's balance sheet and it is believed that the group will have net cash of around GBP5.3 million following the receipt of GBP2.15 million in September from the earlier sale of Anix.

Avisen started the current year building upon the successful consolidation and integration of its earlier acquisitions and the momentum was not disrupted by the acquisition of and rapid assimilation of Xploite's operating asset Storage Fusion that is now trading at break even. We understand that Storage Fusion may lose up to GBP0.5 million EBITA this year. Nevertheless, the group appears to be generating annualised sales of around GBP14 million and an EBITA of around GBP1.9 million or a group pre-tax profit of GBP1.4 million after central costs of GBP0.5 million and a modest net financial income from its cash balances compared with last year's recorded loss of GBP3.069 million.

With Avisen's shares trading at 3.75p the group is trading on an EV/EBITA of 2.25x and given the turnaround that is becoming evident for the group we would argue that a multiple of at least 6x would not be unreasonable or demanding, which suggests a target price of 10p. However, this target price assumes that the group cannot successfully deploy its cash pile and may generate the equivalent or higher returns than its existing businesses, consequently we would recommend the shares as a long term Buy.