Reckon shares are facing a slow recovery after its latest cold shower
Link copied to
After its shares dived to near ten-year lows last week following the collapse of a planned merger, it is back to basics for accounting software group Reckon amid intensifying market competition.
The loss of exclusivity over the marketing of US giant Intuit’s accounting software — coupled with the shift of software into “the cloud” and the emergence of aggressive competitors in the “software as a service” (SaaS) business sector — has shaken up Reckon’s market as the likes of Xero, MYOB, Intuit and Sage fight for a slice of the pie.
To strengthen its position against the shifting competitive landscape, MYOB came knocking in November with an offer Reckon couldn’t refuse: a $180 million offer for its accountant group arm.
“We didn’t approach them, they approached us with a very good offer of around $180 million for half of our business,” Reckon’s boss Clive Rabie told Stockhead.
At the time, Reckon was valued at $150 million in the share market.
Persistently overlooked by investors with a lagging share price, Reckon spun out its UK-based document storage arm to shareholders late last year.
And, just as that deal was being wrapped up, MYOB came knocking, putting $180 million on the table for Reckon’s accountant group arm.
Cash from the sale would have helped it pay off debt with cash also to have been showered on shareholders.
But concern that competition authorities in Australia and New Zealand could block the merger saw MYOB break off the deal last week, which triggered a sharp fall in Reckon’s share price.
The shares fell to $1.05 — their lowest point in almost a decade — before they edged back a touch to end the week at $1.09.
When Reckon ruled off its books in December, it had borrowings of $50 million which overshadowed the equity base of $13 million.
Reckon’s Rabie says his company generates robust cashflow, which runs well ahead of the annual software development spend.
“We have pretty good cashflow,” he said.
Now that the deal with MYOB has been shelved, Reckon is looking to growing both parts of its business, both the accounting software as well as its its other business software units.
As for the share price, “we will look at dividends, acquisitions and reducing debt”, Reckon’s Rabie said.
“Our priority is dividends which will make the shares more sexy and reducing debt.”