Monday, 15 December 2008

Maxima - Cautious but stable

(By Richard Holway) Maxima (ERP systems to SMEs in the manufacturing/industrial sectors) issued a Trading Update this morning which, given the current economic backdrop, was pretty encouraging. Operating profit in H1 is expected to be “slightly higher than last year”, “cash collection was good” providing a “stable financial position” with the company continuing to have “the full support of its bankers, Barclays”.

It’s not surprising that Maxima also reports that “Macro-economic conditions are leading to some delays in decision making on some of the larger opportunities and we are therefore cautious about the future impact of this”.

In the past we have been highly critical of the “let’s build a S/ITS company by mass M&A” approach. I still have no record of anyone making a long term success of the model. Maxima has undertaken 11 acquisitions since its 2004 AIM IPO (which itself brought together several companies with their own ‘history’ like Minerva, Systems Team, Azur, Weir Systems etc). Despite new M&A opportunities being created by the downturn, we would caution Maxima to concentrate on bedding down the acquisitions it has already made. Indeed CEO Kelvin Harrison says Maxima “will only pursue further acquisition opportunities where there is a substantial opportunity to create shareholder value with low levels of risk".

Maxima IPOed in 2004 at 110p. Today the shares stand at 98p. Given that the FTSE SCS Index is down 22% in that period, that’s really not too bad.

It may also seem a strange point to make, but Maxima has a major asset in its favour in Kelvin Harrison. He gets out there and networks. He’s both known widely and generally well liked. In other words, although we don’t like the model that much, we do like the people. For that reason alone, we would wish them well and hope they prove an exception.

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