Amid the debris of UK share price performance this year a little-known software story has been knocking it out of the park. Aim-traded Cerillion (CER:AIM) has seen forecasts upgraded through 2022, ending up with record full year statutory profits, revenues, and a bulging order pipeline of new business.

Having started the year at 916p, by early March the stock had fallen to 602p, then a new rally kicked in. The shares are currently trading £12, just 6% off their all-time higher of £12.80 set in November.

WHAT HAS BEEN DRIVING THE SHARE PRICE LONGER TERM?

Cerillion built its reputation on an integrated enterprise billings and customer relationship management software platform sold to large telecoms companies, but it has expanded the suite to cover charging, interconnect, mediation and provisioning solutions.

Importantly, it has also developed a cloud-based billings solution named Skyline that can be deployed outside of the telecoms industry and is available for public and private cloud delivery. Skyline is sold both direct and through channel partners to telcos and other utilities, finance companies and transport businesses.

5G mobile network investment is benefiting Cerillion. This is a huge investment cycle for the industry, and it has forced many large telcos to look at their IT stack to see where opportunities exist in delivering consumers new services.

Cerillion’s suite offers the industry the kind of flexibility needed to monetise 5G and fibre investments in a challenging market backcloth, hence a big upgrade cycle and high demand for the company’s proven products.

Increasingly selling five-year software-as-a-service contracts, Cerillion’s investment in its IT suite means it has more tools in its stack to sell to clients, so average contract sizes have been rising.

GROWING ORDER PIPELINE

This helps explain an order pipeline increase of 43% in its recent financial year to £209 million, and revenue growth of 26% to £32.7 million. In the past revenue growth has been nearer 10%.

Statutory pre-tax profit jumped 47% to £10.9 million, or 40% to £11.9 million if you adjust for amortisation. It had net cash worth £20.2 million at the September year end.

Contracts tend to provide income reliability. Cerillion says 98% of income stems from organisations that were customers before the past financial year. This makes Cerillion not just attractive to retail investors, but potentially to private equity buyers.

Sticky recurring revenues that generate good cash flows are to private equity firms like nectar to bees. Return on capital employed is forecast at 38.5% by analysts at Berenberg, and they see above-market average growth and shareholder returns over the next couple of years.

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