How does a modestly-sized financial software company survive in a world dominated with hugely-resourced competitors? With great difficulty is the answer that emerges from mid-term figures from UK-based Pegasus Group Plc.
Pegasus shares slumped 10.5% to 232.5 pence after another bout of bad news as the company said that the scale of investment is greater than forecast while the roll-out of new products is slower than planned.
Net profit for the six months ended June 30 was down 22.1% at 369,000 pounds ($590,400) – although this figure was inflated by a tax credit of 300,000 pounds ($480,000) – on revenue that showed a modest 9.5% increase to 8.1m pounds ($12.9m).
What has hobbled Pegasus is the cost of upgrading its software to 32-bit Windows compatibility, a task that proved far more expensive than planned, with the result that R&D spending was 450,000 pounds ($720,000) higher than in the same period last year.
The upgrade, Pegasus feels, puts it out in front of its competitors and will enable it to break out of its dependence on the UK and build a market in Europe. The problem is that it is up against rivals such as Sage which have far greater resources and can wield substantially more marketing clout.
To add to its woes, Pegasus’ CSM offshoot, which produces software for accountants, has hit problems because it has attempted to prolong the life span of some of its clients’ aging on-site systems. Consequently, the company has had to throw greater resources at tackling those problems which, in turn, slowed down the roll-out of newer products.
Having made the expensive change to a new generation of products, the Pegasus board is now optimistic about prospects for the next financial year. But this is a market unforgiving of short-term problems and while Pegasus’ share price languishes close to it 52-week low, the company would appear to remain vulnerable to a takeover.
