Caution pays off for cash-conscious Epic

AIM Bulletin
August 2002.

"Epic is the pick of the AIM-listed online learning outfits. It has...a good profit record. It has a blue-chip client list including Royal Bank of Scotland, Barclays, Lloyds TSB, B&Q, (and) Diageo...

It is also perfectly positioned to take advantage of the growth in e-learning spending by the government and its training organisations... Epic's management...have preserved the company's cash pile and not given into pressure to make aquisitions.

At the end of May net cash stood at £9.45m against £6.63m the year before, boosted by faster payments from customers as well as an increase in advance payments. Chief executive Donald Clark is still not looking for aquisitions, though he may buy specific software products if he believes they would constitute a good offering.

Epic developed software called PRIME in collaboration with the Cabinet Office to train senior management in leadership and strategic thinking. Last year's turnover included £250,000 from PRIME, but this year it will make a much bigger contribution. All development costs have been written off already.

In the year May 31, turnover fell from £8m to £7.2m as corporate spending slipped after September 11...trading has now returned to pre-September levels. This year, analysts expect a pre-tax profit of £1.4m and a negligible tax charge, using up all Epic's remaining tax losses. The following year the tax charge will be nearer 30% and profit should rise to £1.7m.

Cash generation will continue to be strong - the business requires little capital expenditure."

"At 80p, Epic has a market value of £18.8m and trades on 13 times this year's earnings. Strip out the cash and it is trading on around 11 times untaxed earnings - excluding the interest on the cash.

The estimates for the current year are conservative, so Epic could do even better, particularly if it manages to increase the revenues from PRIME, which are almost pure profit.

Share buy-backs are a possible use for some of Epic's cash, which could boost the share price further. Buy."