Bond

Bond's shares have fallen heavily since I bought. Are they a screaming bargain?

Current share price: 49.5p
Market cap: £16.3m
Yield: 3.2% (1.6p per share)
2007 EPS: 11.4p
H12008 EPS: 3.1p
2007 EBITDA: 21p
H12008 EBITDA: 8.2p
Net tangible assets: £0m
Net debt: £0m

Almost two thirds of revenue comes from recruitment software, which companies may not be keen to invest in during a recession.

Almost half of their revenue is recurring revenue, which should hold up reasonably well.

But let's take a look at their cash flow. Basically, they don't have any. Their operating profit goes straight into development expenses. They may find it unpalatable to lay off development teams during a recession, so essentially you could roll these into costs and see them as an unprofitable company.

Assuming they're reasonably accurate about the capitalized value of the products they are developing, I suppose we're left to conclude that they are a genuinely profitable company, but are not going to create growth without investment. Their Return on Equity is about 10%, which is not stellar.

Assuming Bond reinvested earnings of 10p per share generate future EPS of 1p, that gives them EPS growth of about 9%. Added to their dividend yield of 3.2%, that means a total shareholder return of about 12%. Which is pretty good, although not jaw-dropping.

Maxima's ROE is also about 10%. Their dividend is 5.7%. Their retained earnings should drive growth at about 6%. So their total shareholder return is also about 12%. So at these prices Bond and Maxima are similar in value.