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Author: Dominique Raviart
French small-business independent software vendor (ISV) Cegid has released its results for H1 2006. It recorded revenues of €106.5m, against €108.3 the previous year. Applications and related services are up by 4% (but only up by 1.3% organically) while hardware and related services are down. Cegid predicts an operating margin of around 9% in H1 2006 versus 5.3% in H1 2005. The company has negotiated a syndicated loan worth €200m from a pool of eight banks.
What's striking about Cegid is that it does not have a pure ISV model. Not only does it sell a software application, and implements and configures it, but it also distributes it across France. In our view, this explains its relatively low margin. However, small businesses want solutions and this means hardware, software and services. Cegid is not pushing hardware sales, as they bring limited margins. As a result, Cegid's margins should keep on growing. The question is, how high can they go? It would seem that Cegid has critical mass to enjoy solid operating margins in software, but the distribution business could be a drag. And there is a question mark over its margins in related services.
The economic environment is positive in France, but Cegid's organic growth is low. Either Cegid is underperforming the market or the small business segment is not yet investing in software applications. What's certain is that Cegid wants to keep on consolidating the market, and possibly in international markets. The bank credit line should help finance any future deals.
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