Even with a Strong End to 2022, Magic Software (MGIC) Can’t Defy Today’s Market Downturn

Magic Software (MGIC), a provider of business software and application development solutions, has held up relatively well in a bad day for the stock, but my guess is that shareholders expected more. All in all, the company’s fourth-quarter results, released this morning, showed an impressive 16.5% growth in revenue for the same period, up 10.6% year-over-year to $147.1 million. Record $155 million. This easily surpassed consensus expectations of his $131.7 million and was driven by better-than-expected organic performance, which accounts for more than half of this growth. Demand from North America was particularly strong, with revenue from the region rising 20% ​​to a record $84.9 million. MGIC’s operating margin declined due to currency headwinds and a significant portion of total revenues from its lower-margin IT professional services segment, which was largely offset by lower interest expense and tax rates. As a result, adjusted net income increased 9.9% to $13.9 million, or 28 cents per share, beating analyst expectations by 2 cents.

As for 2023, MGIC expects revenues of $585 million to $593 million. The midpoint of $589 million is $23.1 million below consensus expectations of $612.1 million, but other companies this past earnings season, including companies like MGIC, reported strong earnings in 2022. Consistent with similarly cautious forecasts provided by IT software companies. Importantly, the outlook still suggests solid growth of about 4% year-on-year, even though currency headwinds are expected to deduct another $15 million from the top line (which is With revenues of nearly $604 million in 2023 without 7 MGIC, the continued healthy demand seen in many of its end markets combined with the company’s innovative digital information initiatives, software solutions and IT services. It is expected to be underpinned by a robust pipeline of opportunities from customers, which we increasingly focus on as a preferred partner for 2023, which analysts currently expect, adding to my belief that margin performance will also improve. We expect earnings to grow at or above $1.13 per share per year.

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Additionally, boosted by strong free cash flow generated in the final quarter, MGIC enters 2023 with just $51.1 million in gross debt, $87 million in cash and short-term bank deposits, and a net cash position of 3,590. It was a million dollars. A portion of this excess cash will be used to pay the recently announced half-year dividend of 30 cents per share. The latter is at the company’s discretion, and the fact that it represents the largest payout to date and means an annualized yield of over 4% will likely impact MGIC’s ability to continue to deliver solid free cash flow going forward. It shows that you have a high degree of confidence. in our opinion. Therefore, while we are frustrated by the sluggish investor reaction to this strong quarterly report, we believe that earnings growth, sustained strong free cash flow production, a strong cash balance sheet, and MGIC stock appreciation The attractive combination of generous dividends on offer, I believe, is too attractive. Keep it at these depressed levels for longer.