Stock: Integrated Research

Stock code: IRI

Share Price: $0.36 (as at close 22/07/11)

P/E Ratio:  12.33 (Sector P/E )

Market Cap: $61,720,000

Broker Calls

William Shaw Securities – BUY


Investor Centre: Integrated Research Limited

Company news: Integrated Research Limited


Integrated Research (IRI)


Chart: Share price over the year to 15/07/2011 versus ASX200 (XJO) 

After hitting its lowest point in two years of 25 cents on June 10, Integrated Research (IRI) – a software company that produces performance monitoring tools for global financial institutions and networks – has surged in the past few weeks. It rocketed from 27 cents on July 4th to its current price of 36 cents, a whopping 33% gain. Of course, these are the sort of gains (and losses) that speculative small caps can make (and lose) as they build the company and move towards mid-cap status.

Founded in 1998 and listed in 2000, IRI is in fact one of the survivors of the tech wreck, and although its share price was hammered along with the rest of the sector back in 2001, it survived and has managed to steadily grow its business with a minimum of fuss. IRI now boasts 4 of the top 10 banks amongst its clients, and on Jul 7th issued a profit guidance for FY2011 in the range of $7.1 to $7.5 million, a 31-39% increase on the previous financial year. It was of course this news that sent the share price soaring in recent weeks.

The results will be formally announced on 18th August, with the company stating that the profit increase came about from an increase in licence sales in the IP Telephony and HP-Nonstop product lines. “The company has continued its growth in revenue despite the challenges with the appreciation of the Australian dollar. I am particularly pleased with the strong growth in both the US and Europe representing our two major markets,” CEO Mark Brayan said.

The tech crash spelt the end for many companies riding the hysteria of the IT boom, with many falling by the wayside after losing investor support. The Nasdaq is currently trading more than 50% below its peak, however it has outperformed other market indices over the last 12 months. It appears that technology is leading the global economic recovery.

Behind the surge is the ‘real’ internet boom, led by massive companies such as Apple, Google, Microsoft, Groupon, Facebook and LinkedIn. A decade after the dot com crash, the hype which drove the bubble are finally being delivered. The internet is everywhere, even in the palm of your hand, and many technology companies clever enough to have survived the crash are prospering in a big way.

Back here in Australia the technology sector accounts for only 1% of companies that make up the All Ordinaries index, and as such it is often overlooked by local investors. 

IRI is a classic survivor of the dot com mania, actually listing at the height of the bubble at $1.40 per share. It didn’t stay there long, with its share price crashing to lows of 10.5c by mid-2003. It has taken years to resurrect investor confidence, however now that it boasts a blue-chip client base that includes the world’s largest bank, stock exchange, aviation and telecommunications company it may be on the cusp of an exciting period of growth.  


Integrated Research sells performance monitoring and diagnostics software for business-critical IT infrastructure and its flagship product is Prognosis. Basically, if a company’s computer systems are ‘sick’, this software will provide instant alerts and diagnostics, helping to identify and promptly resolve problems before they impact business. With IT fast becoming the backbone of everyday business, Prognosis has recorded solid earnings growth in recent years. A fresh wave of momentum is now being driven by the internet based (VoIP) telephone network industry, where sales have been increasing by over 30% per annum since 2003. VoIP telephony accounts for a large percentage of total revenue, and the recent surge in new licence sales to VoIP users is a strong indication that future contributions are set to grow.

IRI’s partnership with Avaya – one of the world’s largest suppliers of corporate IP telephony networks has seen Prognosis recommended as the preferred voice quality monitoring solution to Avaya customers worldwide and Prognosis is now being shipped with every new piece of compatible Avaya hardware. Unsurprisingly, the alliance has created a robust sales pipeline, and if current earnings momentum continues, the stock’s current PE of 8.6 and dividend yield of 8.3% offer an attractive value proposition.

IRI has customers in more than 50 countries, including stock exchanges, banks, credit card companies, airlines and universities. According to IRI this includes:

– 4 of the world’s 10 largest stock exchanges
– 4 of the world’s 10 largest banks
– 6 of the world’s 10 largest telcos
– 5 of the world’s 10 largest oil companies
– 3 of the world’s 5 largest computer hardware manufacturers
– The world’s largest international airline
– The world’s 2 largest aviation companies

It’s interesting to note that the major shareholder, with 56.64% of total shares, is Stephen J. Killelea – the Founder and Chairman of the company.

Financials & Earnings

IRI earns most of its revenue through the sale of upfront license fees for Prognosis software, as well as via recurring revenue for software maintenance fees and annual license fees. It claims to have a “demonstrated history of high customer retention levels”, which of course is essential in maintaining profit levels.

“The company’s core strategy is to maximise revenue sourced from licensing Prognosis software and software maintenance fees, while using Consulting Services to further extend the reach of Prognosis monitoring and add value to our clients,” it says. “Investment in research and stgelopment to enhance our existing intellectual property, and stgelop new intellectual property, is also central to our business.” IRI does invest a considerable amount in R&D each year with a view to maximising return on investment in a competitive industry.

IRI announced on July 7th that it anticipates its profit after tax for the financial year ending 30 June 2011 to be in the range of $7.1 million to $7.5 million compared to $5.4 million for the prior financial year – a 31-39% increase.

Earnings have been heading in the right direction for some time now, with the company reporting in February that first half revenue was $20.5 million, representing an increase of 11% over the equivalent prior period. First half profit after tax was $2.4 million, representing a 12% decrease, however this was mostly due to the high Aussie dollar because in constant currency, revenue would have been up 18% and profit after tax up 12%. “The highlights of the reporting period were solid licence sales growth in IP Telephony and HP NonStop product lines together with strong growth in consulting services revenue,” it said. “Overall licence sales were up 16% to $10.6M and consulting services up 93% to $1.3 million over the equivalent prior period. IRI also achieved positive cashflow from operations of $5.7 million, which represented an increase of 59%.

Financials for IRI:


2008A 2009A


 Sales Revenue ($m)

 37.4 42.7 37.3

 EBITDA ($m)

13.88 15.05 12.48

 EBIT ($m)

 7.21 9.37 5.70

 Reported NPAT ($m)

 5.8 7.9 5.4


 11.7 6.2 13.4

 Dividend Yield (%)

 8.8 14.5 7.5

 Net Profit Margin (%)

 15.4 18.4 14.5

 ROE (%)

 24.3  28.9  22.0

 Net Debt/Equity (%)

 -46.9 -53.1 -34.3

Link to company Earnings Report: Integrated Research Half Year Earnings Report – to December 31st, 2010

Analysts’ views

As a micro-cap in the IT sector, the stock doesn’t get a lot of coverage from analysts.

Nonetheless, Shawn Uldridge from William Shaw Securities has been covering the IT minnow and likes what he sees. Uldridge has placed a firm buy on this software company involved in producing performance monitoring tools for global financial institutions and networks. “We expect much higher profits going forward despite challenging currency movements,” says Uldridge. “With a recent market capitalisation of about $60 million, the company is small, cheap and offers massive growth potential.”


As a micro-cap in the IT sector there are certainly risks for IRI, from its dependence on the partnership with Aviva to competition from other IT firms who produce better, faster solutions. However having survived the tech wreck and then the GFC in a tumultuous 10 years it has shown that it has what it takes to stick around for the long term. Its reach worldwide holds it in good stead, with multiple contracts with major companies worldwide.

It isn’t a stock for the faint-hearted, but with other sectors from banking to retail in thick mud it is well worth keeping an eye on its progress as it attempts to move to the next rung.

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