Investment Column: Just the Tikit: good value in legal software shares

Tikit is a small group but it is showing its much larger rivals a thing or two about how to run a software business. The group has developed an excellent niche in selling, installing and servicing specialist IT programmes for the nation's top law firms.

Tikit is a small group but it is showing its much larger rivals a thing or two about how to run a software business. The group has developed an excellent niche in selling, installing and servicing specialist IT programmes for the nation's top law firms.

It is this simple formula which has helped Tikit raise underlying profits by 49 per cent to £696,000 in the six months to June. The halfway dividend is being hoisted by a third to 0.6p.

Certainly, Tikit went through a baptism of fire in 2000, when an over-dependence on a Microsoft product and spending cutbacks by customers forced management to reorientate the business. However, it has learnt from that experience.

Sales of specialist software to help lawyers manage the reams of documents they shuffle every day, the time they charge out, and the clients they bring in, soared by 65 per cent to £1.77m in the half year.

This is crucial, and not just because Tikit earns a 30 to 40 per cent commission on every product sold. Everyone that buys the software also takes a support contract and may want consultancy. Little wonder that revenues from the former leapt by 64 per cent, while the latter advanced by 19 per cent.

Even though it boasts 71 of the nation's top 100 law firms as customers, Tikit has barely scratched the surface of the £180m-odd the legal profession spends annually on IT staff and software. Tikit has also now established a bridgehead in Spain and has just dipped its toe into France, with last month's acquisition of LECSoft, described as a "mini-Tikit".

Upgraded full-year forecasts of £1.5m before tax would feed through to fully-taxed earnings per share of 8.3p. That gives a forward multiple of 17, making the shares, up 10p to 143.5p, good value.