Citadel Group Ltd (ASX: CGL) shares have surged over 20% this morning as the ASX software and technology provider told the market it had not yet experienced any adverse impacts from the coronavirus crisis. Citadel also reassured the market that its acquisition of UK healthcare software company Wellbeing remains on track.
Citadel's business
Citadel advised that no significant projects or contracts have been delayed or cancelled since the release of its most recent results. The company's customer base is predominantly comprised of health and government clients. Contracts are generally long term and support business critical software applications.
Importantly, Citadel manages 42% of Australia's public pathology data and is working to support health providers as they adapt to new technology to support coronavirus testing.
The company has considered the effect of current economic uncertainty and has put plans in place to reduce operating expenses. Non-essential capital projects are being deferred, and liquidity and cash flow is being managed within bank covenants.
A pandemic plan is in place to reduce exposure to Citadel's employees and manage any potential cases of coronavirus within the business. Plans are also in place to address operational changes required to maintain business continuity.
Wellbeing acquisition
Wellbeing provides healthcare software which manages patient workflow data. It is continuing to meet its original earnings expectations. With recurring revenues of around 70%, it is well placed to continue to deliver on the financial expectations that underpinned the rationale for the acquisition.
Wellbeing has enacted its business continuity plan and is continuing to support customers remotely. It is also seeing opportunities arise across managed data centres for its core product, as well as opportunities to detect high risk patients through its data management product.
Citadel's CEO Mark McConnell said, "Wellbeing transforms Citadel into a global healthcare software company with multiple growth opportunities. Its financial information shows that the business is performing to expectation, despite the wider challenging business environment."
Financial position
Both Citadel and Wellbeing have blue chip and government enterprise clients, particularly in the public healthcare sector, which contribute to strong cash flows from operations. The 2 companies have a largely defensive revenue base with the ability to reduce operating expenditure and non-essential capital expenditure if required.
Following completion of the Wellbeing acquisition, Citadel expects to have a combined cash balance of approximately $10 million. It also has an additional undrawn working capital facility of $10 million, with sufficient headroom within banking covenants. The company's fully franked interim dividend of 4.8 cents per share will be paid on 27 March.
