Shares in Castleton Technology (LSE: CTP) have been moving steadily higher over the past year. Since June 2014, the company’s shares have gained 132% — that’s around 9% per month.
And if this trend continues, within six months Castleton’s shares could hit 5.6p, 93% above present levels.
But is this a realistic expectation? Can the company maintain its lofty growth rate?
Organic growth
Throughout much of the past year, Castleton has been going through a period of transition.
During June of last year the company concluded the acquisition of Montal Holdings Limited, a well-respected provider of IT managed services to the public and not-for-profit sector.
Then, during November of last year, Castleton acquired Documotive Limited a document management software and scanning business focused on the social housing sector.
The full benefits of these two deals are yet to show through in Castleton’s results.
However, we do know that for the six months ended 30 September 2014, Montal contributed revenues of £1.9m for the Castleton group.
Still, the company is yet to report results for the past six months.
Acquisitions
Castleton has been extremely busy during the past six months. Indeed, the group has been concentrating no both organic and bolt-on growth to boost sales.
For example, at the beginning of March the company announced that it had acquired social housing managed services provider Keylogic Limited, for a consideration of £3.8m.
Also, Castleton paid £0.5m for Opus Information Technology Limited with a further £1.5m payable dependent upon performance.
Then, at the beginning of June, Castleton announced two more acquisitions. Firstly, the £5m acquisition of Impact Applications Limited, a provider of business-critical repairs management and scheduling tools to the social housing sector.
And secondly Castleton paid £5m for Brixx Solutions Limited, a provider of software enabling users to produce financial models and long-term forecasts.
Market leader
Thanks to these acquisitions, in the space of just a few months, Castleton has become the leading supplier of software and services to the social housing sector.
Nearly a third of all the social housing associations in the UK are now Castleton customers.
Moreover, Castleton’s management estimates that the group’s revenue run rate now stands at £18m per annum, 50% of which is recurring — not bad for a company which reported revenues of less than £2m last year.
Conservative projections
Based on Castleton’s current revenue run rate, City analysts expect the company to report a pre-tax profit of £0.1m for 2015. A pre-tax profit of £3.2m is projected for 2016.
These numbers suggest that Castleton is trading at a forward P/E of 15.1.
However, based on the company’s aggressive growth achieved during the past few months, these forecasts could already be out of date.
Unfortunately, with this being the case, I’m hesitant to try and place a per-share target on Castleton at present. Nevertheless, it’s clear that Castleton is growing rapidly, and there could be further upside to come.