Spring Returns to Camelot 柯莱特将卷土重来

By newsdoug on March 26, 2012

Spring in Camelot? China’s banking sector may be heading into winter (previous post), but software outsourcing specialist Camelot Information Systems (NYSE: CIS) seems to think a spending downturn by the sector that hammered its stock last year may be in the past — an assessment I only half believe. Regardless of the real situation, investors clearly liked the message from Camelot in its latest earnings report, bidding up its shares as much as 24 percent after it posted its results on Friday, though the stock finally closed up a more modest 8 percent. (company announcement) They were also encouraged by the company’s announcement that it will set up a special unit just to develop software systems for financial services clients, which are clearly emerging as one of its main customer groups. (company announcement) I’ve had a look at the results announcement, and the numbers from the fourth quarter certainly aren’t very exciting, with the company slipping into the red in terms of net profit as its revenue fell slightly for the period. But investors were clearly much more excited about the company’s 2012 guidance, which included a return to revenue growth in the first quarter and a shrinking of the company’s losses. Perhaps even more surprising, though, Camelot also gave full-year guidance predicting revenue and adjusted net income, which was always positive, would grow by a healthy 17 percent this year. The fact that the company is setting up a separate unit for its financial services business and also giving full-year guidance indicate to me that Camelot has recently signed some major long-term contracts with some of its clients, giving it the confidence that this part of the business will be stable and even post some nice growth in the year ahead. That contrasts sharply with last year, when sputtering business from its financial clients caused Camelot’s performance to sputter as well, taking a toll on its shares. (previous post) Even with the Friday rally, Camelot shares, which closed on Friday at $3.32, are still at a tiny fraction of the $20 range where they traded just a year ago, reflecting the tough road ahead for this company. The company is particularly exposed to the China market, which accounts for much of its business, compared with rivals like HiSoft (Nasdaq: HSFT) and VanceInfo (NYSE: VIT), which get a big portion of their business from overseas markets. That diversity has helped HiSoft shares weather volatility in China more effectively over the last year, and VanceInfo has fared better than Camelot as well. So the question becomes: Is Camelot now poised for a comeback with this latest upbeat report? I would say the chances might be fair, perhaps 50-50, as clearly the company has some long-term contracts in its pocket and its revenues are small enough that its main financial clients may be reluctant to break those contracts even if their industry goes through a big downturn. But if the downturn is worse than expected — a strong possibility — I wouldn’t be surprised to see some downward revisions to Camelot’s 2012 guidance as the year goes on. On the whole, I would guess it’s chances of meeting its 2012 guidance are perhaps around 50 percent.

Bottom line: Camelot Information’s upbeat outlook for 2012 could offer an interesting buying opportunity for investors, but downward revisions to its guidance remain a strong possibility.

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