Why this small-cap turnaround could be the next millionaire-maker stock

Profits collapsed in 2015 for education management software and services provider Tribal Group (LSE: TRB) and the share price hit a low point during February 2016 just below 17p. Back then, the new chief executive Ian Bowles told us that the firm's challenging year arose because of slower sales momentum and major contract changes "leading to deferral of significant contract revenues."

Balance sheet rebuilt

He went to work, starting off with a rights issue and disposal of one of the firm's business units to shore up the balance sheet in the spring of 2016. After assessing the "opportunities available to the Group," he said that Tribal served a "strong" installed-software customer base, which included many leading universities and colleges and its services were used by high-profile institutions and government agencies "around the world." He pledged to bring "greater focus"  to operations and looked to the future "with confidence."

That confidence has been vindicated. Earnings turned the corner during 2016 and pushed higher in 2017. There's still a long way to go before earnings per share once again hit the more-than 8p achieved in 2013, but forward guidance is positive. City analysts following the firm expect normalised earnings to move more than 60% higher this year and around 14% in 2019. The share price has responded well to the firm's turnaround and is now around 425% higher than it was in the dark days of early 2016. But I think there could be more to come from this company, perhaps much more.

Well positioned for growth

Today's half-year report is encouraging. Although revenue eased by 4.9% compared to the equivalent period last year, earnings per share shot up 76%. The company said in the report that 90% of full-year revenue expectation is either already recognised or committed for the second half, and annually recurring revenue runs at around 45% of the total. I reckon such visibility looks set to lead to stable incoming cash flow, which bodes well for the firm's ongoing dividend prospects. The directors reinstated a dividend of 1p per share in May 2018 and plan a progressive dividend policy with a single payment each year after the full-year results.

During the period, Tribal won a "significant" number of contracts with British universities and colleges and abroad. Ian Bowles said in the report that the first phase of the turnaround, which began in 2016 is complete. However, he's not sitting back with his feet up, vowing to "continue to focus on driving operational efficiencies with a view to continuing to lower our cost base." He reckons Tribal's "revitalised" sales and marketing efforts have been effective, helping the firm to gain market share in its core markets and to "displace over 20 competitive student management systems and replace four home-grown solutions in universities."

Looking forward, the directors expect overall market conditions and demand for student information systems to remain stable in 2018.  Based on the firm's high win rate they assert that the company is "well positioned" to benefit from the ongoing demand for new student information systems and upgrades. There's no doubt that Tribal is a turnaround that is turning, and I think the stock is well worth your attention now. 

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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