Although Softline's share price remains fairly stable, if heavily traded, a financial research document predicts the company's results will be "mediocre" and states there is little room for growth for the firm.
The financial software company is expected to release its interim results early next week.
A research report on a Tradek.com newsletter, conducted by Vantage Investment Solutions, has rated the share as a "very risky" investment.
The report states that results for the six months to September will be mediocre, and conditions in North American markets may result in subdued growth.
The report notes that growth in the local market will depend on the group's ability to convert existing Pastel users to an annuity-based model.
Marlene Heymans, a Vantage analyst, says the group has its Brilliant accounting software on an annuity model already and this is working well. However, she expects that the conversion of its Pastel users to the annuity model will take between four and five years, due in part to a consumer market which may be resistant to upgrading their existing packages.
According to the report, growth in turnover is expected to be around 10% and margins are expected to remain static at 28%.
Earnings are expected to be affected by an increase in the effective tax rate and a reduction in interest earned. The report blames the higher tax on higher contributions by the North American operations.
Softline reduced its exposure to US-based SVI early in September, opting for a share swap into Irish software company Integrity. However, Heymans says Integrity has not been performing particularly well either, and to compound matters, the Irish company had a shareholding in South African company Planit, which applied for provisional liquidation on Tuesday.
The report concludes by rating Softline as an under-performer both in the short- and medium-term.
"We consider the share to be very risky given the uncertainty of realising value from its investment in American-based company SVI. We also await signs that the group is increasing its base of recurring income in the local market," says Heymans in the report.
The Softline share price was trading down at 89c by midmorning.
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