The phenomenal take-up of cloud services is turning the IT industry on its head. Here corporate networks and in-house data centres are being replaced by third-party hosted (eg Amazon, Google and Microsoft) services, streamed from almost anywhere on the planet.
However, there’s one problem. What happens to all the confidential information left behind? Well the cheapest, quickest and safest solution is to ‘erase’ it, thus enabling the old equipment to be re-sold/used. The interesting bit of course being that only a few companies worldwide can do this 100% securely with guaranteed assurance across multiple storage devices and infrastructure platforms. In our view, the most comprehensive being Blancco - which coupled with buoyant demand elsewhere (eg “mobile & active” erasure, new EU GDPR legislation (25 May), cyber-security) - should begin to deliver consistent double digit organic growth from FY19 onwards.
That said, the business has undoubtedly been through the wringer over the past 12 months. Albeit after this morning’s ‘in-line’ H1’18 results, we believe the worst is now over and sense that management are becoming quietly more confident. A message further supported by interim CEO Simon Herrick saying the group is “better organised and controlled…in the best possible state to welcome a new CEO. ”
In terms of the numbers, H1’18 LFL turnover (incl. -£0.2m forex headwind, and stripping out the discontinued Mexican JV, £0.5m LY), adjusted EBIT, OCF and net debt came in at £12.6m (c. 95% recurring vs ED £12.5m, £12.8m LY), £0.8m (£0.5m ED, £2.5m), £0.9m (£0.5m ED, £0.8m LY) and £3.4m (-£4.0m ED, £1.7m LY) respectively. In turn generating 110% cash conversion, better than expected cost/cash control (eg lower headcount) and a 28% jump in mobile erasure (to £3.6m thanks to new client wins) - offset by several large multi-period deals recognised LY. Capitalised R&D at £1.2m was balanced almost equally by a £1.1m amortisation charge.
Looking ahead, H2 (turnover £15.9m) should benefit from the usual seasonal uplift in renewals on top of the 35 new channel partners signed (further boosted by Ingram Micro post period end), with cashflow being roughly neutral despite absorbing c. £750k of deferred consideration (£2.2m FY19).
H1’18 adjusted EPS at 0.72p (vs 2.75p LY) excluded £1.2m (£0.5m) of exceptionals related to organisational restructuring (£0.6m) and one-off legal expenses (£0.6m) incurred on the exhaustive FY17 contract review.