Idox has reported strong financial and operational progress in its H1 FY20 (the six months to April, only latterly affected by COVID-19) with headline numbers in line with its recent trading update and notable cost control and margin improvement. H1 20 reflects a good performance by a business that has been revitalised, with a ‘cloud-first’ approach, by the current management team. The Group also introduced new marketing strategies which are more closely aligned with product management. Idox continues to trade in line with market expectations and cash collection has been better than expected while the Group continues to win new business and deliver services. Management states that Idox remains in line with its existing forecasts and we note the resilience shown by the business in the current environment. We leave estimates unchanged.
Idox presents an unusual investment opportunity – a business deeply embedded in customer markets for many years (even decades) but one also ready to benefit from a major revitalisation, to move with its customers to more modern and higher margin SaaS-based delivery and relatively resilient to Covid-19 pressures. We provide an overview of the group, and look forward to 2020 delivering on the back of a solid 2019 result.
With FY19 in line with its targets, Idox is ready to continue the process of shifting to a recurring or SaaS revenue model over the coming years. Today’s trading update points to end Oct run-rate ARR of £38.9m, up 16% organic yoy, with a contracted order book of £12.1m up 29% underpinning the outlook for continued growth. We expect the shift to a cloud-first, SaaS revenue model will both accelerate growth and reduce costs. This makes the forward FCF yield of some 7% noteworthy.
The Pebble Group, a provider of products, services and technology to the global promotional products industry, announces its intention to seek admission of its shares to trading on the AIM market of the London Stock Exchange, which is expected to take place in early December 2019.The Group delivered revenue of £99.8m in the year ended 31 December 2018.No mention of bottom line and a suggestion that funds raised would provide an exit to private equity shareholders and the repayment of debt. Offer TBA. Longboat Energy raising £10m. Expected admission November 2019. The company has been established by the former management team of Faroe Petroleum to create a new full-cycle North Sea oil and gas company .The strategy to achieve this will initially be through the acquisition of assets where the management team can add value through subsurface and operational improvements, follow-up deal opportunities and nearfield exploration; and by value creation through the drill bit. Sapo PLC - Seeks to invest in the developing market for rural broadband in the UK. Due 2 Dec. Taseko Mines - North American focused copper producer and developer, seeking a London Listing. No capital raise. Due 22 Dec SDIC Power - “potential intention to float”. Proposed GDR listing. Leading power generation company in China, with a diversified portfolio of projects across hydropower, coal-fired power, wind power and solar power. Offer TBA. Octopus Renewables - Seeking raise of up to £250m. Will seek to provide investors with an attractive and sustainable level of income returns, with an element of capital growth by investing in a geographically and technologically diversified spread of renewable energy assets—Due 10 Dec
Companies: SPO WAND CNS IDOX IGP BRCK LTHM CBOX NQMI SAV
Idox has announced the acquisition of Tascomi, a provider of proprietary web-based software solutions to local authorities and Government departments in the UK and Ireland, for £7.15m in cash. The acquisition, which has been funded by a Placing to raise £7.4m gross, has compelling strategic and financial rationale as it provides an efficient way to enhance Idox’s technology platform, strengthens the company’s market position, enhances growth and margin, and will provide revenue and cost synergies. We estimate that the acquisition will enhance EPS by c5% in FY20 and c12% in FY21. A FY 2020 EV/EBITDA of 7.3x for the combined group is highly attractive.
Idox has reported interim results that reflect a transformational period for the group, with the new Board and management addressing historical contract issues and driving significant improvement in operational execution, financial management and strategic focus. While these initiatives have impacted trading in the short term, resulting in a small decline in revenue and profitability in H1 2019, we are confident that they will provide a strong foundation for improved operational and financial performance over the longer term. Reflecting this impact, guidance given in the results statement and other forecast adjustments, we have reduced our FY 2019 revenue, EBITDA and EPS estimates by 2%, 10% and 20% respectively. Our FY20 and FY21 EBITDA expectations remain unchanged. The current valuation – FY 2020 EV/EBITDA of 8.7x and P/E of 14.2x – suggests considerable scope for re-rating as growth accelerates, margins increase and cash generation improves.
Idox has released a positive AGM statement confirming that current trading remains on track and highlighting significant operational and financial improvements. Separately, it discloses the discovery of a number of historical contract irregularities that overstated FY16 revenue and profits by £4.5-£5.5m. Investigation has concluded that these irregularities will have no impact on current year expectations, but will reduce net assets by c£0.75m once corrected. Hence we make no changes to our existing forecasts. Just as importantly, we understand that underlying clients have not been negatively impacted. With the shares still trading at a discount to peers, we continue to see healthy upside from a progressive rerating as management delivers on our growth, profit and cash targets.
Idox has reported full year results that reflect a challenging year financially, but new leadership has delivered good progress with revenue recognition, recurring revenues, costs and cash. We expect further operational improvements in FY 2019 and beyond. We re-introduce forecasts that imply progressive top-line improvement, significant margin progression and strengthening cash generation. The current valuation - FY 2019 EV/EBITDA of 9.2x and P/E of 14.7x - suggests considerable scope for re-rating as management continues to execute and investor confidence returns.
Idox has issued a trading update indicating that full year revenues and adjusted EBITDA, excluding the disposed Digital business, will be £67.2m and £14.4m, respectively. The group has made good progress with revenue recognition, increased focus on recurring revenues, cost reductions and improved cash conversion – with the promise of more to come in FY 2019 and beyond. Further encouragement comes from an improved performance from the continuing businesses in H2 and the appointment of a new leadership team. We will look to reinstate forecasts when full year results are issued in February and we have greater visibility of underlying revenue performance and the impact of cost base reductions. We continue to view Idox as a collection of fundamentally good businesses, with highly regarded offerings and established positions in attractive markets.
Kropz, an emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa, a phosphate project in the Republic of Congo and exploration assets in Ghana, is looking to join AIM. Offer TBC, expected late Nov
Titon holdings—international manufacturer and supplier of ventilation systems and window and door hardware. No capital raise. Due 10 Dec. Mkt cap c.£22m.
Greenfields Petroleum (TSX-V:GNF) production focused company with operated assets in Azerbaijan seeking AIM dual listing including $60m private placement. Mkt cap $12.6m CAD. Expected early December.
Finncap—proposed acquisition of M&A adviser Cavendish Corporate Finance and AIM admission. Offer TBA. Due early Dec
Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is investigating the possibility of AIM admission. The Company is proposing to raise up to £2.25 million before the end of December, conditional on Admission.
The Panoply parent company of a digitally native technology services group founded in 2016 with the aim of identifying and acquiring best-of-breed specialist information technology and innovation consulting businesses across Europe, is looking to join AIM. Offer TBC, expected late November 2018.
Companies: SKIN DCTA RCN FPO SUH JAY PPC IDOX HRN PREM
Idox has announced the disposal of its Digital division for £1. This news reflects management’s strategy of focusing on the group’s core operations and streamlining the operating model. No new trading information was disclosed pending the release of a full year trading update later this month. We continue to view Idox as a collection of fundamentally good businesses, with highly regarded offerings and established positions in attractive markets.
Augean (AUG LN) Strong H1 PBT growth; material reduction in net debt | Brewin Dolphin Holdings (BRW LN) Impressive 8% annualised discretionary flows in Q3 | Burford Capital (BUR LN) H1 results – c.15% up on a strong comp – increasing estimates and TP | Earthport (EPO LN) Continued progress with operational changes | EKF Diagnostics (EKF LN) Exclusive agreement with Asahi Kasei expands US products portfolio | IDOX (IDOX LN) Framework in place for improved future performance | Marston’s (MARS LN) Positive Q3 update goes a long way to allay forecast and DPS concerns | Rathbone Brothers (RAT LN) Solid H1 earnings, but still modest organic net inflows | Victrex (VCT LN) Another strong volume performance, FY guidance maintained
Companies: AUG BRW BUR EPO EKF IDOX MARS RAT VCT
Bioquell (BQE LN) Disposal of final non-core asset | Dunelm (DNLM LN) Friday’s downgrade disappointing but not a fundamental concern | First Derivatives (FDP LN) Upgrading EPS estimates by 7-8% | IDOX (IDOX LN) Interim trading update, closure of Digital and new CEO
Companies: BQE DNLM FDP IDOX
IDOX (IDOX LN) Weak H1, but strong order intake and restructuring will benefit H2 | ReNeuron Group (RENE LN) Innovate UK grant for retinal cell therapy development | RhythmOne (RTHM LN) Full year trading shows delivery of leap to $14m EBITDA | Trifast (TRI LN) FY18 PBT slightly ahead of expectations M
Companies: IDOX RENE RTHM TRI
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The ‘Moving Forward Act', the strongest automotive safety bill in decades, has now been passed in the House of Representatives. The bill is focused on advancing safety technologies proven to reduce crash and harm and to make sure strong safety standards are in place to save lives. The bill, which now needs to be passed in the Senate, will mandate automatic braking, lane-keeping, blind-spot detection, event data recorders as well as DMS in all cars and trucks sold in the US from 2024. This aligns with the European General Safety Regulation, which passed into law in November 2019.
However, in the EU, the European Association of Automobile Manufacturers (ACEA) has requested a 2‐year delay for the introduction of the 2022 Euro-NCAP protocols due to the projected lengthy time that will be needed to recover from the effects of COVID-19. Euro NCAP has agreed, and a delay is now expected to the 2022 and 2024 rating. The new dates will give automakers and Tier 1 suppliers more time to incorporate the necessary changes given the events of recent months with a number of manufacturers announcing 12 month delays to new models.
Companies: Seeing Machines
The FY 2020 results are in line with our expectations and reflect the impact of the previously announced switch from large perpetual licences to recurring annual term licences during the year. Despite the COVID strictures, with its large global partnerships, D4t4 continues to close numerous lucrative data gathering and data management contracts with major blue-chips around the world. It is successfully converting a high proportion of its new sales to recurring revenue contracts, but this will sacrifice growth and earnings in FY 2020 and FY 2021. Nevertheless, with growing recurring revenue base, an exciting pipeline and a very strong balance sheet, D4t4 is very well positioned for continued long-term growth and security.
Companies: D4T4 Solutions
GB Group reported strong performance in FY20 and started taking measures to preserve cash in Q420. Trading in Q121 has been mixed and while management is unwilling to provide guidance for FY21, it has confidence that in the longer term it is well positioned to benefit from the acceleration in digital transformation that should drive demand for its identity data intelligence services. We have upgraded our EPS forecasts by 5% in FY21 and 3% in FY22.
Companies: GB Group
CentralNic’s capital markets day (CMD) on 24 June 2020 introduced the divisional management team and provided insight on each of the three key segments as they will report in FY20: Indirect (Wholesale, Registry); Monetisation (Team Internet); and Direct (Retail, Corporate). We have picked out what we believe are the four key themes from the CMD: FY20 performance, COVID-19 and seasonality; organic growth; M&A; and, pulling it all together, the benefit of scale. CentralNic continues to trade on an FY20 EV/EBITDA of 9.1x and a P/E of 15.8x, a material discount to its peer group, with our DCF indicating further share price upside. M&A could bring CentralNic’s multiples down further.
Companies: Centralnic Group
LoopUp has provided an update on trading to coincide with today’s AGM…in essence, the group continues to see activity “materially” above pre-COVID levels, and is confident of exceeding expectations for 2020. We choose to leave our forecasts (that we believe to be roughly in line with consensus estimates) unchanged for now, in advance of further detail likely with a fuller H1 update in early July.
Companies: Loopup Group
IMImobile has issued an encouraging trading update, highlighting resilience in the Group’s core cloud communications operation. Gross profit rose 20%, with core Cloud comms (c.90%/revs) up >30% (inc. 3C acquisition). We estimate underlying organic decline at -5% y/y, in the middle of our scenario based range (-15% to 7%) with slow decline implying stabilisation in underlying communication traffic volumes post-lockdown. This stabilisation has been driven by growth in core sectors offsetting decline in sectors adversely impacted by the pandemic. Significantly, demand for the Group’s IMIConnect platform (SaaS revenues model) has remained robust as customers look to accelerate Digital Communication strategies, whilst upsell of additional channels in Q1 is also likely to drive future additional volumes from the Group’s existing base. Net cash of £2m is only modestly light of previous N1S forecasts for H1’21 prior to lockdown (£6.3m) and implies positive FCF through the previous 9-month period. We keep forecasts under review at this stage. In the medium-term, we see a path based on undemanding assumptions to FCF of £15m, offering a 7% yield at current valuation. The Group trades on 12x FY’19 EV/EBITDA (c.10x FY (Mar)’20E EBITDA based on previous forecasts), below recent sector acquisition multiples whilst offering a higher proportion of recurring revenue and operating further up the CPaaS value chain.
Gresham continues to show strong progress in difficult times. 18% yoy organic growth in Clareti ARR is amongst the fastest growth of any UK software company. It is being achieved because Gresham has built a disruptive product that is now replacing incumbents at Tier 1 financial institutions around the world. These results underpin our FY20 EBITDA expectations. The implied valuation of Clareti’s ARR is <6x revs, which we think offers value for an emerging leader.
Companies: Gresham Technologies
ECSC Group plc* (ECSC.L, 71.5p/£7.2m) | Trackwise Designs plc (TWD.L, 90.5p/£20.0m) | Transense Technologies plc (TRT.L, 59.5p/£9.7m)
Companies: ECSC Group Trackwise Designs
SDL held an introductory session for the Group’s new SLATE proposition (launched in June). Good traction has been seen within the Group’s existing base presenting an attractive upsell opportunity, whilst also enabling expansion of the Group’s TAM with a market-leading, highly automated and immensely scalable solution. Management estimate SME and ‘off-grid’ translation projects to be a market worth in excess of $10bn, with SLATE allowing the Group to target these areas in a more meaningful way. The new product fits with SDL’s strategic objectives of building deeper relationships with existing customers and building leadership in Language technologies. N1Se conservatively forecast Language Tech segment revenue growth of +4% and +6% for FY’20E and FY’21E. Outperformance in FY’21 by £2m of sales (FY’21E LT growth: +10% y/y) could deliver £1m uplift to EBITDA and FCF we estimate (+3% and +4% vs current forecasts). N1Se FY’21E forecasts currently generate an FCF yield in excess of 8%, with risk to the upside.
A strong interim period to January 2020 delivered the expected £26m revenue as reported in the February trading update, with a 31 January net cash balance also of £26m – EBITDA of £5.6m (post IFRS16), and adjusted PBT of £4.6m highlighting a strong performance. The Group has unchanged strategic ambitions – organic growth and M&A, both in evidence in Rail Technology & Services (RT&S) with 13% organic growth and the post period end acquisition of iBlocks. We withdrew forecasts last week due to the impact of COVID-19 on the 2H-weighted Traffic & Data Services business, given the exposure to cancelled large scale summer events, and uncertainty over traffic surveys; however, the potential for the Group is unchallenged when the world normalises. New contract wins, new product launches, new acquisitions and a hearty balance sheet continued to offer significant upside in 1H and post period end. Target price 900p remains based on our FY21 forecasts, which in theory should be consistent with previous forecasts and we look forward to reinstating numbers when the virus dust settles.
LoopUp recently updated on the first four months of 2020, which have seen an exceptional level of customer activity and new client wins. This is largely driven by the COVID-19 pandemic and the associated shift towards remote working with additional use of conference calls, but the group has also recently implemented an increased focus on Professional Services, which in our opinion could boost long-term potential. This note focuses on current activity levels within the business, the opportunity within Professional Services and the attitude of investors towards remote meetings companies.
Oxford Metrics has delivered solid 1HMar20 results, with sales of £15.0m (PY: £16.1m) and adj. PBT £0.3m (PY: £1.7). Within this, Yotta demonstrated continued ARR progression (up +15% to £6.8m) while at Vicon, the division added additional bluechip customers, further validating its industry leading position. Progress was, however, held back by lockdown restrictions. £1.1m of expected orders slipped to post period, but have now largely been fulfilled. Had they occurred as expected group sales would have been flat y/y. Looking ahead, CV19 related uncertainty leads us to withdraw forecasts. At this stage we expect disruption to be short-lived. As such – and considering OMG’s persuasive track record - we continue to view the company as a long-term winner in this growth industry.
Companies: Oxford Metrics
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO