iomart has delivered finals in line with the 3 April trading update, leading to materially unchanged forecasts for FY21. Maiden FY22 forecasts indicate humble 4% expectations for growth, allowing headroom for upside in the event of an acceleration in enterprise contract wins – but demonstrating continuing healthy cash generation and capacity to continue to increase capex, pay a dividend, and accommodate acquisitions. As with peers, COVID-19 has generated more opportunities for the longer run by accelerating the pace of customer digital transformation – but in the immediate term, new business is challenging. With the highest margins in the peer group, furloughing no-one and maintaining a 40% payout ratio while successfully combining acquisitions with steady, if gentle, organic growth, iomart continues to deliver the benefits of very high (c.85%) recurring revenue. 400p target (10.8x FY21 EV/EBITDA) reiterated, with the potential for positive review if momentum into 2H21 (Sept 20 – March 21) can make a mockery of our meagre FY22 growth expectations.
Companies: Iomart Group
Allergy Therapeutics (AGY.L): Corp Profit upgrade | Aukett Swanke (AUK.L): Corp Interim results | Avacta (AVTG.L): Corp SARS-CoV-2 point-of care antigen test – update | discoverIE (DSCV.L): Corp Resilient, flexible and well positioned for growthiomart (IOMG.L): Corp Finals to March 2020 | Open Orphan (ORPH.L): Corp FY 2019 results
Companies: DSCV AGY AUK AVCT IOM ORPH
Companies: IOM RCN SHOE BGO
Reiterating the October trading update commentary, investment in developing the enterprise focus of the group has led to larger contract wins. While this will benefit 2H20 and underwrite FY21 revenue growth, we trim FY20 and FY21 adj EBIT expectations by 9% and 11% respectively, with additional investment in infrastructure reducing FCF to still strong £11.4m (FY20) and £18.6m (FY21). With bold statements of investment from identification of opportunities, we look forward to proof of organic execution, alongside further acquisitions. Target 450p reiterated.
Filtronic (FTC): Corp | iomart (IOM): Corp | STM (STM): Corp
Companies: IOM STM FTC
Aggregated Micro Power (AMPH): Corp Full-year results | iomart (IOM): Corp Interim trading update | Kingswood Holdings (KWG): Corp £80m capital injection suggests bright future | Maintel (MAI): Corp Appointment of CEO | Revolution Bars Group (RBG): Corp Significant progress. So far so good; much more to do
Companies: AMPH IOM MAI RBG KWG
iomart (IOM): Corp Prelims – as steady as ever | Taptica (TAP): Corp Uber widens its ad-fraud complaints | Trifast (TRI): Corp Full-year results slightly exceed forecast
Companies: IOM TRMR TRI
Prelims show FY19 to be in line with the April trading update, generating free cash flow (before a freehold acquisition) of £17.5m from adjusted PBT of £25.5m and revenue of £103.7m. Having cleared £100m revenue, it will take more and bigger contracts to generate organic growth of 10%, therefore the professionalisation of the sales team and addition of an enterprise focus adds capacity for larger contract delivery – with increased lead generation from new and existing customer apparent in 2H. The typical, successful, combination of organic growth (c.3%, with work in hand to improve it) and acquisitions is iomart’s bread and butter, with unfailing consistency in its participation in widespread cloud transition for business of all scales. With consistent avoidance of greater than 5% exposure to the public sector; >90% recurring revenue; measures in place to encourage stronger growth, strong margins and cash generation; and a sensible dividend policy allowing capacity for further acquisitions, we reiterate our 450p target – if the phrase hadn’t been ruined by politics, iomart would define ‘strong and stable’.
Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019.
Alumasc Group plc, the prem ium building products, system s and solutions group, has announced its intention to m ove from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
Argentex a UK-based forex service provider founded in 2011 by its current management team which operates as a Riskless Principal for nonspeculative and forward foreign exchange as structured financial derivatives is looking to join AIM. Offer TBC, expected 25 June
Companies: AMER CNC IGR DODS IOM FIH WYG AVG ING SPSY
Amino Technologies (AMO): Corp Google certification | iomart (IOM): Corp Full-year trading update | Tristel (TSTL): Corp Internationalisation remains a key growth driver
Companies: AMO IOM TSTL
Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m.
Companies: MSMN IMM CDM AMO IOM TSI CHL WHR IOG RENX
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iomart has delivered interims involving the tried and tested formula of consistent organic growth (cloud +4%, vs 4% in 1H18) and integration of acquisitions, leading to 10% EBITDA growth from 8% revenue growth. Normalised free cash flow remained strong and the dividend is very amply covered, allowing balance sheet capacity for further acquisitions as well as ongoing reduction of net debt, now at 0.8x annualised EBITDA. As enterprises continue to migrate to the cloud, it’s clear that iomart remains well positioned to benefit from delivering customers’ transition, with private cloud combining higher quality customer service at a better long-term price point than public cloud alternatives can approach. With revenue visibility exceeding 90%, group EBITDA margin at 41%, and an adjusted PBT margin of 25%, iomart’s quality continues to shine through. Forecasts are tweaked to accommodate 8% growth instead of 10% and some additional capex, remaining impressive given the absence of growth in listed managed services peers reporting last week. 450p target reiterated.
discoverIE (DSCV): Corp H1 EPS +24% | DX (DX): Corp On track with turnaround plans | iomart (IOM): Corp Interims | Pelatro (PTRO): Corp Climbing the revenue curve | Quartix (QTX): Corp IFRS 15 and Insurance slowdown boosts FY 2018 | SRT Marine Systems (SRT): Corp Contract re-awarded | Surface Transforms (SCE): Corp H1 trading update | Taptica (TAP): Corp Trading remains strong but CEO issues to the fore | Water Intelligence (WATR): Corp
Attacking a large addressable market
Companies: DSCV IOM QTX SRT SCE TRMR WATR PTRO DX/
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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
CentralNic's CMD gave us new positive insights into the company's investment case. CentralNic's organic growth is stronger than we thought, the Direct division generates high ROI, the monetisation market was shown to be critical to the domain name market, Team Internet's market leadership was further reinforced and acquisition opportunities were shown to be larger than anticipated. These investment views are not reflected in CentralNic's low valuation multiples, in our view.
Companies: Centralnic 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.
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
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
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
FY20 results: inline with guidance
Redcentric has agreed a settlement with the FCA whereby net purchasers of stock between November 2015 and November 2016 will be compensated at the equivalent of approximately 17p per share, payable as preferred as part shares/part cash, all shares, or all cash. To assist in funding the compensation in the event of an all cash settlement, the group has agreed a provisional placing for £5.8m at 110p, in addition to use of treasury shares and existing cash resources. The relief from the shadow of the FCA investigation will be a welcome fillip to business prospects, re-opening opportunities with the private sector and confirming no further action, which would have adversely affected public sector bid prospects, and M&A. With the accompanying trading update, 1Q21 performance in recurring revenue sales orders is mildly ahead of 1Q20, and further cost savings lead us to nudge March FY21 EBITDA expectations from £23.6m to £24.0m (+1%) despite trimming revenue 3% due to a COVID-based slowdown in lower-margin non-recurring revenue. With relief from the uncertainty of the FCA investigation, we lift our target price to 160p, as the group can finally return to business as usual.
Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning, the group has provided a trading update to coincide with its AGM.
Encouragingly, the business continues to perform in line with the trends seen at the time of the full year results in May and the Board anticipates Touchstar will be profitable in the six months to 30 June. Cash generation is again reported to have been good, with ‘significantly higher cash balances' expected to be reported than at the beginning of the year (FY 2019A £850k). The group has drawdown a CBIL of £150,000, which provides additional liquidity alongside its undrawn banking facilities of £300,000. Looking ahead, the order book is a more normal level than last reported at over £500,000 at the end of June, which compares to an exceptionally strong £1.2m at the beginning of the year.
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
The YE trading update reveals that management has actioned its proposed switch from a perpetual licence to a SaaS business during FY 2020. We therefore adjust our forecasts as moving customers from one-off perpetual licence contracts to recurring revenue contracts takes longer to implement and revenue is recognised over a longer period. Despite COVID-19, D4t4 made good progress in Q4 since the January update (with its own raft of contract wins), and several more contracts have been secured on a multi-year ‘as-a-service’ basis, providing additional recurring revenue visibility (now 46% of total sales) over the next three years. Management does not expect any significant interruptions in customer service or its distribution channels. However, actions taken to mitigate the impact of the virus include home working; preserving cash; and securing additional liquidity from the bank if required. The final dividend and FY 2021 forecasts are under review, however the £0.5m share buyback programme continues.
A concerted move into managed services is improving the quality of revenues. Management is targeting the growth in recurring revenues to cover the cash cost base of the company by 2022. This event will mark a material derisking of the investment case and is the pathway to the share price doubling or more over the next 2-3 years. Buy.
Blackbird plc* (BIRD.L, 15.0p/£50.4m) | Brave Bison Group plc* (BBSN.L, 1.375p/£8.4m) | CML Microsystems plc (CML.L, 258p/£44.2m) | Eckoh plc (ECK.L, 61.5p/£156.2m)
Companies: BIRD BBSN CML ECK
OMG has today announced a “significant multi-year” Alloy contract win with South Gloucestershire Council, this being the company’s cloud-based asset management solution. A differentiating feature of Alloy is the range (or variety) of assets it can handle, and consequently, Alloy will able to provide a single view from which all relevant public infrastructure can be managed and maintained. No numbers are given, but we remind (as at prelims) OMG had a pipeline consistent with adding £1m of ARR in FY20. We therefore assume that this contract contributes to this figure, and so make no changes to either divisional or group forecasts. Similarly, we note that following FY19 (which saw some delayed ‘go-lives’) it is pleasing to see a major contract win announced relatively early in this financial year.