Idox Group – looking for big growth

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Idox Group – looking for big growth

This software group appears to be in something of a transformational stage, which will see recurring revenues increase significantly over the coming years, writes Mark Watson-Mitchell.

Take a little look at this specialist information management software and solutions company.

It is another ‘annual recurring revenue’ company – by now you must realise that I have a lot of time for ARR business models.

Idox (LON:IDOX), which last November sold off its bespoke digital business, is now solely focussed upon delivering comprehensive software solutions that it supports and maintains with long-term contracts.

Recurring revenue is defined as revenues associated with access to a specific ongoing service, with invoicing that typically recurs on an annual basis and is underpinned by either a multi-year or rolling contract. These services include Support & Maintenance, SaaS fees, Hosting services, and some Managed Service arrangements which involve a fixed fee irrespective of consumption.

Such revenue is an important cornerstone of such a business that is capable of significant growth, as long as operational costs can be efficiently managed.

This £173m valued group is in something of a transformational stage after the recent sell-off, which will see recurring revenues increase significantly over the coming years.

Importantly in these times, the group continues to monitor the impact of the Covid-19 pandemic. It is well placed because of that high recurring revenue base, as well as its focus on public sector markets and the high proportion of staff that routinely work from home.

Idox works across both the public and private sectors, spanning a wide range of industries and sectors, from central and local government to transport, health and social care, and commercial organisations. To its clients it delivers smart technology that enhances services while improving productivity.

As an example of what the group can do – in just a week it has built an online booking system for the NHS in a bid to streamline and accelerate COVID-19 testing for frontline staff.

The platform is enabling NHS frontline workers in London to book their appointment online, reducing the need for phone calls and bringing speed, convenience and coordination to an otherwise resource-intensive task.

Elsewhere the Idox cloud solution for Public Protection has been adapted by UK councils for the management of COVID-19 enquiries.

The system – which ordinarily oversees end-to-end case management across departments such as Licensing, Environmental Health and Trading Standards – is now being utilised by councils to process information specifically relating to Coronavirus in their local area.

By creating a new code in the flexible administration section, users have the ability to process all cases and enquiries relating to COVID-19 from initial receipt, through to closure and subsequent management reporting. This change of use has been achieved without any software reconfiguration, reinforcing the flexibility of Idox cloud technology in being able to react swiftly to changing needs.

Long Path Partners, which is based in Connecticut in the States, is a privately-owned investment firm. It seeks to compound its capital by investing in high quality, predictable businesses that it intends to own for the long term. It has this month almost doubled its stake in the group from 5.21% to 10% of the equity – quite a positive pointer.

There are 443m shares in issue, of which the directors own over 35m shares.

Other notable holders include Canaccord Genuity Wealth (16.46%), Soros Fund Management (12.47%), Herald Investment Management (6.98%), Lombard Odier Asset Management (4.98%), Richard Griffiths (4.75%), and Gresham House (3.93%).

The group’s shares, which were trading at a two-year high of 45p in late February this year, dipped to 29.5p a month ago before recovering to the current 38.5p, helped by positive research notes by brokers Peel Hunt, who rate them as a ‘buy’ looking for 53p, and Progressive Research.

The latter house consider that the group will see revenues to end-October 2020 lift gently from £65.5m to £67.2m, then up to £71.5m next year and £76.5m for 2022.

Fully adjusted pre-tax profits are estimated to rise from £7.7m last year to £12.5m (2.2p eps) this year, then £13.8m (2.5p eps) next year, and up to £16.3m (2.9p eps) for 2022.

I now set an end-2020 target price at 50p.

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