Ideagen PLC (LON: IDEA) – Expects to report 11th consecutive year of revenue and adjusted EBITDA growth.

Ideagen PLC (LON: IDEA) is a FTSE AIM 100 listed Company, which provides information management software solutions. It develops and supplies software solutions along with associated support services. The Company is headquartered in the UK and quoted on the London Stock Exchange AIM market. It primarily caters to highly regulated industries such as banking, aviation, life science, and finance. The major operations are spanned across the UK, US, EU, Middle East, and SE Asia. The Company has a vast portfolio of software products, including Coruson, PleaseReview, Pentana Audit, and Q-Pulse. These software solutions support the clients to improve operational efficiency, reduce costs, anticipate, and manage every detail of risk, and strengthen compliance and oversight. Presently, the Group serves over 5,000 organisations, including all the top aerospace and defense companies, seven of the top 10 UK accounting firms, and 75% of the world's leading pharmaceutical firms. The Company’s varied and diverse customer base includes several well-renowned brands such as Commerzbank, BAE, British Airways, Aggreko, Heineken, European Central Bank, among others. In addition, the Group counts around 180 hospitals across the US and UK among the client base.

 

(Source: Annual Report, Company Website)

Key Fundamental Statistics



Industry Outlook Dynamics

The Company operates in a global market, which is fuelled by several drivers. The businesses around the world are seeking an innovative solution to meet increasingly stringent compliance and regulatory risk requirements. According to Gartner, the integrated risk management market was valued at US$5.4 billion globally in 2018 and was estimated to be growing at 13% per annum. According to Verified Market Research, the Global IT Service Management Software Market is projected to reach USD 4.52 Billion by 2026, which was valued at USD 1.92 Billion in 2018, growing at a CAGR of 11.23%. The primary growth driver includes the trend of cloud computing, big data analytics, and increasing demand for business intelligence.

Growth Prospects and Risk Assessment

The Company has been making excellent progress in generating organic and acquisitive growth. During the FY20 period, the Company won several new customers within the Life Sciences, Internal Audit, UK Healthcare, and US Federal markets. The Company’s software is considered 'business critical' by customers, which yields a substantial amount of recurring revenue for the Company. The Group has a strong balance sheet and funding position to manage the business operations during the uncertain economic environment. Overall, the Company is well-positioned to manage the business risk effectively. The resilience in the business model benefitted the Company during the unprecedented economic and social disruption that COVID-19 has created. Furthermore, the Company remains committed to the ongoing buy and build strategy and expects to complete more acquisitions in the future.


(Source: Presentation, Company Website)

The Group continues to implement the strategy and business model to deliver returns. There remained a significant pipeline of business opportunity for the Company. The Group has received good NPS (Net Promoter Score) from customers, which shows the loyalty of customers towards product and services. The Group is actively seeking acquisitions for strong recurring revenue growth. The Company expects its market share to improve in the Integrated Risk Management segment as the demand for the regulated tool will increase in future.

However, the Company’s operations are exposed to a variety of risks, including strategic, economic, operational, and financial risk. The worsening economic environment can lead to reduced expenditure on IT systems and services. Moreover, the economic downturn can lead to reduced capital expenditure and may impact the future growth trajectory. Further, the Company has global operations, and the fluctuations in the exchange rates can significantly impact revenue and profitability. Also, the Group operates in a dynamic market environment, which constantly seeks attention to ensure the solutions it offers are competitive. The Group’s performance could be hampered due to the economic climate as it may lead to reduced spending by customers on IT systems and services. The Company’s business is also impacted by the liquidity risk as it may not be able to meet the strategic requirements and operations as per set timelines.Failure in cybersecurity can also impact the business operations.

Segment Analysis

The Group operates through a single business segment, being the development and sale of information management software to highly regulated industries. An analysis of revenue by product or service is given below:


(Source: Annual Report, Company Website)

An analysis of external revenue by location of customers and non-current assets by location of assets is given below:


(Source: Annual Report, Company Website)

Synopsis of Recent Developments

14 July 2020: The Company announced the issuance of 4,415 equity shares under the Company's Share Incentive Plan. Post admission on 17 July 2020, the Company had a total of 226,621,657 issued shares.

1 July 2020: The Group confirmed the appointment of Emma Hayes as Chief Financial Officer. She has succeeded Graeme Spenceley, who had been serving the Group over the past 10 years.

22 May 2020: The Company partnered with the World Health Organisation to support its vital collaboration and policymaking work.

6 March 2020: Ideagen announced the acquisition of Workrite Ltd for a net cash consideration of up to £6.8 million. The acquisition will further strengthen the market position and providing a leading e-learning solution for existing and new customers.

Measuring Non-Financial Key Performance Indicators

During FY19, the Company’s net promoter score was lower due to the acquisition made in the year. However, the Group witnessed growth in recurring revenue.

(Source: Annual Report, Company Website)

Top Shareholders Statistics


 

Pre-Close Trading Update for the year ended 30 April 2020 (released on 19 May 2020)

The Company reported a strong trading performance and results are expected to be in line with market anticipations. The Group’s revenue is expected to accelerate by around 21% to approximately £56.6 million against £46.7 million as reported last year. Adjusted EBITDA is expected to be up by 29% to around £18.5 million on an IFRS16 basis, while, on a like-for-like IAS17 basis, it will be increased by 22% to approximately £17.5 million. On 30 April 2020, the ARR (Annual Recurring Revenue) book was up by 34% to approximately £48.7 million, which was driven by robust organic growth of around 19% on the prior year and acquired ARR from three acquisitions. Regarding the liquidity, the cash generated by operations was ahead of anticipations at more than 95% of adjusted EBITDA. On 30th April 2020, the gross cash balance stood at £8.2 million, gross bank borrowings at £25 million and the net bank debt of £16.8 million.

Financial Highlights – Strong Financial Performance in H1 FY2020 (31 October 2019)


 (Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, the revenue increased by 30% to £27.3 million (H1 FY2019: £21.0 million), driven by recurring revenues growth and increased SaaS revenues, The ARR (Annual Recurring Revenue) book surged by 20% to around £43.9 million in H1 FY2020 (30 April 2019: £36.4 million). The adjusted EBITDA increased by 38% to £8.0 million in H1 FY2020 on IFRS16 basis (H1 FY2019: £5.8 million on IAS17 basis). The adjusted PBT (profit before tax) stood at £6 million in the first half of the financial year 2020 (H1 FY2019: £4.8 million), reflecting an increase of 25%. The reported PBT stood at £0.09 million in the first half of the financial year 2020 (H1 FY2019: LBT (loss before tax) of £0.64 million). The PAT (profit after tax) stood at £0.34 million in H1 FY2020 (H1 FY2019: loss for the period of £0.56 million). The adjusted diluted earnings per share stood at 2.31 pence in H1 FY2020 (H1 FY2019: 1.98 pence), reflecting an increase of 17%. The cash generated from operating activities stood at £5.9 million in H1 FY2020 (H1 FY2019: £5.2 million). Net debt stood at £18.0 million as on 31 October 2019. The interim dividend stood at 0.104 pence in H1 FY2020 (H1 FY2019: 0.09 pence).

Financial Ratios – Improved Profitability versus H1 FY2019 Data

Reported profitability metrics for the first half of the financial year 2020 were improved as compared with the last year data for the same period. The Group managed to show decent profitability and reflecting better control over expenses. On leverage front, the debt-equity ratio was 0.36x, which was lower as compared to the industry median, reflecting that the Company is less leveraged as compared to the industry.  

Share Price Performance Analysis


Daily Chart as on 4 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On August 4, 2020, at the time of writing (before the market close, at 9:40 AM GMT+1), Ideagen Plc shares were trading at GBX 175.88, down by 0.35% against the previous day closing price. Stock 52 week High and Low were GBX 210.00 and GBX 133.50, respectively.

Bullish Technical Indicators

From the technical standpoint, shares were trading above the short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further. 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Valuation Methodology

Price/Earnings Approach (NTM)



To compare Ideagen Plc with peers, Price/Earnings multiple has been used. The peers are Cyan AG (Price/NTM Earnings was 56.66), Nucleus Financial Group Plc (Price/NTM Earnings was 26.43), Avast Plc (Price/NTM Earnings was 23.03) and SDL Plc (Price/NTM Earnings was 21.59). The Average of Price/Earnings (NTM) of the company’s peers was 31.93x (approx.).

Ideagen Plc Vs FTSE AIM 100 Index (1 Year)


(Source: Refinitiv, Thomson Reuters)

In the last one year, Ideagen Plc share price has delivered 27.07 per cent return as compared to negative 3.13 per cent return of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last year.

Business Outlook

Despite the challenging times due to the outbreak of Covid-19 pandemic, the Group expects the positive momentum to continue in the financial year 2020, with strong growth in revenue and EBITDA, and expect cash collection to be robust. The Group has a strong business model and operates mainly in the defensive markets. The Company expects the quarterly run-rate revenue to be GBP 15 million in the financial year 2021, including recurring revenues. IDEA has a well-positioned balance sheet with decent funding position and has executed a prudent cost reduction programme that has generated annual savings of around GBP 4 million.

The Group’s organic growth was driven by logo wins from new 458 customers across US Government, Financial Services, Life Sciences, Healthcare, Corbus Pharmaceuticals, Emirates, SSE and US Federal Reserve. The investment appetite across Manufacturing and Aviation sectors from new customers have been impacted by covid-19 pandemic. The Group witnessed no material impact on ARR book due to covid-19, reflecting strong existing customer relationships and the importance of software to customers.

The Board is confident in the long-term prospects of the Group. During the pandemic, the trading has remained robust, and the Group expects to witness strong demand for products from new potential customers. The Company continues to generate substantial growth through recurring revenues and repeat business. Moreover, the Group is anticipating significant synergy benefits from the acquisitions made in the previous year.

Over the course of 4 years (FY15 - FY19), the Company’s revenue surged from GBP 14.39 million in FY15 to GBP 46.67 million in FY19. Compounded annual growth rate (CAGR) stood at 34.20 per cent.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 173.43 (as on 4 August 2020, before the market close at 8:02 AM GMT+1), with lower double-digit upside potential based on 31.93x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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