Idox PLC (LON: IDOX) – Completed the acquisition of Aligned Assets during early June 2021.

Idox PLC (LON: IDOX) is an FTSE AIM All-Share index listed Company engaged in the supply of specialist information management software and solutions. Moreover, IDOX provides services to five key industries - Government, Health, Engineering & Construction, Transport and Property. Furthermore, the Company had two reportable business segments – Idox Software and Idox Content (discontinued operations).

Recent trend of dividend payments

IDOX had a policy of declaring only the final dividends. The Company had paid a final dividend of 0.3 pence per share with respect to FY20 on 09 April 2021, while the ex-dividend date was 25 March 2021.

Growth Prospects

• Acquisition of Aligned Assets: The Company had completed the acquisition of Aligned Assets for the initial cash consideration of £7.5 million to be paid from the existing resources. This acquisition is anticipated to be immediately earnings enhancing, and it will accelerate public sector software-focused growth strategy,
• Recent disposal of IDOX Content division: IDOX had agreed upon the disposal of its Netherlands based Grants Consultancy & databases business worth approximately €8.14 million. The deal was completed on 06 April 2021. Earlier, IDOX had sold Germany based compliance business for a consideration of £9.0 million. Now, with the complete disposal of the Idox's Content Division, the Company will mainly be focused on the core Idox Software activities.
• New business wins: The Company had added new clients such as Coventry City Council and Warrington Borough Council. Moreover, the Government of Bermuda had also implemented Idox Cloud Solution for Building Control on the Island.
• Increase in order book: IDOX had secured more than £35 million of total contract value with new business & new product sales during H1 FY21, an increase of around 10% from H1 FY20 levels.

Key Risks

• Technological Developments: IDOX may fail to deliver continued product development, including digital innovations.
• Cybersecurity Risk: An information security breach or cyber-attack could result in loss or theft of data, content, or intellectual property.
• Debt Financing: Any rise in interest rates may cause IDOX to increase the capital cost in raising fresh funds.
• Acquisition Risk: The recent acquisition of Aligned Assets may not achieve desired synergies.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Idox PLC

Soros Fund Management, L.L.C. is the most significant shareholder as it holds nearly 50.38 million shares as of 30 June 2021.    

H1 FY21 Financial & Operational Highlights (for the six months ended 30 April 2021, as of 15 June 2021)

(Source: Company presentation)

• The revenue from continuing operations had shown a modest increase of around 4% to £31.1 million during H1 FY21.
• The order book for contracted non-recurring software & services had demonstrated a decent growth of around 9% to £12.5 million.
• On the profitability front, the adjusted profit before tax had increased by around 45% to £6.4 million, and adjusted earnings per share rose by 98% to 1.13 pence during H1 FY21, from continuing operations.
• IDOX had witnessed a positive turnaround from reporting net debt of £14.3 million as of 30 April 2020 to delivering net cash of £7.6 million as of 30 April 2021.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv; Analysis done by Kalkine Group)

On 08 July 2021, at 07:45 AM GMT, IDOX’s shares were trading at GBX 64.00, down by around 1.54% from the previous day closing price. Stock 52-week High and Low were GBX 79.00 and GBX 45.20, respectively.

From a technical perspective, the stock price is lying between the lower and middle Bollinger Band, indicating an upside potential in the stock price. The momentum indicator, 14-day RSI, is sustaining near ~49.21 levels.

Over the last two years, IDOX’s stock price has delivered a positive return of ~87.32%; and it has outperformed the FTSE AIM All-Share index (benchmark index) with a return of about 38.88%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

IDOX had entered H2 FY21 with positive momentum and would gain expected synergy from the acquisition of Aligned Assets. Moreover, the disposal of the Idox Content division had put IDOX into a robust cash position to acquire new businesses into the portfolio and achieve strong organic growth. Furthermore, the blend of increasing recurring revenue and impressive order book had ensured the bright outlook of the Company for the remainder of FY21. IDOX would continue to invest in a cloud-first approach across each business with an aim to further penetrate the key software markets. In a nutshell, the FY21 financial performance would remain slightly ahead of previous management expectations boosted by the strong order book. The next important support level on the technical chart is at GBX 50.20.

Considering the decent H1 FY21 financial results, robust profitability, strong cash generation, lucrative acquisitions, successful disposals, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Idox at the current price of GBX 64.00 (as on 08 July 2021 at 07:45 AM GMT), with lower-double digit upside potential based on 32.49x Price/NTM Earnings per share (approx.) on FY22E earnings per share (approx.).

 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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