Overview
iomart Group Plc (IOM) is a Software & Computer Services company providing cloud services and secure managed hosting services. The services offered by the company help its customers to reduce capital costs, improve efficiency and productivity and improve business agility and flexibility. The company’s operations are divided into two reportable segments being Cloud Services and Easyspace. The company’s Easyspace business takes care of domain registration services and a variety of shared hosting services to SME (small and medium-sized enterprises) and micro-companies. The Cloud Services business manages all cloud computing services and facilities through data centres located globally. The company works with a partnership with multiple companies which include Vmware Partner, Microsoft Partner, Cisco, Zerto, Amazon Web Services, Dell Technologies, Openstack, Asigra, Imperva Incapsula, Symantec, Alert Logic, Arbor Networks, Cohesity and Vertica. The company’s data centres are located in the UK, the US, Europe, Asia Pacific, Toronto and Dubai.

The current Chairman is Ian Steele. Angus MacSween holds the responsibilities of the Chief Executive Officer and founded the group in 1998. Scott Cunningham holds the responsibilities of Chief Financial officer.

Key Statistics




Top Shareholders

 
Recent News

On 24th October 2019, iomart Group announced that it would release its interim results ending 30th September 2019 on 27th November 2019, Wednesday.

Trading Update

On 1st October 2019, iomartGroup announced its pre-close trading update for six months period ending 30th September 2019. The company’s revenue meets the management expectations with good momentum for H2 for the financial year 2020. The company, through reorganisation of its commercial operations and flagged investment, results in a stronger pipeline of opportunities and newer customer. The companywitnessed more contract with complex and large enterprise in H1 FY2020; their revenue will be expected in the second half of the financial year. The company’s Cristie Data, an IT brand, shown strong performance in H1 FY2020 and added new corporate customers with the potential to generate higher margins from cloud services in the future. To strengthen its sales engine, the company made investments in H1 and expects higher margins in H2 with start of new orders. The market opportunity is expected to remain large and for longer duration as more sectors and industries move towards cloud solutions.

Segments

The company’s operations are divided into two reportable segments being Easyspace and Cloud Services.In the financial year 2019, the company’s revenue from Cloud services business has increased, but from Easyspace business, the revenue has declined. Overall, the total revenue has increased for the period. The company’s adjusted EBITDA and Operating profit in FY2019 have increased from Cloud services business, and adjusted EBITDA and Operating profit from Easyspace business have declined for the period. The company also disclosed its revenue based on geographical areas in which it operates, which include the United Kingdom and Rest of the World. In the financial year 2019, the revenue from the United Kingdom operations has increased, but revenue from Rest of the World was down for the period.

Financial Highlights – Financial Year 2019 (31^st March 2019, GBP, Thousand)


(Source: Annual Report, Company Website)

For the financial year ending 31^st March 2019, driven by an organic growth and acquisitions done for the period, the company’s revenue surged by 6 per cent to £103.7 million from £97.8 million in FY2018. In FY2019, the company’s gross profit stood at £66,744 thousand as against £63,019 thousand in FY2018. The gross profit margin remained flat at 64.4 per cent for the period. The company’s adjusted EBITDA surged by 6 per cent to £42.2 million in the FY2019 against £39.9 million in FY2018, while the adjusted EBITDA margin declined slightly to 40.7 per cent for the period from 40.8 per cent in FY2018. The Operating profit stood £18,792 thousand in the Financial Year 2019 against £14,722 thousand in FY2018. The company’s adjusted PBT (Profit before taxation) stood at £25.5 million in the FY2019 against an adjusted PBT (Profit before taxation)of £24.1 million in FY2018. For the FY2019, the company’s PBT (Profit before taxation) rose to £16,216 thousand versus a PBT (Profit before taxation) of £14,888 thousand in FY2018. The Profit for the year (attributable to the shareholders) stood £12,877 thousand in the Financial Year 2019 against £12,378 thousand in the Financial Year 2018. The company’s adjusted diluted earnings per share stood at 18.6 pence in FY2019 versus adjusted diluted earnings per share of 17.9 pence in FY2018. The company’s basic earnings per share stood at 11.9 pence in FY2019 versus basic earnings per share of 11.5 pence in FY2018. The company’s diluted earnings per share stood at 11.6 pence in FY2019 versus diluted earnings per share of 11.2 pence in FY2018. The total dividend per share rose by 4 per cent to 7.46 pence in FY2019 from 7.18 pence in the financial year 2018. The net asset increased by 103.8 per cent to £104,397 thousand in FY2019 from £98,472 thousandin FY2018.

Key Performance Indicators


(Source: Annual Report, Company Website)
 
Revenue

Revenue is the main source of income for the company. iomart Group Plc for the first time had achieved a GBP 100 million milestone. The company’s revenue surged by 6 per cent to £103.7 million in FY2019 from £97.8 million in FY2018

Adjusted EBITDA

Adjusted EBITDA is used to compare and assess related companies for valuation and other purposes. In FY2019, the company’s adjusted EBITDA was at £42.2 million versus £39.9 million in FY2018.

Adjusted Profit before tax

Adjusted Profit before tax is the pre-tax profit before considering charges related to acquisitions and recurring charges. The company’s adjusted PBT (Profit before taxation) surged by 6 per cent to £25.5 million in the FY2019 from an adjusted PBT (Profit before taxation) of £24.1 million in FY2018.

Adjusted diluted earnings Per Share

Diluted EPS is used to check the quality of EPS (earnings per share) of the company if all convertible securities are exercised. iomart Group Plc’s adjusted diluted earnings per share surged by 4 per cent to 18.6 pence in FY2019 versus adjusted diluted earnings per share of 17.9 pence in FY2018.

Financial Ratios
 


 The reported gross margin in FY2019 remained flat at 64.4 per cent as against last year data for the same period and stood higher as compared to the industry median. The reported EBITDA margin of 39.7 per cent for the FY2019 stood higher than the industry median of 13.1 per cent. The reported operating margin in FY2019 was up by 0.4 per cent to 16.8 per cent from 16.4 per cent reported last year for the same period. The reported Pretax margin of 15.6 per cent for the FY2019 stood higher than the industry median of 8.8 per cent. Net margin reported was 12.4 per cent for the financial year 2019, reflecting a decrease of 0.3 per cent when comparedwith last year data for the same period. Return on equity for the Financial year 2019 stood at 12.7 per cent, which was lower than the industry median of 17.3 per cent. On the liquidity front, iomart Group Plc’s current ratio was lower than the industry median of 1.29, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the iomart Group Plc’s was 0.47x, which was higher as compared to the industry median of 0.30x, reflecting that the company is more leveraged as compared to its peers.

Share Price Performance


Daily Chart as at November-5-19, before the market close (Source: Thomson Reuters)

On November 5, 2019, at the time of writing (before the market close, at 11:14 AM GMT), iomart groupPlcshares were trading at GBX 365.80, up by 2.89 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 425.00/GBX 265.50. Stock’s average traded volume for 5 days was 71,339.20; 30 days – 89,214.10 and 90 days – 111,756.28. The traded volume (average) for 5 days was down by 20.04 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.79. The outstanding market capitalisation was around £388.27 million, with a dividend yield of 2.10 per cent.

Valuation Methodology
Method 1: Price to Earnings Approach (NTM)



To compare iomart GroupPlc withits peers, Price/Earnings multiple has been used. The peers are Blancco Technology Group Plc(NTM Price/Earnings was 29.01), Gamma Communications Plc(NTM Price/Earnings was 28.23), Spirent Communications Plc(NTM Price/Earnings was 19.95), NCC Group Plc(NTM Price/Earnings was 16.53) and SysGroup Plc(NTM Price/Earnings was 10.84). The average of Price/Earnings (NTM) of the company’s peers was 21.00x (approx.)

Method 2: Price to Cash Flow Approach (NTM)



To compare iomart GroupPlc withits peers, Price/Cash Flow multiple has been used. The peers are Blancco Technology Group Plc(NTM Price/Cash Flow was 49.41), Sage Group Plc(NTM Price/Cash Flow was 19.70), NCC Group Plc(NTM Price/Cash Flow was 16.60), Spirent Communications Plc(NTM Price/Cash Flow was 13.41) and First Derivatives Plc(NTM Price/Cash Flow was 13.27). The Average of Price/Cash Flow (NTM) of the company’s peers was 23.00x (approx.)

Risk Assessment and Growth Prospects

The company operates inmultiple geographies and its profits can be impacted negatively due to foreign exchange rate fluctuations. Being an IT company, the IOM needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. However, the company operates in a competitive market, which may lead to pressures on pricing. The company completed two acquisitions of LDeX and Bytemark, which will help the company to add more customers as well as newer datacentre locations. The company is looking forward to the next phase of growth in H2 and is making changes in sales and marketing functions to support that. The market opportunity is expected to remain large and for longer duration as more sectors and industries move towards cloud solutions.

Conclusion

The company had shown good financial performance for the financial year 2019. Driven by good growth from all the businesses in which the company operates, the company’s revenue and the profitability have improved for the current period. The company made good progress and is looking for further growth, both organically and through strategic acquisitions.

Going forward, due to several big customers wins, the company expects positive momentum and expects to see growth in both revenue and profit in the coming years.The company also have many projects under pipeline, which will help the company to achieve strong organic growth. The company is actively looking forward to acquisition opportunities with good funding capacity.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £65.8 million in FY15 to £103.7 million in FY2019. Compounded annual growth rate (CAGR) stood at 12.04 per cent.
 
Based on the  fundamental prospects and support from valuation done using the above two methods, we have given a “Speculative Buy” recommendation at the closing price of GBX 355.50 (as on 4th November 2019) with lower double-digit upside potential based on 21.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.) and 23.00x NTM Price/Cash flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 5^th November 2019).

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