iomart Group Plc

iomart Group Plc (LON: IOM) is a Scotland based company that provides secure and managed services that include designing, delivering, and managing technology and cloud solutions.

The Company will release the final results of 2021 on 30 June 2021.

Investment Highlights - iomart Group Plc – Speculative Buy at GBX 306.00

• Despite the impact of the covid-19 pandemic on business performance, the Company has high levels of recurring revenue and saw signs of improved confidence within new and existing customers.
• In H1 FY2021, the Company has decent fundamental metrics as it has maintained profitability margins above the industry median.
• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings and Price/Cash Flow multiples of iomart Group Plc are currently lower as compared to the corresponding multiples of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, 14-day RSI is supporting an upside move (around 35 level), which means the stock price could increase in the short term.

Key Risks

• Excessive dependency on the channel partners could have an impact on the operational performance of the Company.
• The market and technological changes could further hamper the business of the Company.

Recent News

On 16 February 2021, iomart Group announced the selection of Sharon Mars Leach as Marketing Director. Mr Leach will lead the brand acceleration strategy.  

Financial Highlights – H1 FY2021 (30 September 2020) (released on 1 December 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, driven by strong levels of recurring revenues, the revenue increased by 2% on a year-on-year basis.
• The revenue growth was driven by the two smaller acquisitions, which was made in the final month of the last financial year.
• The order levels from existing managed cloud services clients were consistent with H1 FY2020.
• The Company maintained an interim dividend of 2.6 pence per share, which will be paid on 29 January 2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2021. Despite the lower performance, the recurring revenue stream of the Company helps in generating consistent returns. In H2 FY21, the revenue and profit margins are expected to benefit from existing customers and operational efficiencies. In recent months, the Company has increased the new business discussions, reflecting the confidence in longer-term IT and digital transformation projects. Overall, the long-term prospects of the Company remain strong. The stock made a 52-week low and high of GBX 219.50 and GBX 381.65, respectively.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on the iomart Group at the current market price of GBX 306.00 (as on 26 February 2021, before the market close at 9:55 AM GMT), with lower double-digit upside potential based on 23.22x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

OptiBiotix Health Plc

OptiBiotix Health Plc (LON: OPTI) is an AIM-listed life science company. It is involved in the development and research of microbiome modulators mainly in the United Kingdom.

The Company will provide an investor update on 2 March 2021.

Investment Highlights - OptiBiotix Health Plc – Speculative Buy at GBX 52.26

• The Company made significant progress in the first half of the financial year 2020 with a 400% increase in sales, large costs reduction and 50% loss reduction.
• In the last one year, the Company delivered a decent return of ~ 9.85% and delivered higher returns compared to the benchmark Index (FTSE-AIM Index).
• Over the course of 5 years (FY15 – FY20), the Company’s revenue surged from GBP 0.03 million in FY2015 to GBP 1.51 million in FY2020. Compounded annual growth rate (CAGR) stood at ~ 118.96%.
• From the technical standpoint, 14-day RSI is supporting an upside move (around 45 level), which means the stock price could increase in the short term.

Key Risks

• The Company’s revenue is impacted by increased competition in the healthcare sector.
• Due to the covid-19 crisis, the Company may face a shortage of supply of raw materials or product might not be able to reach customers.

Strategic and Commercial Update (released on 18 February 2021)

• The Company was benefited from the commercial strategy in the second half of the financial year 2020, and the Company reported a 103% increase in total invoiced sales.
• The Company managed to reduce its administrative expenses by 27.8%, with improved margins.
• The cash balance as on 31 December 2020 increased to £865,585 (31 December 2019: £455,608).

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has made significant progress in financial performance in the financial year 2020. The revenue increased significantly, and lower costs improved the profitability margins. OPTI has a scalable business model, which is helping in growing sales in multiple international territories in the human microbiome market. The Company is focused on securing deals with multiple partners across multiple geographic regions for rapid revenue growth and reducing the cost base. OptiBiotix Health is well-positioned to capitalise by increasing the variety of products and applications. The stock made a 52-week low and high of GBX 23.20 and GBX 72.00, respectively.

Based on the decent prospects, we have given a “Speculative Buy” recommendation for OptiBiotix Health Plc at the current price of GBX 52.26 (as on 26 February 2021, before the market close at 9:40 AM GMT).

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

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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