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.

Rationale for Valuation – Speculative Buy at GBX 327.50

• Iomart has high levels of recurring revenue and saw signs of improved confidence within new and existing customers.
• The Company's long-term prospects remain strong, with continuous growth and profitability as well as generating consistent returns, supported by the recurring revenue.
• As per valuation metrics, Price/Earnings, EV/EBITDA, and Price/Cash Flow multiples of the IOM are currently lower as compared to the corresponding multiples of the Software & IT Services industry.
• In H1 FY21, the Company has decent fundamental metrics as it has maintained profitability margins above the industry median.
• From the technical standpoint, shares are trading well above the short-term support level of 50-day (GBX 322.80) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• Any downtime experienced at the data centre will impact the Company's services, and it could result in the loss of customer and reputation.
• The IT market’s remain highly competitive, and new players with differentiated products enter the market often, and if the Company is not able to provide similar services at a competitive price, it could lose business.

Financial Highlights (for the period ended 30 September 2020 (H1 FY21), as on 1 December 2020)

(Source: Company Website)

• The Company witnessed strong levels of recurring revenues, with an increase in revenue of 2% year-on-year.
• The 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 FY20.
• It has successfully launched the iomart Managed Security Service (iMSS) and also completed the transformational IT consultancy project for the local government customer.
• The interim dividend was at the same level as shown in the last year 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 Approach (NTM) (Illustrative)

Conclusion

Overall, the long-term prospects of the Company remain strong. In recent months, the Company has increased the new business discussions, reflecting the confidence in longer-term IT and digital transformation projects. In H2 FY21, the revenue and profit margins are expected to benefit from existing customers and operational efficiencies. Moreover, the demand for digital transformation would be supported by the remote working norm, and it will remain a long-term key driver to the cloud. Meanwhile, Iomart Group has delivered continuous growth and profitability. Further, the recurring revenue stream of the Company helps in generating consistent returns. The stock made a 52-week low and high of GBX 219.50 and GBX 409.00, 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 Iomart group at the current market price of GBX 327.50 (as on 4 February 2021, before the market close at 9:40 AM GMT), with lower double-digit upside potential based on 26.50x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Sosandar Plc

AIM-listed Sosandar Plc (LON: SOS) is a United Kingdom-based online womenswear brand Company.

Rationale for Valuation – Speculative Buy at GBX 13.50

• The Company has reported strong revenue growth, a good cash position, and a significant EBITDA improvement during the quarter.
• It also delivered increased sales, better engagement with customers, better cost efficiency, quickly expanded the product range and grown the database.
• The company's debt/equity ratio in the past two years was considerably below the industry median. In H1 FY21, the debt/equity ratio was 0.01x.
• The current ratio has also stayed above 3x during the past three years, reflecting substantial liquidity to meet short-term obligations.
• From the technical standpoint, 14-day RSI stood at around 17.12 (oversold zone), which is supporting the upside movement.

Key Risks

• In the near future, the Company will be facing uncertainties due to the increased aggressiveness of the competitor activities.
• Moreover, the push towards online sales has increased the variable costs, such as warehouse picking and delivery costs.

Trading Update (covering the three-month period ended 31 December 2020, as on 13 January 2021)

• The Company reported another period of record performance, with an increase in 6% year-on-year revenue and a substantial improvement in EBITDA (against the corresponding period of the last year).
• In December 2020, it saw the highest month to date, with strong sales and continued expansion of the product range.
• On 31 December 2020, the net cash was £3.90 million, representing strong cash management.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company delivered a record performance in the quarter, with extremely strong comparatives achieved in the prior year and the significantly reduced marketing spend. Sosandar does not expect to see any significant impact from Brexit on its ability to service its customers while it has a diversified and flexible supply base. The Company stated that it had increased customer acquisition from September 2020 to November 2020, with a record month of December sales. SOS achieved a new daily record for revenue in December 2020. It maintained a strong cash position, with more than £3.90 million as at 31 December 2020. Meanwhile, it delivered good results and has shown a significant demand for the products. The Company has grown a total databaseOverall, the Board is confident for the long-term prospects, due to the better engagement with customers, quickly expanded the product range, grown the database and also reduced marketing spend. The stock made a 52-week low and high of GBX 4.54 and GBX 20.95, respectively.

Based on the decent growth prospects, we have given a “Speculative Buy” stance on Sosandar at the current market price of GBX 13.50 (as on 4 February 2021, before the market close at 8:00 AM GMT).

 

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

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

---

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.