iomart Group plc

With the considerable advancement in the tech sector in recent years, the mobile money and mobile payments sector has seen a lot attention of late. The likes of Monitise (MONI) and Optimal Payments (OPAY) have seen their share prices rise significantly and it leads us to think, what other area’s are seeing an increase in business with the advancement of smartphones and computing. One such area is cloud services and cloud computing.

“iomart Group is one of Europe’s leading cloud computing companies. Listed on the AIM since 2000, the iomart Group has grown to become one of the UK’s most widely respected and trusted providers of mission-critical hosting services enabling its global customers to reduce the cost, complexity and risks associated with maintaining their own web and online applications.

The iomart Group is profitable, cash generative and well placed to capitalise on the growing cloud computing market through its successful strategy of acquisitive and organic growth coupled with investment in state of the art data centres and high speed fibre network.”

Key facts:

  • Share price 285p
  • Market Cap £300m
  • Net Assets £60m (Cloud computing company so value not in the balance sheet)
  • Shares in issue 105,759,876
  • % Free float 75.9%
  • 30 day avg vol 365,000 (Note – illiquid)
  • CEO (Angus MacSween) largest shareholder 19.54%

Broker Views:

  • N+1 Singer, 10th December 2013, HOLD, Target Price 282p
  • Canaccord Genuity, 1st October 2013, HOLD, Target Price 300p
  • Finncap, 10th December 2013, BUY, Target Price 340p

The share price has seen a steady rise over the last couple of years, rising from around 150p in the middle of 2012 to a peak of around 320p in September 2013. Since that peak the share price fell to a 2013 low of 220p before rising again to its current price of around 285p. Some of this recent volatility could be explained by the illiquid nature of the stock, as with all illiquid stocks, any sizeable volume can cause wild swings in the share price.

The case for buying is based on the fact the cloud computing arena has grown in recent years and will continue to grow. The question is, is it cheap to buy now? The short answer is no, but the valuation is to be expected from a tech company operating in a hot sector. The market values the company currently at around £300m. The price to book ratio is not as relevant here but having said that, a book value of £60m equates to a ratio of around 5 which isn’t too bad considering a lot of the company’s value is not in the balance sheet.

A price to earnings ratio of 27.2 in the FY 2013 is quite high but looking at the forecasts below, this is set to come down as earnings increase. Revenue and earnings growth is good and provided it keeps outperforming the broker forecasts, which it has done over the past few years, then broker upgrades will occur which should boost the share price.

The bottom line is, the company is growing revenues at a pretty substantial rate and is forecast to continue. Not only are revenues growing but profit is growing also and a growing company means a growing share price. It pays a small dividend, and with further acquisitions of smaller companies, it is putting itself in a dominant position in the market. Cloud services and cloud computing industry will continue to grow and investing in a solid company like iomart Group should provide returns.

iomart Group Fundamentals

Year Ending

Revenue (£m)

Pre-tax (£m)

EPS

P/E

PEG

EPS Grth.

Div

Yield

31-Mar-09 11.80 (1.20) (1.43)p n/a n/a n/a 0.30p 0.9%
31-Mar-10 18.33 1.25 1.23p 40.2 n/a n/a 0.40p 0.8%
31-Mar-11 25.25 2.79 3.56p 25.6 0.1 +189% 0.65p 0.7%
31-Mar-12 33.48 5.84 6.99p 20.3 0.2 +96% 0.90p 0.6%
31-Mar-13 43.06 8.70 8.46p 27.2 1.3 +21% 1.40p 0.6%

iomart Group Forecasts

Year Ending

Revenue (£m)

Pre-tax (£m)

EPS

P/E

PEG

EPS Grth.

Div

Yield

31-Mar-14 55.57 13.74 10.29p 27.3 1.3 +22% 1.70p 0.6%
31-Mar-15 66.19 17.48 12.92p 21.8 0.9 +26% 2.04p 0.7%
31-Mar-16 74.52 20.00 14.44p 19.5 1.7 +12% 2.31p 0.8%

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