Monday, 8 December 2008

Solid set of numbers from IDOX

IDOX has today published its results for the first full year with its CAPS acquisition and 8 months with Plantech. The results to 31 October 2008 show revenues up 65% to £34.0m (2007: £20.6m), and pre-tax profits up 267% to £6.6m (£1.8m). Normalised EPS is up 80% to 1.62p (0.90p) with basic EPS up 122% to 1.40p (0.63p).

Delving into the accounts shows that the company has used its two acquisitions to help maximise the profits reported – through the release of £0.6m provision from the CAPS acquisition and a £1m operating profit from the first 8 months of running Plantech (compared to the £149k profit in the 4 months prior to acquisition, and £294k for the last completed financial year prior to acquisition). On the basis that there’s not more in the accounts that I’ve failed to pick up in my quick review, these are not in my mind excessive – I’ve seen far worse in other acquisitive companies.

More importantly, IDOX now has net cash of around £1M and recurring revenues at 46% of core software revenues, a good position to be in today’s difficult financial climate.

IDOX is a company that has been able to successfully reposition itself on the back of a good acquisitions. For the first few years of its life it struggled to find a niche – now it is a dominant position in the Local Government land & property market – and despite growing pains from its acquisition of CAPS (now apparently overcome) it has made some significant contract wins in its own name over the past 12 months.

Unfortunately, its original core business units seem to be struggling. Although claiming 9% organic growth in core software business, its solutions business has declined in revenue and fallen into loss, and whilst its recruitment business is reported as “remaining stable”, I can’t believe that it won’t be hit significantly by the current financial climate. Personally, I would not be surprised to see the Solutions and Recruitment businesses sold off (perhaps to their management?), and for IDOX to become an almost “pure play” in the land & property market (most probably retaining its document management applications).

As I publish this blog item, the IDOX share price sits unchanged at 8.25p - a P/E of less than 6 - valuing the company at £28m, or approx. 80% of revenues – although this morning’s analyst’s meeting has yet to finish. In a normal credit market I would have expected IDOX to be under offer from one of the larger players in the Local Government market, or the possible subject of an MBO. I still think this is likely, but I suspect that potential predators will sit back and wait to see how IDOX manages the slow-down in its markets.........

P.S. I am a shareholder in IDOX.

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