IDOX increases public sector software revenue

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  • Sales to engineering groups fall amid uncertain macro outlook
  • Recurring revenues are improving in a deteriorated context

Specialist software provider Idox (IDOX) depends on the interest of large engineering firms and local governments to sell its products. Historically, neither customer base has been known to increase capital spending during an economic downturn, which makes the company’s revenue growth in the six months to April 30 all the more remarkable.

It would be an overstatement to characterize Idox as a defensive stock, but it has certainly benefited from an explicit commitment from the UK government to invest more in IT infrastructure. The public sector software division, which now represents 89% of half-year revenue, continues to generate sales thanks to an accelerated digital transformation, although the engineering information management business appears to be more exposed to broader economic uncertainties.

The change in business mix reflects the sale of the content business in fiscal year 2021. Management has decided to offload this segment to focus more on the software offering. The net cash inflow of £10.7 million was reinvested in acquisitions during the second half of the year.

Although the company’s end markets have been the subject of much recent discussion, there has been little legislative action to solidify them. Management stresses that the government’s proposed planning reforms, many of which have yet to materialize, are missed opportunities. However, the public purse remained resilient even as macroeconomic conditions deteriorated. It’s hard to gauge whether this will continue if we slip into recession, but the company believes the continued need for cost savings through technology will keep customers flocking.

Operating profit margin was maintained at 13%, although perhaps a more encouraging metric is the 13% increase in recurring revenue, which now represents 60% of revenue. Stocks are changing hands at 24 times the FactSet EPS consensus. That’s not an unusually stretched multiple for a growing tech stock, but valuations are becoming more realistic by the day. Hold.

Last seen IC: Hold, 67p, Jan 27, 2022

IDOX (IDOX)
ORDER PRICE: 64p MARKET VALUE: £286 million
TO TOUCH: 61.2-64p TOP OF 12 MONTHS: 81.9p LOW: 57.7p
DIVIDEND YIELD: NONE P/E RATIO: 46
NET ASSET VALUE: 14p* NET DEBT: 9%
Semester to April 30 Turnover (£million) Profit before tax (millions of pounds sterling) Earnings per share (p) Dividend per share (p)
2021 31.1 3.66 0.68 nil
2022 33.2 3.60 0.70 nil
% change +7 -1 +3
Ex div:
Payment:
*Includes intangible assets of £91.5m or 20.4pa share
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