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Clear skies at iomart

Iomart's shares tumbled on weak organic growth, but the group performed on other fronts
December 9, 2014

Shares in iomart (IOM) tumbled a fifth after the company disappointed investors with organic growth in hosting revenues of just 8 per cent, down from double-digit growth a year ago. On the bright side, it posted a 28 per cent increase in operating profit to £6.2m.

IC TIP: Buy at 181p

The outsourcer - which saves small- and medium-sized enterprises the costs, complexities and security risks of storing and hosting their own data - stands to be a major beneficiary of trends such as 'big data', the 'Internet of Things' and cybersecurity. "We're selling peace of mind," says chief executive Angus MacSween. Indeed, companies that have shunned outsourcing due to concerns over data security are gradually realising "that particular emperor has no clothes".

But that doesn't protect the company from the rapacious growth of cloud services from the likes of Amazon and Microsoft. Iomart's strategy is to offer hybrid solutions that incorporate elements of its larger rivals' offerings. It has already partnered with Microsoft, Dell and EMC, gaining a foothold in the enormous US market in the process. Management warns that paying subscription fees will push operating costs up, but expects lower capital spending and depreciation charges to leave iomart's excellent margins intact.

Broker finnCap expects full-year pre-tax profit of £17.1m, giving EPS of 12.7p, rising to £20.2m and 15p in 2015 (from £14.6m and 10.9p in 2013).

IOMART (IOM)
ORD PRICE:181pMARKET VALUE:£193m
TOUCH:180-181p12-MONTH HIGH:300pLOW: 167p
DIVIDEND YIELD:1%PE RATIO:22
NET ASSET VALUE:64p*NET DEBT:28%

Half-year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201324.64.43.4nil
201431.55.54.3nil
% change+28+26+25-

*Includes intangible assets of £63.2m, or 59p a share