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Growing pains for Idox

RESULTS: Idox says goodbye and good riddance to a dreadful fiscal 2013 when growth stalled and the company's share price halved
January 13, 2014

Selling software to local councils and private companies so they can push paper around more efficiently doesn't sound like an exciting growth business. But Idox (IDOX) has made it just that over the past few years: its share price rose fivefold from 2010 to the end of 2012 as management won market share, delivered organic growth at home in the UK and expanded into new markets and territories via acquisitions.

IC TIP: Hold at 34p

Yet in 2013 Idox's growth stumbled. Coming off a strong 2012 performance, the company was hit by growing pains after merging several businesses together, the departure of the chief financial officer and macro-economic headwinds. A weak first half and a profit warning in November did a lot to dent confidence in the business. But these full-year results point toward a slight recovery in the second half and were in line with analyst expectations.

The bad news is that in the absence of significant organic growth Idox's margins are being eroded by its higher cost base following the expansion. Cash profit margins at the engineering information management (EIM) division fell to 23 per cent from 30 per cent, while at the main public sector software (PSS) division they fell two percentage points to 28 per cent.

Broker N+1 Singer expects adjusted pre-tax profits of £11.8m and adjusted EPS of 2.5p in the current year, compared with £10.8m and 2.8p last year.

IDOX (IDOX)

ORD PRICE:34pMARKET VALUE:£119m
TOUCH:33-34p12-MONTH HIGH:60pLOW: 29p
DIVIDEND YIELD:2.1%PE RATIO:14
NET ASSET VALUE:13p**NET DEBT:44%

Year to 31 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200932.24.481.010.20
201031.34.941.070.45
201138.65.611.310.60
2012*55.47.942.240.68
201357.37.512.410.70
% change+3-5+8+3

Ex-div: 9 Apr

Payment: 25 Apr

*Restated

**Includes intangible assets of £69.5m, or 20p a share