If companies want to properly engage with customers, they have to go where we spend ever larger portions of our lives: online. More specifically, they need to embrace mobile. Corporations know this, but few have the resources or know-how to make the switch from call centres and sending letters. To do so, many turn to Aim-traded IMImobile (IMO), an industry leader in helping blue chips and telecoms groups use mobile software and technology to communicate with consumers.
- Low rating
- Established track record
- Recurring revenues
- Improving cash generation
- Major competitors
- Share-based payments
This structural growth story alone should put IMI on the watchlist of any small-cap investor. Throw in a 15-year track record, improving cash generation, rising revenues and blue-chip clients, and a share price at a massive discount to the technology sector, and we think there's a good chance IMI could re-rate in 2016.
The low rating currently attached to the shares may be down to a misunderstanding of the business or nerves around the jargon-laden sector, but what IMI does is straightforward. The company, which floated in 2014 and has a large amount of its operations located in India, develops easily-integrated and scalable software. This can help a phone operator offer handset upgrades to users, or a bank connect with customers via social media. IMImobile sells these services through software licences, and offers managed solutions and consultation services. And while receivables account for around a third of annual revenue, earnings visibility is good, with around 85 per cent of income recurring or repeat in nature. Cash conversion rose in the first half from just 44 per cent to 84 per cent and net operating cash of £3.8m was generated.
IMI can't be described as a blue-sky operation, but it does boast more than 100 major customers in over 60 countries across Europe, the Americas, the Middle East, Africa and India including telecom firms such as O2, AT&T and Vodafone (VOD) and blue chips such as Coca-Cola, AA (AA.) and Universal. Further client growth is expected from the acquisition of smaller mobile software agencies. This strategy is already working. Last year, the company landed South Africa's Standard Bank as a client when it acquired Johannesburg-based mobile agency Archer. Contributions from Archer and TextLocal, a mobile messaging firm focused on SMEs which IMI acquired in 2014, were both immediately earnings enhancing.
One potential concern is the web of share-based payments, which amounted to £7.3m last year. However, management is currently considering both a review of the capital structure and dividend payments, which if implemented would put the stock on the radar of Aim IHT investment funds. The company recently appointed Investec for advice on the matter, and - in another possible fillip for the shares - as a secondary broker to help IMImobile attract broader institutional investment.
IMIMOBILE (IMO) | ||||
|---|---|---|---|---|
| ORD PRICE: | 148p | MARKET VALUE: | £71.2m | |
| TOUCH: | 146-150p | 12-MONTH HIGH: | 169p | LOW: 107p |
| FORWARD DIVIDEND YIELD: | nil | FORWARD PE RATIO: | 12 | |
| NET ASSET VALUE: | 67p* | NET CASH: | £13.5m | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 43.4 | 5.2 | 6.7 | nil |
| 2015 | 48.9 | 6.7 | 8.7 | nil |
| 2016** | 60.1 | 8.6 | 10.3 | nil |
| 2017** | 71.5 | 10.9 | 12.8 | nil |
| % change | +19 | +27 | +24 | - |
Normal market size: 2,000 Matched bargain trading Beta: na *Includes intangibles of £23.6m, or 49p a share **Whitman Howard forecasts, adjusted PTP and EPS figures | ||||
