Ideagen reaches SaaS "inflection point"

Ideagen (IDEA) chief executive Ben Dorks believes that his company has finally completed its transition phase into a software-as-a-service (SaaS) business. The group, which specialises in risk management technology, now boasts that total recurring revenues account for 83 per cent of the total, in a move away from the industry’s traditional licensing model. 

Subscription-based SaaS revenues increased by almost half to £32.2m in the full year ended in April, and represented the largest proportion of sales in the final six months – a key inflection point, according to Dorks. Meanwhile, the group’s overall gross margin increased by 200 basis points to 92 per cent. 

Net bank debt reduced slightly to £11m, compared with £17m at the end of its 2020 financial year. That represents a comfortable net debt to adjusted cash profit ratio of 0.2. Combined with £47.2m raised from an equity placing back in December and £100m in available debt facilities, management has had enough wiggle room to pursue its active acquisition strategy. 

Ideagen scooped up three new businesses in the period – Qualsys, Huddle and Qualtrax – for a combined £54m. And on Monday, the group announced that it had acquired Mi-Co, a mobile app developer – for £3.1m in cash, as well as OpsBase, a health and safety compliance platform, for £1.9m in cash.

Dorks says that Ideagen is still pursuing a healthy acquisition pipeline, so investors should expect more takeover announcements to come. And while management believes that it has now completed its SaaS transition phase, it still hopes for its proportion of recurring revenues to reach the high 80s range. As Ideagen seeks further growth and improved quality, we think the shares are worth an (admittedly high) forward price to earnings multiple of 37. Buy. 

Last IC View: Buy, 198p, 24 September 2020