Blancco back in the black

Pandemic travel restrictions have meant vastly different things for different businesses: with the right operating model, such curtailments can help the bottom line. Blancco Technology (BLTG), the Aim-listed group which provides data erasure and mobile device diagnostic services, provides a pertinent example. A reduction in the group’s travel and entertainment costs due to the restrictions helped Blancco’s adjusted operating margin hit 15 per cent in the results for the year ended 30 June. The group moved into the black, with a £1.5m profit before tax after last year’s £0.2m loss, and adjusted Ebitda spiked by 26 per cent to £10m.

While total revenue was up by 9 per cent to £37m for the year, the shift to remote working had a mixed impact on the group’s income streams. The enterprise market, in which Blancco service blue-chip clients, posted a 21 per cent revenue increase to £14m. With IT departments spending more due to hardware being needed by off-site workers and security concerns about remote data, there was more need for data cleansing services. There was also pent-up demand for dealing with devices which couldn’t be accessed during lockdowns.

The ITAD (IT asset disposition) and mobile markets relatively struggled. ITAD clients were unable to access customer premises due to lockdowns, particularly in the first half of the year. A bounce-back in the second half delivered 6 per cent revenue growth to £12m. While there was a notable increase in the year of the number of mobile devices cleansed using Blancco software, from 20m to 36m, this only resulted in 4 per cent mobile revenue growth. Management explains this with reference to new contractual terms with a retailer client which has resulted in lower revenues.

Looking to the future, trends in data security and regulation look set to benefit the group. Amazon (USD: AMZN) was fined £636m in July by Luxembourg’s data protection body for breaches under EU GDPR regulations: such actions mean that companies are more fervent than ever about the importance of data security and Blancco’s service offering aims to deliver what they need in this area.

Panmure Gordon forecasts an adjusted EPS of 6.1p for FY2022, rising to 7.3p in FY2023. However, a forward PE ratio of 45 looks expensive regardless of reported earnings growth. Further, management are clear that “operating margins are likely to revert closer to pre-COVID levels in the short-term” before future growth in this metric comes along. Hold.

Last IC view: Hold, 128p, 24 Sep 2019