Redcentric struggling in a post-Covid world

A lot of companies have stated that straight comparisons to last year aren’t always useful because Covid-19 lockdowns decreased trade activity so dramatically. For Redcentric (RDN), it is the opposite. The shift to remote working meant there was an immediate increase in demand for its services. Now, a “dearth of large-scale IT projects” and the ongoing global microchip shortage are constricting revenues.

During lockdown, monthly recurring revenue was on the rise, but it has fallen  by 2.2 per cent year on year to £39.6m. However, it still constitutes a reassuring 89 per cent of the group total. Falling operating costs, and a subsequent 70 basis point jump in the cash profit (Ebitda) margin to 26.8 per cent, contributed to a 3.3 per cent fall in adjusted cash profits to £11.9m. Buts that's set against £10.3m in the half-year prior to the pandemic. The adjusted figures exclude the £0.4m of cash profit which were related to a now disposed EDF contract.

Net debt over the period decreased £0.2m. The normalised cash flow was £7.1m and the group received £5.8m for the sale of the EDF assets. However, this was offset by the £3.7m handed out in dividend payments and the £8.4m September acquisition of cloud service business Piksel. The integration of the business is ahead of schedule, with £700,000 of annualised cost savings already realised, with another £400,000 expected in short order. The "strategically important" acquisition should further boost recurring revenues.

November is on track to be the best month for sales this calendar year but the business is still being impacted by a shortfall of IT projects across the market. A cloud company with a forward PE ratio of 16.4 looks cheap, but the dearth of suitable opportunities is certainly not being experienced by all of its peers, which suggests the issues may lie closer to home. Hold.

Last IC View: Hold, 132p, 22 Jul 2021