Oxford Metrics sets bullish growth targets

In a fitting move for a company that specialises in tracking software, Oxford Metrics (OMG) is setting targets that will allow investors to measure its own performance.

Management has set out a new five-year strategy to more than double the £35.6m-worth of sales it achieved in the year to September. This was an 18 per cent increase on a pandemic-hit 2020, but only restored sales to pre-pandemic levels. Similarly, the bottom line is yet to return to the heights it hit in 2019.

The new strategy aims to fix this with a five-year target for an adjusted profit margin of at least 15 per cent. If achieved, it would translate to adjusted profits of at least £13.4m by 2026.

Oxford Metrics aims to get there by strengthening its position in smart sensing, through developing its own intellectual property and via acquisitions, though the latter will be set against “strict criteria”. Targets will be “hard-to-replicate” technology companies with attractive actual or potential cashflows, good revenue visibility or a dominant position in a niche market.

The company currently makes about four-fifths of its money through Vicon, whose movement tracking and analysis systems are used by everyone from video game and film companies to healthcare specialists. Clients include all 10 of the world’s biggest games companies and all 20 of the world’s top universities.

The remainder is generated through asset tracking software system Yotta, which has just generated its first year of adjusted profit as recurring revenue increased.

All of this amounts to an attractive proposition, but OMG shares are priced as such, trading at 40-times broker Numis’s forecast earnings. But investors welcomed the new growth plan, pushing the stock to a 12-month high of 132p before settling to take the annual gain above 40 per cent.

Given that the five-year plan also involves more investment, this may mean lower initial returns. As such, investors with a shorter-term horizon might want to bank gains. For those with a longer term view - an outlook we share - we maintain our buy recommendation.

Last IC View: Buy, 89p, 3 Dec 2020