Idox streamlining the business

Idox (IDOX) has decided to simplify its business and focus all its attention on software. Last year, it disposed of its content business for £10.7m and acquired Aligned Assets, thinkWhere and exeGesIS for £10.5m to strengthen its public sector software service.  

The benefit of concentrating on a core offering is that central costs can more easily be spread across the whole business. It has taken advantage of this by consolidating all offshore activity in a single site in India. Continued operating profit almost doubled to £7.6m, which led to a operating profit margin improvement of five percentage points to 12 per cent.

As well as streamlining costs, Idox also added 150 new customers and fulfilled over 4,000 orders. Despite disruption from the pandemic, momentum continued into the new year where the sales pipeline “remains encouraging”. The UK government was clear in the Budget that it would invest more heavily in IT infrastructure which should drive continued demand in 2022.

One of the most important developments, especially in a period where interest rates are expected to rise, is that net debt has been halved, particularly given this came at a time when it continued to make acquisitions.   

Peel Hunt expects earnings per share to rise to 3p next year, which gives it a 2023 price/earnings ratio of 22. Improving margins and decreasing debt are both promising signs, but at that level Idox looks fairly valued for now. Hold.

Last IC View: Hold, 25p, 26 July 2018