Growth languishes at Iomart

In April, analysts at Peel Hunt described Iomart (IOM) as a “bargain tech company awaiting growth”. Since the pandemic began, however, growth has not been forthcoming.

In the year ended 31 March, revenue shrank by 8 per cent to £103mn, and adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) fell by the same percentage to £38mn. Management said this reflects lower non-recurring equipment and consultancy sales, caused in part by the conclusion of a large consultancy project. 

This is not quite the full story, however: recurring revenues also dropped by £4.2mn, split equally between Iomart’s core ‘cloud managed services’ division and its ‘self-managed infrastructure’ arm. Customer renewals dipped in the first half of the year, but these have since returned to normal levels. 

Iomart is not immune to macroeconomic pressures. Management has noticed a lack of larger-scale IT projects, and cited  inflationary pressures, supply chain challenges and geopolitical uncertainties. However, it said “the requirement for organisations to be supported with their hybrid cloud challenges will continue to grow for the foreseeable future”.

Iomart only recently repositioned its offering around the growing ‘hybrid cloud’ market, which allows clients to store information in a variety of different places and access it easily. However, the security market is also a cornerstone of its growth plan, and it has recently struck a partnership with a cyber security specialist. Management also hopes that the appointment of a new chief commercial officer will help to improve the group’s sales pipeline.

The projections aren’t great, however. Analysts expect sales to remain below 2020 levels in the year ended 31 March 2023, while profit margins have been shrinking for several years. 

Cash conversion remains high at 100 per cent, however, and the company has paid down a sizable chunk of its debt. Hold. 

Last IC View: Hold, 148p, 7 Dec 2021