Idox hikes dividend by 20%

As expected from a company that makes its money selling software to government organisations, Idox (IDOX) has produced a solid if unspectacular year.

The management and regulation software company saw revenue rise 11 per cent in the year to October driven by growth from the land, property and public protection (LPPP) division. Last year, the LPPP business was boosted by the acquisition of geospatial data provider Emapsite for £14.8mn. LPPP now makes up 59 per cent of the total revenue.

Investors will now be looking to see if there can be any efficiency gains while the businesses are consolidated. The adjusted cash profit (Ebitda) margin dropped one percentage point to 33 per cent. The aim is to hit 35 per cent and management says there are some improvements to come as the efficiencies from acquisitions are yet to be “fully realised”. In the meantime it decided to hike dividend by 20 per cent to 0.6p a share.

Revenue from the communities division fell 8 per cent. In part this is because revenue from its electoral services division is dependent on there being elections. This year might be more fruitful, assuming the general election does happen in 2024.

The gross margin of 78 per cent shows the marginal costs of adding extra customers is low, which suggests there is room for the operating margin to expand further.

FactSet consensus currently has Idox trading on a forward price/earnings ratio of 24 times, which is expensive. However, given it is a high-margin business with decent cash generation, the price is not prohibitive.

Steady isn’t bad, but if Idox wants a re-rating it will need to show some earnings growth acceleration, either through margin expansion or increasing revenue. Or preferably both. Hold.

Last IC View: Hold, 68p, 8 Jun 2023