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OMG! More growth to come for Oxford Metrics

The software company believes it can capitalise on new motion-sensor analytics markets
March 7, 2019

Aim-traded Oxford Metrics (OMG) believes its market-leading technology for optical human-and-animal motion tracking is in the process of becoming mainstream. Applications for the technology are already wide ranging, from medicine, to sports, to Hollywood studios. But tracking technology is rapidly infiltrating our daily lives, thanks to innovative smartphone and watch technology as well as developments in virtual reality gaming.

IC TIP: Buy at 82p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points

Progress made on five-year plan
Expansion into new markets
Strong net cash position
Small but growing dividend

Bear points

Slower international sales for Yotta business
Investment dampening profit forecasts 

Oxford Metric's Vicon business is a leader in this space, with a “high degree of proprietary software IP”, and thousands of customers including Guy’s Hospital and NASA. Oxford Metrics estimates Vicon supplies around half of the addressable global market. The business also contributes three-quarters of group revenue and 95 per cent of underlying pre-tax profits.

The business is already growing at an impressive clip, with sales up 8.4 per cent to £24.4m in the year to the end of September 2018, and adjusted pre-tax profits “well ahead” of management’s expectations at £7.3m – up 30 per cent. Gross margins also nudged up to an impressive 73.2 per cent. Vicon is investing in strengthening its established market offering while pushing into the new areas of shared virtual reality experiences and elite sports training. Bringing forward £1.5m of planned development spending has dented 2019 profit forecasts but looks sensible given the opportunity. The spending is also supported by the group's cash position. That said, it's worth keeping an eye on cash collection given the company's high – but recently stable – debtor-to-revenue ratio of 33 per cent.

Vicon is operating ahead of the expectations that underpin the group's five-year plan to September 2021. Key goals are to to triple annualised recurring revenues (ARR) from £4m, and to double adjusted pre-tax profits from £5.1m.

However, progress has not been so impressive at Oxford Metrics' Yotta infrastructure software business, which is currently the source of most of the group's ARR. Yotta can boast good customer retention (95.3 per cent last year) and ARR rose 16.5 per cent last year to £5.7m. However, overall the division fell short of bosses’ hopes, in a “year of mixed fortunes” – with strong growth in the mature UK business, but slower-than-planned international momentum. Revenues rose 10.6 per cent to £7.3m, while adjusted pre-tax profits dipped from £0.7m to £0.4m.

The group is now prioritising Yotta’s (more successful) indirect and original equipment manufacturer channels overseas. Still, its “longer sales cycles” and the planned Vicon investment led house broker N+1 Singer to reduce 2019 adjusted pre-tax profit forecasts from £7.1m to £6m (adjusted figures are before amortisation, impairments and share-based payments as opposed to the reported figures used in the table below).

OXFORD METRICS (OMG)  
ORD PRICE:82pMARKET VALUE:£103m
TOUCH:81-83p12-MONTH HIGH:84pLOW: 61p
FORWARD DIVIDEND YIELD:2.4%FORWARD PE RATIO:18
NET ASSET VALUE:24p*NET CASH:£12.2m
Year to 30 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201626.32.93.54.8
201729.21.52.61.2
201831.74.13.22.5
2019**35.45.13.21.7
2020**39.37.34.52.0
% change+11+43+41+18
Normal market size:7,500   
Beta:0.53   

*Includes intangible assets of £12.4m, or 10p a share

**N+1 Singer forecasts, adjusted PTP and EPS figures