Iomart reports a sky-high performance despite a slight fall in share price

Analysing the Iomart results as they update the market.

Article updated: 12 June 2018 10:00am Author: Helal Miah

  • The AIM company has reported an encouraging rise in revenue and pre-tax profits
  • Despite strong sales growth and a hike up in the dividend, the shares have opened lower this morning as the adjusted earnings per share figure fell short of expectations
  • The Share Centre recommends Iomart as a ‘buy’ for higher risk investors

Today we take a look at the cloud computing business Iomart Plc, one of our preferred AIM listed companies. The group has performed very well over the years and recently surpassed the £4 a share level having been as low as £1.60 in 2015. Full year revenues to the end of March rose by 9% to £97.7m while adjusted operating profits also rose by 9% to £39.8m.

We also saw reasonably good cash flows and adjusted pre-tax profit margins were maintained at 25% while the relatively modest dividend did see an increase of 20%. However the shares have opened lower by a few percentage points this morning as the adjusted EPS figure did fall short of expectations while the sales growth only just matched the consensus.

Despite this, the update for us is encouraging as the group continues to grow both organically and through acquisitions. Recent acquisitions provide them with a foothold and expertise within certain areas while management have extended the duration of their credit facility. With the dividend recently initiated, management intend on a maximum 40% payout ratio.

The business took a big bet on cloud computing in the early years and heavily invested in data centres, this has paid off well but we still believe that there is lots of growth in the industry still to come. Security and data protection becomes ever more important in today’s world and there are many organisations that lack the internal skillset to provide this protection.

Alongside this, the ever increasing use of data provides plenty of opportunities for Iomart. The company operates in the same sphere as Amazon, Microsoft and Google and management describe them as whale sharks, but in a very big ocean there is plenty of scope for the smaller players to grow and offer unique services that the larger operators are unable to.

We still believe on the long term potential of the group and continue with our ‘buy’ recommendation for investors seeking capital growth and willing to accept a medium level of risk.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

Helal has spent time as an independent proprietary trader, trading the US equity futures market. He has also helped manage private client, institutional, retail and hedge funds. His qualifications include the Securities Institute Diploma and the Investment Management Certificate.