Data and workflow software supplier IDOX (IDOX:AIM) looks like a victim of its own genuine success. Today's profits warning from the £130 million company stems from its failure to repeat last year's rapid growth from its engineering information management (EIM) arm, partly because of a couple of particularly large enterprise contract wins.


This has prompted the company to steer the market to expect earnings before interest, tax, depreciation and amortisation (ebitda) of no less than £18 million. That's £3 million less than previous market hopes, the root of today's 18% share price slump to 37.5p.


Web news - IDOX - May 2013


Clearly IDOX today increasingly relies on winning new and bigger licence deals from both existing and new customers. Yet what stands out for me is the company's recurring revenues. In its EIM division, recurring revenues have risen 18% year-on-year, to 58%. It's about the same on the public sector side, implying that today's profits scare could have been far worse. As it stands, implied ebitda of £18 million will still represent 8% growth, and this assumes precious little new business between now and the year end in October.


This looks unlikely given the company's claim that the 'enterprise sales pipeline for the [EIM] business has grown significantly since the start of the financial year.' This will be in no small part to growing interest in the McLaren OnAir software-as-a-service (SaaS) and hosted solutions. More opportunities will come from April's expansion into the busy north African oil and gas market via its £2 million acquisition of French engineering document control software supplier Artesys.


With business going well from its public sector division, where competitive, five-year contracts have been won from local authorities in the Isles of Scilly, Hart, Canterbury, Sandwell, North East Lincolnshire and Durham, (worth £1.6 million combined), the backcloth here looks bright. In Durham, for example, IDOX solutions will replace 18 separate existing systems.


Still, analysts have little option but to top slice current year forecasts, with both FinnCap and Investec chopping 15% of this year's anticipated ebitda, and 8% and 9% respectively from 2014 estimates. But I would argue that the opportunities for IDOX remain, both through further savvy acquisitions and, importantly, organic means.

Issue Date: 29 May 2013