GIS capabilities – and earnings – further enhanced

Idox has announced the acquisition of exeGesIS Spatial Data Management Ltd, a UK based geospatial information services (GIS) technology business, for an initial cash consideration of £5.35m payable from existing resources. This acquisition adds to the GIS capabilities which August’s purchase of thinkWhere brought to the Group. exeGesIS will also add to Idox’s recurring revenues and is immediately earnings enhancing. Idox is now in a strong position to capitalise on the growth of the UK’s location data market. The series of acquisitions – including Aligned Assets in June – that Idox has undertaken since the disposal of its Content division has quickly recycled the disposal proceeds. In line with Group strategy, the acquired businesses have augmented the Group’s positioning as a software business selling to public-sector and engineering customers. We make no adjustments to the current financial year given the proximity of the October year end, but our revenue and EBITDA estimates both increase by 4% in each of FY 2022E and FY 2023E. Our estimated net debt numbers reflect the full consideration.

GIS capabilities – and earnings – further enhanced

Following its positive AGM trading update on 23 September, finnCap has delivered its promised update on revenue for the six months to the end of September 2021. With a further four M&A deals closing between those two dates, H1 2022E revenue is £31.8m, up 55% on the prior year comparator of £20.5m. The Group has raised the lower end of its guidance range for full year revenue by £5m to between £45m and £50m. The most striking performance in H1 is that of finnCap Cavendish which has reported revenue of £16.2m in the half year compared to £4.2m in H1 2021 in a vibrant M&A market. Risks to our upgraded numbers remain firmly on the upside.

Very strong first half revenue confirmed

Instem has once again delivered a strong set of interim results in our view, with the growth story the key highlight. The group has made three major acquisitions during 2021 (including PDS which was completed in the second half) which have transformed the organisation and are integrating well. In addition, the existing business delivered double-digit organic growth during the first half. Improved earnings quality from the ongoing transition to SaaS delivery is a further highlight of the release. Commentary on the outlook is positive, and we maintain FY 22E and FY 23E estimates.

Strong organic and acquisitive growth

DF Capital’s (DFC) interim results confirm the trends highlighted in July’s trading update with strong new business originations and low arrears levels. The accelerated stock turn and subsequent delays to stock replenishment saw DFC’s loan book reduce to the previously announced level of £166m by the end of Q2 from £193m at the end of Q1. With growth now normalising as dealers restock, the loan book had increased to £194m as at 20 September. The Group has raised a further £120m of retail deposits during August and September to take the total to £280m and the announcement states that it is evaluating Tier 2 capital to support the Group’s future loan book growth. With loan originations at record levels and a resumption in growth in the loan book, the Board continues to expect the group to reach run-rate profitability during Q4 2021 and our slightly upgraded estimates for the current financial year continue to reflect that. In all, we expect DFC to continue to benefit from the more supportive market backdrop and the significant lending opportunities.

Resumption of loan book growth

finnCap’s AGM statement reflects another strong period of trading. It confirms that the Group’s performance so far in its current financial year puts the trend for revenues slightly above the top of its guidance range of £40m – £50m for the full year. In particular, CEO Sam Smith highlights finnCap’s robust M&A performance both in private and public markets. Management remains confident of delivering a result consistent with its full year expectations. We also note that the Group continues to take advantage of its strong financial position to invest in product diversification and further growth opportunities. The Board expects to pay dividends of at least 1.6p in FY 2022E. With a post-close update on revenue scheduled for early October, we are leaving our estimates unchanged at present.

Strong trading and a robust balance sheet

Kape recently announced the transformational acquisition of ExpressVPN and its interim results today show that the Group has been performing well even as it was concluding that deal. The transaction will roughly treble Kape’s revenues and significantly increase EBITDA.  The combination will create a powerful force in the global market for security with a focus on digital privacy, with around 6 million subscribers and a true international footprint. This note provides a summary of the proposed transaction and attempts to model the resulting much larger business.

Taking the Express path to global leadership

The interim results and the commentary that accompanies the numbers make it clear that there are significant growth opportunities of which Anexo can take advantage. The balance between cash generation and investment in new business is again tipped in favour of the latter, as it was in the second half of FY 2020. It is also clear that the Group has favoured its credit hire and legal services businesses over further investment in emissions cases during the first half. With additional financing facilities under negotiation, Anexo looks, to us, to be in a position to deliver the strong growth that management foresees for the second half as market conditions continue to evolve positively. An interim dividend of 0.5p is proposed, underlining the Board’s confidence in the outlook for the Group. We upgrade revenues for this year and next but, conservatively we feel, leave profitability measure unchanged as the Group continues to invest in growth opportunities.

A focus on profitable growth opportunities.

Gamma continues to produce consistently good results with these interims reflecting a strong business performance in both the UK and European businesses. We increase estimates by c. 2% to reflect updated guidance and note the positive outlook comments in the announcement. The European business continues to evolve its footprint as the Group looks to accelerate the long-term growth in its Cloud PBX business. Margins are settling into a more consistent level in the UK Indirect business while mix, including the influence of acquisitions, is driving margins in the UK Direct and European businesses. We see clear execution of Gamma’s Unified Communications as a Service (UCaaS) strategy together with further product development and geographic expansion. Noting the sentiment in the outlook statement, we look forward to a positive second half performance.

Moving resolutely forwards

Sopheon’s interims show marked progress on its core performance metrics, thus underpinning our estimates for the full year. The Group retains a strong cash position and, as well as developing new products, continues to explore ways to accelerate business growth through partnerships and M&A. We note the step up in performance but, mindful of the increasing proportion of Software as a Service (SaaS) contracts in the mix as well as plans to expand investment in marketing activities in H2, we leave estimates unchanged at present. We look forward to a further positive performance in the second half.

Stepping up

Kape’s trading update for the first half of its current financial year confirms that the Group continues to show strong growth in line with management’s expectations for the full year. Consequently, we leave our estimates – which sit in the existing guidance range for revenue and Adj EBITDA – unchanged. The integration of Webselenese is ‘progressing well’ and has already realised a reduction in average customer acquisition costs for the Group. We also note the recent content provision agreement that Private Internet Access (PIA) has concluded with 3 Hong Kong, a subsidiary of the Hutchinson Group, which added another string to Kape’s bow. With a new debt facility secured during Q2 and the significant organic opportunities that the transformational and accretive acquisition of Webselenese has brought, we expect to see Kape continue its strong performance during the second half.

Strong H1 as Kape gathers further momentum

Gamma’s trading update for H1 2021E notes another good performance, with growth in line with market expectations for that of the full year. Management expects that the full year results will be in the upper half of the range of market consensus estimates and we upgrade our numbers accordingly for FY 2021E with knock-on increases for the subsequent two years of our forecast horizon. Despite the restrictions associated with the pandemic, the Group continues to show the financial resilience that comes from its high level of recurring revenue (>90%) and monthly billing. In addition, cancellations remain at very low levels and bad debt remains ‘negligible’. Gamma continues to deliver well in a positive long-term growth market with all trends leading to an ongoing increase in the adoption of cloud services.

Another good half year of growth

DF Capital’s (DFC) recent Q2 trading update reported that the Group saw very strong new business originations over the quarter while arrears levels remained favourable. Dealer loan facilities were also at a robust level. Market dynamics which reflected record sales for many of DFC’s customers also included an accelerated stock turn and subsequent delays to stock replenishment. The nub of this environment is that DFC’s loan book reduced to £166m by the end of Q2 from £193m at the end of Q1. As manufacturers work through delivery delays, DFC expects to see ‘significant’ loan origination during H2. Management also reiterates its expectation of achieving monthly run-rate profitability during Q4 of FY 2021E. We adjust estimates to reflect the pattern of growth in the loan book which mainly affects FY 2021E and FY 2022E through lower anticipated average loan books during those years. Our FY 2023E numbers are substantially unchanged. Meanwhile, the outlook is one based on a supportive market backdrop with significant lending opportunities for DFC.