Resilience plus, as expected

Today’s trading update for the year ended 31 October confirms another year of robust performance, with key figures in line with expectations. Order intake and revenue are both up c.11%, at £82m and c.£73m, respectively. Adjusted EBITDA of c.£24.5m is an improvement of 9% on last year. Perhaps most encouraging is net debt at £14.7m, somewhat better than our expectation of £15.9m after the recent acquisition of Emapsite. Management has new, larger financing facilities in place, on better terms than before, and FY24 has begun well, with expectations for revenue and profit growth unchanged.

Resilience plus, as expected

Oxford Metrics (OM) today announced the acquisition of Industrial Vision Systems Ltd (IVS) for £8.1m, funded from cash and 1m new shares. IVS operates in industrial applications of smart sensing, with machine learning technology for quality control in the manufacturing environment. The deal is immediately earnings enhancing and we are raising our forecasts for FY24. This is an exciting first M&A application of the funds from the Yotta disposal. The deal appears technologically and strategically valuable, as well as earnings enhancing; we see it as a material step forward for the group.

Technology, strategy and EPS enhancing

Today’s trading update for the financial year to 30 September discloses that Oxford Metrics expects to report record revenue of £44.0m, with adjusted profit before tax of £6.3m – above our estimates of £38.9m and £6.1m. The impressive revenue line reflects the strength in H2 of both the Engineering and Life Sciences segments. Although margins are lower than we forecast, we note that at the interim results management reported lower gross margins that were likely to prevail in this financial year. Net cash (pre-leases) at £64.8m is slightly below our £67.4m, but we expect this slight shortfall to be reflected in a higher inventory figure when the group reports FY results on 5 December.

Strong growth ahead of expectations

CML has today announced the completion of its acquisition of Microwave Technology Inc (MwT), following the receipt last week of US Government regulatory clearance. This is an important step forward for CML’s strategic drive in next-generation wireless technologies. MwT provides exciting skills and products in GaAs and GaN based MMICs, discrete devices and hybrid amplifier products, which all fit well with CML’s product ambitions. Furthermore, the transaction improves CML’s position in the US and provides global market access for MwT and its products. The wait since the initial transaction announcement in January (see our note) has been a frustration, but it is certainly a price worth paying for the gains that could accrue.

Executing to plan

The purchase of Emapsite, a leading UK geospatial software and data business, announced on 21 August, is an exciting step forward in Idox’s land and property strategy. Our forecast revisions indicate that the deal will be earnings accretive, while the announcement suggests that, with further debt available, the acquisition pipeline is both healthy and deliverable.

Emapsite acquisition – accretive, strategic

Gamma Communications’ H1 results, released today, show strong performance in the two UK business units and very encouraging revenue and profit growth in Europe. Revenue of £256.2m was up 9% (H1 22: £234.7m), while adjusted EBITDA also improved by 9% to £56.5m (H1 22: £51.9m) and adjusted EPS grew by 5% to 37.5p (H1 22: 35.6p), or by 11% on a constant-tax basis. Gamma’s strong cash generation was once again a highlight. Net cash (pre-leases) at the period-end was £121.7m, up from £92.5m at the start of the year.

Switch-on to the PSTN switch-off

The H1 23 results, published today, show impressive progress on both the operational and product fronts. SaaS ARR is up 63% on H1 22. Accolade continues to win new clients while Acclaim Projects and Acclaim Ideas are gaining revenue traction, and the recently launched online sales channels for Acclaim Ideas and Acclaim Products are already achieving ‘benchmark run rates’ for signup activity. The outlook statement is confident. In our view, the pieces appear to be falling into place for significant growth in InnovationOps software in FY25 and beyond.

Transition to growth

CML’s AGM trading update, issued today, provides positive news on trading and reassuring information on the pending Microwave Technology (MwT) acquisition. There are to be some changes to management, realigning and reinforcing the resources in anticipation of the growth and challenges ahead. CML remains well placed to deliver strong revenue and profit growth over coming years as its next-generation wireless strategy plays out.

Strategy poised to deliver

The trading update for the six months ended 30 June confirms that Gamma performed well in H1 and is set to report in line with market expectations for the full year. In the UK, Business (formerly Indirect) is performing strongly and Enterprise (formerly Direct) has won a number of significant contracts. In Europe, EBITDA grew healthily, supported by forex. Cash generation is in line with the 90% conversion guided to, with net cash at c.£121.5m (FY22: £92.5m). We maintain our forecasts, noting that our figures are towards the lower end of the ranges.

Resilient operational and strategic progress

Oxford Metrics has today announced a planned transition of the CEO role, with the twin luxuries of a three-month handover period and an incoming CEO, Imogen Moorhouse, who has been over 22 years in the business. We wish Nick Bolton well in his new role heading up Ordnance Survey, and take comfort that the business will be in safe hands led by Imogen while continuing to benefit from a broad and deep management team.

Changing of the guard

Sopheon has today announced the acquisition of the business and assets of Prodex, a specialist innovation software reseller and consulting business based in Brisbane, Australia. This deal brings Sopheon’s established reseller in the region into the fold, with the goal of improving access, service and traction in the Australia, New Zealand and South-East Asian markets. This relatively small acquisition (consideration up to AUD $2.2m) has been made on what appears to be attractive terms for both parties, with selling management motivated to capture the Innovation Ops software opportunity in one of the world’s fastest-growing regions.

Improving access to key growth markets

CML has today reported a strong set of FY23 figures, in line with the year-end trading update of 27 March 2023. Revenue of £20.6m was an impressive 22% up on FY22, with profit from operations pre exceptionals at £2.9m, 142% ahead of FY22. We are not adjusting our profit forecasts for FY24, noting that the expected acquisition of Microwave Technology (MwT), once approved, should mean that these estimates will be superseded. The statement reports good progress with new products in terms of both launches and market reactions. With one transaction complete, the property value realisation continues, but the key opportunity remains next-generation wireless, with an anticipated boost from the MwT deal.