Iomart crosses the inflexion point

Internet services group Iomart moved back into profit this year and aims to increase its share of the web hosting market.

Internet services group Iomart moved back into profit this year and aims to increase its share of the web hosting market.

Following three years of losses, Scottish internet services group iomart swung back into the black last year, an impressive turnaround that reflected the execution of a canny strategic plan put into effect by ambitious CEO Angus MacSween.

Under MacSween, who co-founded the business back in 1998 and has witnessed the expansion of the internet from emergent technology to an essential part of everyday life, iomart is planning profitable expansion in the fast-growing, yet fragmented, ‘cloud computing’ market.

Floated on AIM at the height of the dotcom boom, iomart is a managed hosting and data centre supplier, providing what are known as ‘cloud services’ – cloud computing being the current buzzword in the fast-moving IT space.

Under ex-Royal Navy man MacSween, the Glasgow-based group provides an array of cloud services including infrastructure, hosting and data management services, with acquisitions having played a key part in iomart’s evolution. Already with four data centres (facilities that host a network’s most critical systems including backup supplies and security applications) in Glasgow, London, Leicester and Nottingham, iomart acquired a fifth, in Maidenhead, last year.

Before that, in 2004, iomart purchased web-hosting company Easyspace for £10 million, in a move that took the company into the domain name registration business.

Today, iomart manages more than 500,000 domains, as well as providing a variety of other services including dedicated servers, web design, data management, email, security and storage solutions. Iomart also specialises in data backup and virtualisation, a technique that involves running multiple combinations of operating systems and applications on a single computer.

Unveiled in early June, results for the year to March smashed forecasts and showed the company turning a profit for the first time in three years.

Losses of £1.2 million made way for pre-tax profits of £1.25 million, as turnover increased by 55 per cent to £18.3 million and iomart finished the year with £4.4 million of net cash. From earnings per share of 2.12p, the first positive EPS figure seen since 2007, the dividend was increased by 33 per cent to 0.4p.

MacSween described the milestone return to profits as the culmination of a three-year journey. ‘Four years ago, we took a major decision to become a big player in the hosting market, buying four empty data centres [and knowing] that would involve three years of losses.’ Now, MacSween wants to let the market know that ‘we have executed the plan exactly as we said we would three years ago’.

From here on in, iomart wants to swell its share of the web hosting market, which MacSween insists is a good one to be in. ‘There is now a shift of everything to the internet. In the future, there will be very little that you can’t do online, and we believe there is still a significant shift yet to go.’

The bullish MacSween, who with 20 per cent of the business certainly has his money where his mouth is, believes that iomart has reached an inflexion point where future sales will quickly drop through to the bottom line. ‘We are highly cash generative and well positioned in terms of our infrastructure and ability to achieve a high net margin and visible future revenues. There is a limited downside due to the nature of our revenue, so it is hard to see how it could fall off a cliff,’ he assures.

With the UK managed hosting market remaining highly fragmented, an opportunity exists for iomart to consolidate the space, and the group has signed a £10 million credit facility with Lloyds Banking Group, giving it the financial firepower to do further deals.

 For March 2011, Cenkos Securities forecasts a rise in ‘adjusted’ pre-tax profits from £1.3 million to £3.7 million, as turnover increases 31 per cent to £24 million. Earnings are forecast to nearly triple to 3.7p, placing iomart on a forward p/e of 15.5. That rating looks ungenerous given the group’s high levels of repeat business, cash position and the likelihood of further acquisitive deals to come.

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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