Growth Company Investor list Idox as a New Recommendation
Earlier this year, our CEO David Meaden sat down with Growth Company Investor to talk about our business. The article gives an insight into our public sector software focused growth strategy, from the acquisition of Aligned Assets to the changes we’ve been making in recent months as well as an outlook on the future of our business.
This extract covers some of the highlights with the full article available to read here.
The business
Idox now has a strong, focused position in public sector software which accounts for over 80% of group revenue. The company’s products mainly address document process management and statutory compliance requirements for local authority clients and the NHS. Over 90% of UK local authorities take one or more products which fit into seven categories. Property-related software includes planning consent, building control, land charges, and address management. In public protection, Idox software supports environmental health, licensing and trading standards. There are tools to support the delivery of social care and disability services, grant and funding programmes, facilities management, traffic management, and electoral services.
Management and finances
A key element of the story concerns the recent changes in management and strategy. CEO David Meaden joined the company in June 2018 after a long career at Northgate Information Solutions and set about restructuring a business that had lost its way. Idox had grown by making acquisitions that had not been integrated, so there was no value created from them being in the same group structure. It meant the business was overly complicated and some of the deals had not gone well. Meaden identified Idox’s core strength as its public sector expertise and its ability to solve these clients’ problems through software products. Given the commonality of the client base, this software can be sold to many customers with minimal customisation. So the strategy has been to simplify, dispose of the peripheral digital and content businesses, and focus on software provision.
Valuation and outlook
We were impressed with David Meaden and the restructuring element of the Idox story when we spoke to him in February. Our intention was to write the stock up as a new recommendation that month, only for the aborted bid to send the stock above a sensible buying range. The shares were trading in the mid-50s pre-bid and are now in the mid-60s; so the valuation has risen but does not look too demanding for a software business with improving operational trends and a clear growth strategy. We also like companies that have received a bid – if it happens once it can happen again.
Acquisitions form an important part of the story, but management appears to have put the right structure in place to integrate these and they should be coherent bolt-on deals which have a clear fit with the business. Meaden talks of the SaaS ‘rule of 40’ which defines successful companies as those with a growth rate plus ebitda margin of 40 or above. With a 5% growth rate (plus bolt-ons acquired for cash) and an ebitda margin now moving into the 35% area, Idox looks well placed.
