Investor Column: Oxford Instruments, Bloomsbury Publishing, Iomart
BUY: Oxford Instruments (OXIG)
M&A speculation may continue to mount, writes Mark Robinson.
Oxford Instruments continues to benefit from increased levels of activity in its high-end technology markets, reporting constant currency order growth of 19.9% to the end of the year in March. This resulted in a 26.6% increase in the order book on a cash basis to £260m, while the book to bill ratio stood at 1.15. This could suggest that there may be more demand than can be efficiently supplied in its main markets, or perhaps simply indicate pent-up demand related to the pandemic.
The outlook is tied to the expansion of advanced science industries across the economy. Oxford technologies are used in the development of advanced materials, quantum computing and semiconductors, to name a few. Indeed, these segments of the business recorded revenue growth rates of between 21.4% and 36.2% over the period, although regional performance levels were skewed due to the staggered easing of restrictions. of Covid-19. We’ll likely get an even clearer picture of segmental performance once we can see a trading period that hasn’t been affected by erratic shipment phasing.
The growing imperative for R&D within what is sometimes called the “knowledge economy” underpins the group’s investment case. Unfortunately, that doesn’t mean it’s been immune to supply chain disruptions, as evidenced by a slight drop in organic revenue in its European markets due to lower processing tool shipments. semiconductors.
In contrast, Asia – the Group’s largest region by revenue – recorded revenue growth of 25.6% on an organic basis at constant exchange rates, as demand continued to grow for electron microscope analyzers, semiconductor processing tools and cryogenic systems from Oxford. China accounts for 55% of the region’s sales, so the restrictions (post-period end) that were put in place by Beijing in response to the Omicron variant could potentially impact H1 trade. the year 2023.
Since a significant portion of sales is denominated in foreign currencies, the group regularly uses hedging. Statutory earnings contracted year-on-year, primarily due to changes in the mark-to-market valuation of financial derivatives. However, once you exclude currency effects, the adjusted operating margin increased by 20 basis points to 18%.
Oxford enhanced its optical imaging capabilities during the period with the acquisition of Wissenschaftliche Instrumente und Technologie. And it has also been the subject of M&A speculation after tech rival Spectris launched a possible 3,100 pa share tender offer, later withdrawn due to the situation in Ukraine. However, the interest should provide further support for the valuation of the stock, whose growth price is 24 times Peel Hunt’s adjusted earnings forecast.
BUY: Bloomsbury Publishing (BMY)
UK publisher celebrates ‘rediscovered habit’ of reading in wake of pandemic, writes Jemma Slingo.
During the first confinement, many people rediscovered the taste for reading. As a result, Bloomsbury Publishing’s sales rose sharply and the group repeatedly exceeded market expectations. However, as Covid restrictions were lifted, some feared that reading would once again go out of style.
These concerns have so far proven to be unfounded. Bloomsbury sales were up 24% year-on-year, while adjusted pre-tax profit jumped 40% to £26.7m. Growth was fairly consistent across all divisions: Adult earnings rose 26% to £55.2m and Children’s earnings rose 25% to £93m. (Surprisingly, nearly 25 years after publication, Harry Potter sales are still growing 5% each year.)
Although still smaller than the consumer division, Bloomsbury’s non-consumer arm – which consists of academic and professional resources and special interest products – is also growing, with adjusted pre-tax profit on the rise. 68% to £9.1m. This is encouraging as non-consumer publishing tends to have higher and more predictable margins, is less reliant on retailers, and paves the way for more digital opportunities. As such, it is a key part of Bloomsbury’s growth strategy.
The publisher’s specific digital resources division is particularly efficient. When it was established in May 2016, management predicted it would generate £15m in sales by February 2022. It has in fact exceeded that target, generating sales of £18.6m and a profit of £6.8 million.
Bloomsbury has long been defined by its Harry Potter hit. However – while the literary splurges remain very large – the publisher has significantly diversified its revenue sources and future growth appears less dependent on consumer trends and shares are holding at a forward price-earnings ratio of 18 for 2022.
WAIT: Iomart (IOM)
The cloud computing group complained of a lack of large IT projects, writes Jemma Slingo.
In April, analysts at Peel Hunt described Iomart as a “cheap tech company waiting to grow.” Since the start of the pandemic, however, growth has not been there.
In the year to March 31, revenue fell 8% to £103m, and adjusted profit before interest, tax, depreciation and amortization (Ebitda) fell by the same percentage to £38m. sterling. Management said this reflected lower one-time equipment and consulting sales, caused in part by the conclusion of a large consulting project.
However, that’s not quite the full story: recurring revenue also fell by £4.2m, split evenly between Iomart’s core cloud managed services division and its “self-managed infrastructure” branch. Customer renewals fell in the first half, but have since returned to normal levels.
Iomart is not immune to macroeconomic pressures. Management noted a lack of large-scale IT projects and cited inflationary pressures, supply chain challenges and geopolitical uncertainties. However, he said “the requirement for organizations to be supported with their hybrid cloud challenges will continue to grow for the foreseeable future.”
Iomart has only recently repositioned its offering in the growing “hybrid cloud” market, which allows customers to store information in a variety of different locations and easily access it. However, the security market is also a cornerstone of its growth plan and it recently partnered with a cybersecurity specialist. Management also hopes that the appointment of a new commercial director will help improve the group’s sales pipeline.
The projections aren’t great, though. Analysts expect sales to remain below 2020 levels in the fiscal year ending March 31, 2023, while profit margins have been shrinking for several years.
Cash conversion remains high at 100%, however, and the company has paid off a significant portion of its debt.