People are increasingly shopping online; that means retailers have to find clever ways in which to connect with consumers digitally and drive traffic to their websites. AIM-quoted DotDigital (DOTD:AIM) plays a vital role in this task and we believe 2018 will be another strong year for the company.

DotDigital’s core technology platform, Dotmailer, provides marketers with a cloud-based single solution to design, create, personalise and monitor campaigns. Mainly using email, it has also built extra functionality to include text messaging and social media, such as live chat, Facebook messenger and Apple business messenger.

Importantly, Dotmailer can be easily integrated into a client’s customer relationship management software, plus other third party e-commerce tools. Customers include well-known brands such as Superdry, CNBC, Converse and Fred Perry.

The company is enjoying very strong growth. Revenues have jumped from £12.2m to £32m in five years, but not at the expense of profit. Pre-tax profit has more than doubled to £8.1m over the same spell. Importantly, DotDigital enjoys consistently great cash generation and even pays a modest dividend.

Debt-free, the company had £20m of net cash on the books before its recent £11m acquisition of Cheltenham-based Comapi, which added technology functionality and a bigger footprint in the Far East.

Investors can expect growth, particularly in the US, to accelerate now the company has set up a New York base, and strengthened its existing partner reseller network.

Last year US revenues were £3.9m, just 12% of the group total, which shows the scale of that opportunity, while the Far and Middle East are great target markets.

Recurring income equal to 81% of overall sales last year bolsters reliability of future revenue, while a long trend of driving existing clients to spend more on Dotmailer provides security on tomorrow’s profits.

If there is a potential sticking point it’s the already racy rating. A year-end 30 June 2018 price-to-earnings multiple of 32.3 suggests that a fair bit of excitement is already in the price.

But we can think of many UK-quoted technology companies trading on far heftier ratings, many of them without the growth profile, cash generation or dividends of DotDigital.

In 2017 rankings from research consultancy Megabuyte, DotDigital came in the top 10 of all UK-quoted technology businesses.

We could see the shares hitting levels around 150p over the coming 12 months. (SF)

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