Management are aiming for 200p share price which looks achievable
Thursday 17 May 2018 Author: Steven Frazer

The net of regulation red tape and compliance accountability is getting ever tighter around industries and organisations across the world. The next big one is EU-wide General Data Protection Regulation (GDPR) which comes into force on 25 May and is the latest in a long list of rules designed to keep us better protected.

All this puts UK software supplier Ideagen (IDEA:AIM) in a sweet spot thanks to its wide range of off-the-shelf   specialised tools.

The Midlands-based company concentrates on what it calls the governance, risk and compliance (GRC) space, providing information management solutions to highly regulated industries. Think healthcare, aviation, banking/finance, complex manufacturing, defence and energy.

COMPELLING STORY

Ideagen supplies an integrated system that combines information from multiple operational sources on top of the typical internal audit and compliance functions. This provides clients with a detailed overview of corporate risk, controls and consequence mitigation analysis.

That’s an increasingly compelling sale once an organisation begins to grasp the significant financial and reputational damage potential of not having adequate systems in place. Blue-chip clients include BAE Systems (BA.), Emirates, Royal Dutch Shell (RDSB) and the European Central Bank, plus more than 150 hospitals in the UK and US.

This is a $7bn-a-year GRC market yet it remains highly fragmented. Ideagen, which has been around since 1993, wants to act as an industry consolidator as well as driving consistent organic growth.

DOUBLE EVERY THREE YEARS

It aims to double revenue and profit every three years and has met or beaten those targets in the past. For example, in 2015 it reported revenue of £14.4m and £3.6m pre-tax profit. The year to 30 April 2018 is expected to show £36.1m of sales and £9.7m of pre-tax profit. Throughout this growth the company has remained highly cash generative and paid modest dividends.

The US is now its number one growth market, as it is the world’s single biggest place for GRC spending. That means accelerating acquisitions growth, such as April’s $8.7m purchase of Medforce, a healthcare compliance business.

Investors are being asked to pay a premium for this high quality stock, hence the current year price-to-earnings multiple of 25.5. But there is scope to outstrip current 4.8p earnings per share forecasts by a wide margin. Management have an internal target of 200p for the share price. Ideagen will have to work hard to hit this level but it does look possible if the business can continue its long streak of success. (SF)

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