Tech stock on the rise

As a quick reminder, Idox is a digital solutions business providing information management software. Its solutions aim to simplify complex tasks and operations through effective and efficient management in an organisation. With national and international customers, Idox has grown impressively in recent years.

So what’s the current state of play with the Idox share price? Well, as I write, the shares are trading for 62p. At this time last year, the shares were also trading for 62p, however, the shares have fallen 19% since last summer when they reached 77p.

A penny stock with risks

As part of my due diligence before investing, I take into account past performance and events. I do understand that past performance is not a guarantee of the future, however.

Unfortunately, Idox has experienced issues in the past. Looking back to 2018, I note there was an ill-fated acquisition. More tellingly, a restructuring within the organisation was required due to delayed contracts, and accounting issues due to revenue recognition. It’s important to me that businesses learn from past mistakes.

Finally, the software industry is a large and complex market. My issue with Idox is that it is a relatively small fish in a huge pond. It could be outmanoeuvred and out muscled by larger, better known competitors.

Why I purchased Idox shares

Firstly, I continued to review Idox’s performance. Most recently, Idox released a FY22 half-year report for the period ending 30 April 2022 in May. Revenue increased by 7% compared to the same period last year. EBITDA also increased by 8% and net debt decreased by close to 50%.

Looking back, it seems to me Idox has learnt from past mistakes. Since the problems in 2018 noted above, it has grown revenue and profit for a few years now. It is worth noting it is not uncommon for me to see a penny stock with a chequered past.

This recent performance and profitability has led to dividend payments that could boost my passive income stream, which is always a bonus. I am aware that dividends can be cancelled at any time, however.

Finally, Idox’s profile and presence is impressive to me for a growing penny stock. It has a substantial international presence with eight offices overseas. This has allowed it to sell further afield from the UK.

Furthermore, its UK business interests me due to its focus on selling its solutions to local governments. The demand for digital solutions at the local government level has increased exponentially in recent years and has been exacerbated by the pandemic. This market could be a lucrative one for Idox and could underpin performance growth and returns in the future.

Reviewing the risk-to-reward ratio, I was happy to buy a small number of Idox shares. My investment mantra has always been to buy and hold for the long term. I intend to do this with Idox and if things don’t work out, my loss will be minimal due to the fact it is a penny stock.

The post Here’s why I bought this exciting penny stock! appeared first on The Motley Fool UK.

However, the deal didn’t go through. And that was because the Idox directors thought better value would flow to shareholders if the company remained independent.

Steady trading and growth

I think all the interest shown underlines the value the business has as a growth proposition. The sector is steady — the company supplies specialist information management software and solutions to the public and “asset-intensive” sectors.

For example, Idox builds software for government and industry to help its customers comply with regulations. Areas include the management of planning, building control, environmental health, licensing procedures and elections. And Idox software aims to encourage collaboration in social services departments and it also “brings health service information together”.

On top of that, Idox makes software for facilities (property) management and engineering information management for large-scale, complex capital projects.

Meanwhile, the share price rose by about 27% over the past year and trading has been going well. Today’s full-year report covers the 12 months to 31 October 2021. And the banner headline is ‘Another year of strong financial performance and strategic and operational progress’.

Revenue from continuing operations increased by 9% compared to the figure a year ago. And of that, 5% came from organic growth with recurring revenue increasing by 2% to just over £36m.

That means recurring revenue is now around 58% of the total. And it’s what I’d describe as ‘sleep-at-night’ revenue. If customers keep coming back year after year to continue or renew contracts, profits and cash flows can become steady and predictable. And I reckon that’s one of the main reasons institutional interest in the stock is so high.

Rising profits and an optimistic outlook

Meanwhile, the company’s been doing a good job converting revenue into profits. Operating profit shot up by 90%, adjusted EBITDA rose by 13% and adjusted diluted earnings per share increased by 54%.

During the year, Idox disposed of its Content business, gaining net proceeds of almost £11m. And that was offset by three bolt-on acquisitions with an initial cost of £10.5m. I reckon it’s good to see such nipping and tucking because it suggests managers are focused on optimising the operations of the business. Meanwhile, in another positive indicator, net debt reduced by 50% to just over £8m.

The directors raised the final dividend for the year by just over 33%. And, looking ahead, chief executive David Meaden said the outlook for the business “remains strong”.

City analysts have pencilled in an increase in earnings of about 28% for the current trading year to October 2022. But there’s no guarantee the business will achieve assumptions. Operational challenges could arise to derail progress. However, set against that estimate and with the share price near 67p, the forward-looking earnings multiple is around 24.

That’s not cheap. And valuation could add another risk for investors here. Nevertheless, I’d buy the stock now to hold for the long term as the ongoing growth story continues to unfold.

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• Darktrace isn’t currently profitable.
• Wise is moving in the right direction.
• Idox Group could have some serious growth potential.

The Darktrace (LSE: DARK) share price has fallen 55% from its peak of 985p in September 2021. Investors clearly grew overexcited after its blockbuster IPO in April. While the company’s revenue and earnings outlook are improving, I think they still don’t yet justify the share price. I like to invest in tech stocks because of their scalability and critical role in the modern economy. But I think there are a couple of other options that would be better for my portfolio.

Cybersecurity

I still think that Darktrace has the chance to do well in the future. The company is in excellent financial health, has no debt and all its assets easily cover its few liabilities. Its AI driven, machine learning approach to cybersecurity could be nothing short of revolutionary, and its subscription business model could lead to a massive user base over the coming years. The problem simply is that Darktrace isn’t profitable yet and hasn’t been for some time. Revenues have increased by $80m in 2021, but earnings fell to -$149m.

Online payments

Wise (LSE: WISE) is an online payment and cash transfer company based in the UK. It too went public in early 2021 and it too saw its share price soar to 1,140p before slowly crashing back down to 649p at time of writing. A big difference between Wise and Darktrace however, is that Wise is profitable. Its margins are small, but 2021 has been a period of incredible growth for the company. Customers increased by more than 50% from 6m to 10m. Revenue jumped too from £302m to £421m. Again, only £39m of that was profit, but Wise has also been expanding into new territories and developing new products that could pay serious dividends in the future. These small profit margins could cause problems if the company runs into some unexpected issues, but for now all of the numbers are moving in the right direction. I’d be excited to add it to my portfolio.

Public sector software

Idox group (LSE: IDOX) is a software development company I’ve talked about a few times now. Currently trading for a mere 67.75p, it suffers even more acutely than Wise from small profit margins. It is profitable, but had a spotty couple of years in 2018 and 2019.

Earnings reports for the whole of 2021 have not been published yet, but for the financial year ending 31 October 2021, Idox reported revenue increased by 8% to £62.0m, and recurring revenue grew a further 2%.

If it can continue this growth over the coming years, I think we could see the share price rise significantly. It’s a bit of a gamble, but I’d happily add it to my portfolio.

What I’ve taken away from this research is that just because something is in the headlines doesn’t mean it’s a good investment. In fact, it could even mean the opposite. I’ll definitely keep my eye on Darktrace over the coming years, but for now there just seem to be other, better options for my portfolio.

The post The Darktrace share price is still overvalued. Here are 2 UK tech stocks I’d buy instead appeared first on The Motley Fool UK.

How do I find good penny stocks?

It can be a real challenge to separate the wheat from the chaff. The market is very good at sorting out what a company is worth at any given time. What investors first need to do is learn about and understand a business: what does it do and how does it make money?

After that we must work out if there is a wider market for that company’s product or service. Does it have room to grow and will it have staying power? Conversely, does the business need to change to survive?

One penny stock example would be Zephyr Energy, a mining and petrochemical company based in London but operating in Utah. Today it trades on the LSE for 6.64p, down 12% from last month. Mining is a crowded and volatile business. There’s lots of competition and companies can have long periods of growth followed by even longer contractions.

Zephyr Energy may be profitable and it may do well in the near-term, but the unavoidable reality of petroleum products is that we need to use less of them, not more. The company could pivot to focusing more on mineral mining but when a company is under pressure to leave its products in the ground, I personally don’t see a lot of room for growth.

An absolute gem

By comparison, I think Idox Group (LSE: IDOX) is a real gem of a penny stock. This UK-based tech company builds software used by public sector services to collect and organise important data.

Idox currently trades for 69p, up from 50p this time last year, and it combines a lot of what I look for in a great investment.

It is a tech company, meaning that it can keep the cost of business low. Small staff, minimum work sites, little to no transport or manufacturing costs for finished products. It also operates an ongoing service for its customers, making it a vital part of their digital infrastructure. I’m sure that anyone in the modern workplace is aware of the importance of digital tools, and how entrenched those tools become once staff are trained to use them. One only needs to look at Idox’s own revenue between 2020 and 2021 to see that more than half (£17.1m) came from repeat customers!

Idox has very recently rolled out a new platform for a local council in Scotland, designed to help collate data on planning permissions and construction within the region. If this software is adopted en-masse across the UK then I think the share price could repeat last year’s uptrend.

Potential risks

All investments come with risks and Idox is no exception. One big concern of mine is how small its profit margins are. This may be down to it being a relatively new company, still allocating capital to growth.

But Idox is expanding, both overseas and domestically. If it can hold onto its current contracts and continue rolling out in new territories, then I could easily see the share price rising again in 2022.

The post This penny stock gem rose 20% in 2021. Could it rise again this year? appeared first on The Motley Fool UK.

An award-winning penny stock

If there was a naughty and nice list for stocks over the past year, Zephyr Energy (LSE: ZPHR) would be right at the top of that nice list. At this time last year, a share in this company was trading at 0.82p. Today it is worth 6.85p – representing an award-winning 755% appreciation in share price. Not bad for a penny stock. The winner of the Best Performing Share Award at the prestigious AIM Awards this year is a growing oil company with operations in the US Rocky Mountains. The longer-term risk for Zephyr is the obvious push to phase out fossil fuels, but for the moment, demand remains high. The combination of high demand, recent successes in drilling activities, a very competent and experienced management team, and the 6p price tag on this stock make it a no-brainer for me.

A potential dark horse going into 2022

Travel and lifestyle bookings company Ten Lifestyle Group (LSE: TENG) is next on my list. In the wake of the Covid-19 pandemic, the company has naturally taken quite the beating. Losses have been the order of the day over the past two years but the stock price is yet to reflect this. In fact, this penny stock is up 16% year to date. Now, am I expecting this stock to make me wealthy? Certainly not. But what I’m willing to gamble on is a return to some semblance of normalcy in 2022. Already in September of this year, the company announced that bookings were back to pre-pandemic levels. Provided restrictions continue to get lifted, there could be nice returns here in 2022.

Cheap tech 

Idox (LSE: IDOX) is probably my favourite addition to this list. You simply don’t get tech companies that cost 69p. My colleague James Reynolds, recently wrote about how this penny stock rose roughly 20% in the past year. Idox sells software solutions, mainly to governments but also in the private sector. With a growing base of recurring and non-recurring customers, Idox is likely to continue on its upward trajectory in the future. What I would like to see from Idox in the coming year is growth of its markets at home and abroad. Right now Idox has some presence in Egypt, the Bahamas, and Saudi Arabia. Razer thin margins threaten to impair the growth outlook of the business, but if it can continue to grow in 2022, the sky is the limit for the price of this stock.

The post 3 super cheap penny stocks to add to my Christmas shopping list appeared first on The Motley Fool UK.

But I think we have some excellent tech companies right here in the UK.

Frictionless transfers

Wise (LSE: WISE) is a company that facilitates money transfers and currency exchanges in near real time. This tech company just went public earlier this year and exploded in value, reaching a high of 1,140p in September. But the share price has, in recent months, been seeing a consistent downtrend and has fallen to 762p. This is to be expected as the market tries to determine the true value of the company.

Wise has increased revenue year on year, but has so far kept profit margins small as it continues to expand its operations. I do think that reduced travel over the next few months could push the share price down further. But revenue actually increased over the pandemic months, which tells me there is demand for this service regardless of how many people go on holiday. I’ll definitely be adding it to my portfolio.

Public sector systems

Idox Group (LSE: IDOX) builds software and data collection programmes for clients across the UK. Its largest customer base is the public sector as councils and government agencies use systems Idox designs to help with collecting and organizing important data. Just this week the Scottish Council of Comhairle nan Eilean Siar began using an Idox software programme to help organize its building and planning permissions data.

Idox currently operates with a very small profit margin and if anything goes wrong this could upset the company’s outlook.

But, once a computer system becomes entrenched in a company or institution and all of its employees learn to rely upon it, then it often becomes very difficult to remove. If this happens then I think the sky’s the limit for Idox.

Idox currently trades for a very low 69p and I’ll be adding it to my portfolio shortly.

Cyber security tech

Darktrace (LSE: DARK) has been in the headlines a lot this year. Like Wise, it exploded into value and rushed all the way up to the FTSE 100 in just a few months. But also like Wise it has seen a big fall in value as insiders sell off their shares and it has failed to grow fast enough to justify the high price.

Despite this, Darktrace has been growing. Revenues are up and expected to continue this way over the next few years. I definitely think that the share’s all-time high of 945p was unrealistic, but the current price of 397p is more reasonable. There could still be further downward inertia as shareholders lose their nerve, but the business remains strong, offering a high-quality product on a subscription model. I’ll be adding it to my portfolio but don’t expect to see it pay off for several years.

The post UK tech stocks: 3 of my top picks for 2022 and beyond appeared first on The Motley Fool UK.

Finding good penny stocks

The trick is to understand the business then calculate whether there is a wider market for what it’s offering. Is it currently underutilized, or has it reached its potential? Does the business need to change to survive?

For example, Zephyr Energy, a mining and petroleum investment firm, trades on the LSE for 7.29p today. But does the future look good for petroleum products? Recent fuel shortages may have pushed up the price of oil but the climate crisis requires that these companies become a thing of the past. Zephyr could pivot more to rare mineral mining, but it simply doesn’t look like it’s worth the risk to me.

A potential winner

By comparison, the world continues to invent new need for tech and data collection. The historian and writer Yuval Noah Harrai has written extensively about how data will become the vital resource of the future and we have seen how companies that trade in it have become some of the most valuable on the planet. Most tech companies already cost hundreds or even thousands of pounds per share but the UK’s own Idox Group (LSE: IDOX) currently trades for just 69p. This is up 20% from 49p this time last year.

Idox Group develops specialist software for government and industrial uses. Just a few days ago the Comhairle nan Eilean Siar (Western Isles Council) in Scotland began using software designed by IDOX to collect building and planning data on the local area and there are now further moves to integrate this software into the Scottish national government.

Anyone in the modern workplace knows how quickly tech solutions become entrenched in I.T infrastructure. Once it becomes entrenched, it then holds a near guaranteed recurring income for years or even decades to come. We can see this already in action at Idox. Between financial year 2020 and 2021, more than half of its revenue (£17.1m) came from recurring customers.

If this local council project goes well and we see further adoption by others around the country, then I think Idox has a good chance of breaking out of the penny stock range.

Risks and reward

The biggest risk I can see is that, right now, Idox has a razor thin profit margin. This may be down to it being a relatively new company and it still allocating capital to growth. Just this year it acquired Aligned Assets, another UK-based software company.

But if these investments don’t pay off, it could quickly fall back into being unprofitable. Such are the risks with penny stocks.

However, Idox has expanded its operations overseas and continues to offer its services to private companies and institutions. I’m focusing on government contracts as they are very lucrative and, once adopted are usually hard to dislodge. Idox currently makes 77% of its revenue from the public sector, but potential expansion into the private sector should not be ignored.

Provided Idox can beat out the competition and hold onto its contracts, the potential for growth domestically and overseas seems exponential.

I’m eager to add it to my portfolio.

The post This penny stock grew 20% last year. Can it again in 2022? appeared first on The Motley Fool UK.

Software provider

Idox is a UK-based firm that specialises in digital solutions, specifically information management software. Its software aims to simplify complex tasks and operations and effectively manage information in an organisation.

With a customer base that spans the UK and internationally, Idox employs over 600 people with operations in eight countries. Some of the sectors it sells into include governments, healthcare, transport, and engineering and construction.

Penny stocks are traditionally identified as those that trade for less than £1. Today, as I write, Idox shares are trading for 73p per share. At this time last year, shares were trading for 49p, which represents a 48% return over 12 months. It is worth noting that the share price has surpassed pre-pandemic market crash levels.

Currently, Idox shares are trading at close to all-time highs. The Idox share price did reach similar levels back in 2018 before profit warnings and a few roadblocks resulted in a share price drop.

For & against

In order to make a decision regarding Idox’s investment viability, I have compiled a short for and against argument.

FOR: Idox has a history of acquisitions. When I am reviewing a firm’s investment viability, I am often buoyed by any firm that acquires other businesses to enhance its offering and profile. For example, Idox has announced two acquisitions in the past six months. Both of these involve swallowing up smaller firms that offer similar products or boost their current offering. 

AGAINST: Unfortunately, Idox has had a few problems in the past, looking back to 2018. It had to undertake a restructuring when there were issues with delayed contracts, accounting issues with revenue recognition, and an ill-fated acquisition. I often refer to positive historic track records so I must also note any history of negatives. Businesses don’t always learn and past mistakes can be repeated so I must be wary of this. Penny stocks can often have chequered pasts so it is not uncommon to see this.

FOR: Referring to more recent performance, it seems that Idox’s problems could be a thing of the past. Both 2019 and 2020 saw a rise in revenue and gross profit year on year. The most recent trading update was a half-year report for the six months ending 30 April was released in August. Overall, it was encouraging. Revenue increased by 4% (excluding its recently disposed content businesses as it focuses primarily on software). Profit and EBITDA were also up as was net cash. It seems performance is consistent and any issues could be a thing of the past.

AGAINST: The competition in the software market is intense and it is a saturated market. My concern is that Idox is a small fish in a very large pond. Idox could be outspent and outmanoeuvred by bigger competitors.

A penny stock I should buy or avoid?

Overall, I do think Idox is a good growth pick. I believe it could continue its upward trajectory. I would be willing to add a small amount of shares and keep a keen eye on developments right now.

The post Is this penny stock 1 to buy or avoid? Here’s my verdict! appeared first on The Motley Fool UK.

Despite full-year results a few months later being met reasonably positively, my colleague Roland Head told us he was “not completely convinced.“

That was a canny analysis, as the shares continued on a lukewarm trajectory, before falling 15% in response to 2019 first-half results on Monday.

The company spoke of a “stable financial performance during a period of significant transformation,” reporting a small fall in revenue from £31.8m in the same period last year to £31.5m this time. A statutory first-half loss of £32.5m reported a year ago was drastically reduced to just £2.2m, but adjusted EBITDA for continuing operations looked less impressive with a drop from £4.6m to £4.4m.

Net debt looks stable at £25.4m, from £26m, and there’s “significant headroom within its existing facilities.”

Turning around

The trouble is, IDOX is still deeply immersed in a massive restructuring, having taken on new management from board level to senior levels throughout the business. There are disposals and refocusing on key assets going on, together with changes in accounting procedures.

That all adds up to… I haven’t the faintest idea what’s going to happen or what the company might be worth if and when it all gets back on track.

And it means that I’m sticking to my new rule of recovery investing — never buy a recovery stock until after it’s recovered. I think it’s particularly appropriate in the current economic climate, when several stocks have been crashing and then going on to do even worse.

REIT crunch

About a year ago, the Capital & Regional (LSE: CAL) real estate investment trust (REIT) was looking positive, as things were progressing well with its development plans at The Mall in Walthamstow.

I generally like REITs as a relatively low-risk way to invest in the property market. If there’s one investment field in which I think it’s wise to go for a collective investment rather than, say, taking on a residential buy-to-let mortgage and shouldering all the risks yourself, this is surely it.

Unfortunately, as I write these words, there’s a major fire at the the Walthamstow mall, and the Capital & Regional share price has so far taken an 8% hit. The company has not been able to say much so far, beyond assuring us that it will provide further information “once the fire has been extinguished and we have fully assessed the situation.”

New strategy

Shares in the trust, which specialises in shopping centres, had already been in a significant slump over the past two years. In full-year results released in March, chief executive Lawrence Hutchings spoke of “the structural changes currently under way in the retail sector,” stressing the apparent success of “the new strategy we launched just over a year ago.”

As REITs go, I thought Capital & Regional was oversold and looked like a potential buy — and it still might be, as the Walthamstow property is just a part of its portfolio.

And it does help stress the added safety of a REIT — imagine the damage a house fire could do to your property investments if you’d, well, bought a house.

The post Is this a must-buy small cap stock after 15% share price fall? appeared first on The Motley Fool UK.

I’ve recently turned positive on oil group Tullow Oil (LSE: TLW), as I’ll explain later in this piece. But I’m not sure if today’s second stock — information management software group Idox (LSE: IDOX) — has reached the end of the troubles which caused its shares to crash last year.

The market likes it

The market has given a warm reception to today’s delayed full-year figures from Idox. At the time of writing, the shares are up 10% to 37p.

Today’s gains have come despite news that the firm’s adjusted profits for the year missed the revised guidance provided in December’s profit warning. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 14% to £18.3m last year, below December’s revised forecast of £20m.

The group originally expected to report EBITDA of £27.2m last year. A cocktail of problems prevented this, including delayed contracts, incorrect revenue recognition and complications arising from last year’s acquisition of healthcare software firm 6PM.

Look forward, not back

Investors appear to be comfortable that interim chief executive (and former CEO) Richard Kellett-Clarke has resolved these issues. To some extent I agree. But I’m not completely convinced.

Although the group announced several contract wins today, Mr Kellett-Clarke warned that plans for “a change in product pricing” and “a focus on cash conversion” will initially depress revenue. He plans £7m of cost-cutting to help rebuild margins, but it’s not clear to me how quickly these benefits will come through.

I’m also concerned that the 6PM acquisition could cause further problems. The group’s auditors issued what’s known as a qualified opinion on today’s results. Their view appears to be that 6PM’s record-keeping prior to the Idox acquisition was so poor, they couldn’t be sure that some of its figures were correct.

Although Idox looks cheap on about 7 times 2018 forecast earnings, I think these forecasts are likely to be revised following today’s results. I also think the 6PM acquisition could cause further headaches. I will be staying clear for now.

I was impressed by these figures

As a contrast, the recent 2017 results from Tullow Oil were strong enough to persuade me to take a positive view on this stock.

The group’s net debt fell from $4.8bn to $3.5bn, thanks to $721m of proceeds from a rights issue, lower spending and improved cash flow. The group also managed to refinance much of its debt, providing security about future repayment schedules.

All of these factors were largely predictable, but I wanted to see concrete evidence of progress before considering an investment. Luckily the stock is now on sale at a price that’s 22% lower than one year ago, when the risks were considerably higher in my view.

Why I’d buy

Although Tullow’s remaining net debt of $3.5bn is still equivalent to a chunky 2.6 times EBITDA, last year’s free cash flow of $543m gives me confidence that this figure should continue to fall in 2018.

This free cash flow gives the stock a trailing price/free cash flow ratio of 6.5, which is very cheap. Although spending will be higher this year, reducing surplus cash, I still expect the firm to be strongly cash generative.

As net debt continues to fall and profits gradually recover, I’d believe Tullow shares could deliver attractive gains.

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