Good morning!


dotDigital (LON:DOTD)

Share price: 47p (up 5.6% today)
No. shares: 294.1m
Market cap: £138.2m

Trading update - an impressive update today from this provider of email marketing software. This update covers the y/e 30 Jun 2016.

Key points;

Revenue up 26% to £26.9m - the growth is all organic too (i.e. no acquisitions have been made to boost the numbers), so very impressive. Most revenue is monthly recurring, giving a very stable & predictable revenue base.

EBITDA will be "slightly ahead of market expectation". Note that the company capitalises about £1.6m p.a. into intangibles, so EBITDA figures should be treated with care. Also note that EBITDA excludes remuneration in the form of shares, so again that would need to be checked.

Average revenue per client has risen by 29%, from £445 to £575 per month. That's great, but this suggests that the increased revenue has come from squeezing more from existing clients, rather than winning new business? I have queried this point with the company's PR person - will come back with an explanation of this.

Update - I've had a response from the PR person, very helpful. I'm dashing for a train now unfortunately, but am hoping to have a chat with DOTD's FD early next week, just to clarify the mix of growth which is coming from new client wins, and the element related to existing clients spending more.

Cash - the balance sheet is positively groaning with cash, up again to £17.2m. This is the real litmus test of a business - if the cash pile keeps growing, then it's a decent company.

International revenue is still small at £4.9m (18% of total revenues), but is growing fast - up 58% year-on-year. This could drive the stock to a higher rating, if investors become excited about international growth potential.

Brexit comments sound encouraging;

The Board has assessed the impact of the decision from the UK referendum on EU membership, and continues to monitor the effects of the decision. Whilst still in the early stages, the Board's initial view at this time is that it will not have a material adverse impact on dotmailer's ongoing business. This is primarily due to a diverse spread of clients across many sectors and geographies.

Based on experience of the market, the Board also believes that the long term effects of Brexit will be limited as clients and prospects will continue…

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