Small Cap Value Report (9 Jun 2015) - IOM, CML

Tuesday, Jun 09 2015 by

Good morning!

iomart (LON:IOM)

Share price: 218p (down 6% today)
No. shares: 106.8m
Market Cap: £232.8m

Final results for y/e 31 Mar 2015 - as usual, the blue text on the left is a clickable link through to the results statement. I've not looked at this company before. It's a cloud computing company, which seems to provide domain name & cloud hosting services.

The Stockopedia graphs show a very good progression of sales & profitability. I note this has been achieved with only a 7.5% increase in the number of issued shares, over the same timeframe as the graphs below. Although note that the company has used up its cash pile, and moved into net debt over that period.


Valuation - adjusted diluted EPS reported today is up 16% to 12.63p.

That means the shares are valued on a PER of 17.3 times - which looks about right, i.e. the PER is similar to the current growth rate in earnings.

Outlook - sounds OK:


Balance Sheet - as you would expect for an acquisitive IT group, the balance sheet is dominated by intangibles, mainly goodwill. Writing off the intangibles, gives net tangible asset value of £6.3m.

The current ratio is a stand-out negative. It stands at only 0.45, which is particularly bad, indicating stretched creditors. However, in this case the reason is that the bank borrowings are nearly all shown within current liabilities. This is probably due to the facilities coming up for renewal, and that should sort itself out once the bank facilities are renewed, with bank debt dropping down into long term creditors. So it's not a particular concern. The level of bank debt looks reasonable, compared with cash generation.

Cashflow - in my experience, the cashflow statement is a far more useful statement than the P&L for IT companies, as it shows you what's actually happening in cash terms, which is (in the long term) all that matters.

In this case, the top part of the cashflow statement shows a very cash generative business, once the large depreciation charge is added back:


However, before we get too carried away, the company spends about the same on capex as the depreciation charge. So presumably they're having to replace servers, etc, with newer and more powerful ones on an ongoing basis, as web traffic…

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iomart Group plc is a holding company. The Company is engaged in providing secure managed hosting and cloud services. The Company operates through two segments: Easyspace and Cloud Services. The Easyspace segment provides a range of shared hosting and domain registration services to micro, and small and medium-sized enterprises (SME) companies. The Cloud Services segment provides managed cloud computing facilities and services, through a network of owned datacenters, to the larger SME and corporate markets. The Cloud Services segment uses various routes to market and provides managed hosting services through iomart Hosting, RapidSwitch, Melbourne, iomart Cloud Services, Redstation, Backup Technology, ServerSpace and SystemsUp. Its products include CloudSure Hosting Solutions, Managed Services, Storage, Network and Control Panel. It provides Infrastructure as a Service platform and EMC Avamar Cloud Backup for LabVantage Solutions, Inc., a global laboratory informatics provider. more »

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CML Microsystems Plc designs, manufactures and markets a range of semiconductor products for use in communications and data storage industries. The Company offers semiconductor products for professional applications within the storage, wireless and wireline communications market areas. It operates in the United Kingdom, the United States, Germany, Singapore and Taiwan. The Company offers semiconductor products for storage applications, such as Industrial flash memory cards (CompactFlash, secure digital (SD) card, multi-media card); solid state drives (SSDs), embedded storage and special function cards. It offers semiconductor products for wireless applications, such as professional and industrial analogue/digital radios (voice centric); wireless data products (radio modems, pagers, telemetry and marine safety). It offers semiconductor products for wireline telecom applications, such as security alarm panels, point-of-sale, health monitors, meter reading and telephone exchange. more »

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  Is LON:IOM fundamentally strong or weak? Find out More »

19 Comments on this Article show/hide all

Ramridge 9th Jun '15 1 of 19

Hi Paul -
Re iomart (LON:IOM) couple of points worth mentioning. (1) Yesterday they announced the acquisition of SystemsUp for a max. consideration of £12.5m and (2) there have been takeover rumours since April 2015.

In my view the acquisition looks a good fit and immediately earnings accretive. Market consensus seems to be the same.

Given this background and your analysis (which I agree with), the sharp drop of some 10% this morning (recovered as I write to -5%) looks puzzling. I can only attribute the fall to investor disappointment on takeover prospects. i.e. there must have been an implicit premium in the price to reflect takeover hopes. Why the takeover prospects would suddenly fall on today's results and yesterday's acquisition announcement beats me.

Declaration: I am long.

Regards, Ram

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herbie47 9th Jun '15 2 of 19

Thanks Paul, I was hoping you would cover this share as I'm a long holder. The last sp fall was due to a takeover bid failing by Cinvin who had 3 bids rejected, the last bid was 300p. 

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herbie47 9th Jun '15 3 of 19

In reply to post #100693

I think the market was expecting Net Profit of £13.6m, believe that is why the fall.

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mikehunt 9th Jun '15 4 of 19

Some very interesting analysis re Paul Scotts comments on TUNG below

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Ramridge 9th Jun '15 5 of 19

In reply to post #100696

Hi herbie47 -

I've gone back to the financial report and Note 6 says:

- net profit £8.9m and diluted eps 8.24p
- on an adjusted basis, net profit £13.6m and eps 12.6p

The adjusted figures are near equal to broker forecasts.

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underscored 9th Jun '15 6 of 19

Hi Paul, any interest in Dewhurst £DWHA?

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herbie47 9th Jun '15 7 of 19

In reply to post #100701

I see well maybe people were confused by the figures?

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Ramridge 9th Jun '15 8 of 19

In reply to post #100707

That may well be the case. Cheers

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ericb 9th Jun '15 9 of 19

In reply to post #100699

Fascinating - and from a faceless nameless mystery blogger hiding behind his internet connection somewhere !! The aim is "to bring out the lies spread by unregulated bloggers." So is he any different to that? What makes him different to any other unregulated blogger without a name or a face, using insults and abuse to make cheap shots.
Yeah, very good that Mi khunt

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thewerm 9th Jun '15 10 of 19

Hi Paul I saw that Porta Communications (LON:PTCM) reported whilst you were away for the week. Any thoughts on the results please?

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Lion Tamer 9th Jun '15 11 of 19

Great coverage as usual Paul, thanks. I learn a lot following your reports, the same goes (except maybe more so) for your videos on You Tube.
Recently I've started to check for historical reports from you if & when my screens throw out a small cap I may be interested in. My concern is in the future I will not find company coverage from you if it is on You Tube only (for example Creston (LON:CRE) today).
Would it be possible to list the companies covered on You Tube within the SCVR so readers can find them via the Stockopedia Discuss tab within the StockReports pages?

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kenobi 9th Jun '15 12 of 19

Interesting to see vnet up 6p (6%), today, just a few days after the news, Paul mentioned that it looked fully valued, anyone seen any news ? seems odd so soon after the results,

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Aislabie 9th Jun '15 13 of 19

As a market cap minnow, (£9mm) and a financial one at that, PCF is probably not part of your normal review , but they have quietly performed ahead of expectations and would seem to be worth watching as they move towards a banking licence.
They came through the 2008 financial crisis and survived, getting a healthy respect for bad debts. I originally caught them at a ShareSoc presentation (that I think you attended).
Today's results seem to put them on an attractive valuation (sub 7 p/e) even after the 10% rise this morning. I will be looking more closely to see why the shares are not higher.

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dawnpatrol 9th Jun '15 14 of 19

Re the youtube comment re the share buy at Porta; I had a look who Bob Morton is and found this on the Porta website:

Bob Morton, Non-Executive Chairman

Bob is a chartered accountant, successful entrepreneur and has substantial public company experience. He has served as Chairman to various companies including Systems Union, Maclellan and Vislink plc and is currently also Chairman of a number of other public and listed companies including Armour Group plc, Servoca plc and St Peter Port Capital Limited. In addition, he holds directorships in a wide range of private companies.

So, also explains his connection with Vislink..


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Paul Scott 9th Jun '15 15 of 19

In reply to post #100699


My articles here are all factual, combined with my personal opinions. If anyone thinks that I've made a factual error, then the correct protocol is simply to add a comment here asking me to check my facts, and I'll double-check the facts. If I make an error, then I always correct it, as happens occasionally.

In this case, I have made no factual errors whatsoever. My point that Cannacord sharply reduced its earnings estimates for Tungsten (LON:TUNG) some time ago, with the company failing to issue a profit warning to the market, which in my view they should have done at the same time, is 100% correct. That's what happened.

Some twit on an anonymous blog getting the wrong end of the stick isn't really worth mentioning, but thank you for flagging it anyway. He seems to mistakenly think I was referring to the broker's share price target on Tungsten, which I have never made any reference to at all!

Bottom line with Tungsten - I got swept up by the bull story, as did a lot of people. I then listened to the bears, realised they were right, and told my readers that I'd changed my mind. That's honest, truthful blogging, which is what I do.


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jonthetourist 9th Jun '15 16 of 19

Paul, I really hope you don't stress over this kind of feedback. Anyone who reads your stuff for very long will quickly work out where you are coming from, and the very wide gap between your reportage and ramping, shorting, and the rest of the cr6p that litters the web.

Keep up the good work!


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Paul Scott 9th Jun '15 17 of 19

In reply to post #100746

Thanks Jon,

It's annoying when crap like that crops up, but to be honest, I'm used to it. If you have a profile, and speak the truth as you see it (instead of sugar-coating things), then a small minority (trolls) want to take pot shots at you every now and then. Even (usually) sensible people occasionally take pot shots too! Goes with the territory unfortunately, but it's fine, I'm used to dealing with it.

99% of the feedback I get is amazingly positive, so I know that the vast majority like my output & appreciate it.

Regards, Paul.

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Ramridge 10th Jun '15 18 of 19

In reply to post #100744

I have followed the Tungsten (LON:TUNG) story closely and Paul's views and commentaries have been above board, open, transparent and factual. More power to his elbow.
There will always be little people who will bite at your ankles. Best thing is to kick them into touch and ignore them.

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herbie47 10th Jun '15 19 of 19

Hi Paul,
Hope you will see this, not sure where to post it as its about WYG (LON:WYG), which was on your youtube video yesterday. I held shares in WYG for about a year but as they did nothing I lost patience and sold out. I had a look on StockReport and I see their margins are very low, also they operate in some high risk areas of the world. Believe they invited takeover bids earlier this year. Certainly should be on the neglected companies screen.

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 Are LON:IOM's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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