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FY10 financial results
1. Ideagen*
27 July 2011
Healthy prelims; Datum becomes Ideagen
Ticker IDGP CORP
Price 10.5p
Target Price 15.0p Prelims to April include little of the benefit of Datum’s March acquisition of
Ideagen, a name the entire group has since taken. Nevertheless,
Upside 50.0%
performance exceeded expectations in terms of revenue of £2.3m (+3%),
Market Cap £7.3m
adjusted PBT of £0.5m (+20%), and net cash of £0.8m (+42%). The new
Index PLUS Ideagen brand accompanied the strategic alignment of each of the recent
Sector Technology acquisitions, which now operate as Ideagen Capture, Ideagen Content and
Hardware & Equipment Ideagen Compliance. Cross selling has already been achieved in practice,
Net Cash £0.8m driving increased contract sizes of recent notable wins, benefiting from the
Shares in Issue 70m reassurance of the group’s greater critical mass, balance sheet, and
Next Results Dec/Jan interims evident shareholder support. Ideagen expects to move up to the AIM
market in calendar 4Q 2011.
What's changed From To
Trading highlights: a busy year included the integration of Root3, the
Adj. EPS (FD) 0.8p 1.2p acquisition of Ideagen, the recruitment of a heavyweight sales director and
Recommendation significant contract wins leading to first year contributions of £325k (ACCA) and
Target Price 15.0p n/c £580k (unnamed UK water company). Contracts also lead to follow on
maintenance and support revenue, with a 95% renewal rate, and a developing
Share Price Performance recurring revenue base. Ideagen now has more than 250 customers, with a
strong blue chip client roster.
Financial highlights: Prelims include only one month of the acquisition of
Matlock-based Ideagen. As shown above, the company delivered results ahead
of our forecasts, setting a reassuring precedent for future confidence, and
creating a catalyst for improving multiples. Net cash of £0.8m is expected to
grow, with the company cash positive and an appreciable 30% EBITDA margin.
Ideagen intends to be the leading supplier of compliance-based
Enterprise Content Management solutions to the UK market, bringing order
Source: Thomson Reuters
to the majority of corporate content which exists outside formal databases or
structures. The UK market is fragmented and we expect continuing
% 1M 3M 12M
opportunities for acquisitive and organic growth.
Actual -9.1 -7.0 +17.6
At 12x April 2012 EPS, equivalent to 7x EV/EBITDA, our target price remains
Relative -11.4 -6.8 +0.5
comfortably achievable at 15p, against the current 10.5p.
Analyst: Year ending April (£m) 2010A 2011A 2012E 2013E
Andrew Darley 020 7220 0547
adarley@finncap.com Data
Sales: Sales (£m) 1.0 2.3 3.6 4.4
Chris Jeffrey 020 7220 0524 Adj EBITDA (£m) 0.2 0.5 1.0 1.4
cjeffrey@finncap.com Adj PBT (£m) 0.2 0.5 0.9 1.3
Michael Bell 020 7220 0521
mbell@finncap.com Tax rate (%) nm nm 5 12
Rhys Williams 020 7220 0522 Adj EPS (FD) (p) 0.3 0.9 1.2 1.5
rwilliams@finncap.com
Dwight Burden 020 7220 0525 DPS (p) 0.0 0.0 0.0 0.0
dburden@finncap.com
Ratios
Elizabeth Johnson 020 7220 0523
ejohnson@finncap.com EV/Sales (x) 6.5 2.8 1.8 1.5
EV/EBITDA (x) 32.5 13.0 6.5 4.6
Sales Traders: 020 7220 0531
STX 73240 P/E (x) 35.0 11.6 8.7 7.1
Yield (%) 0.0 0.0 0.0 0.0
Cash flow yield (%) -20.7 -19.4 89.1 104.4
EPS growth (%) n/a 239.8 31.5 27.8
*Denotes corporate client of finnCap . This research cannot be classified as objective under finnCap research policy. Visit www.finncap.com
2. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
Key Financials
Income Statement Cash Flow
Year ending April (£m) 2010A 2011A 2012E 2013E Year ending April (£m) 2010A 2011A 2012E 2013E
Sales 1.0 2.3 3.6 4.4 EBITDA 0.2 0.5 1.0 1.4
Gross profit 0.9 2.0 3.4 4.2 Net change in working capital -0.3 -0.5 -0.1 -0.4
Operating expenses -0.7 -1.5 -2.4 -2.8 Other items -0.1 -0.1 0.0 0.0
Adjusted EBITDA 0.2 0.5 1.0 1.4 Operating cash flow -0.2 0.0 0.9 1.0
Depreciation/Amortisation 0.0 0.0 -0.1 -0.1 Cash interest 0.0 0.0 0.0 0.0
Adjusted EBIT 0.2 0.5 0.9 1.3 Tax paid 0.0 0.0 -0.1 -0.2
Associates/Other 0.0 0.0 0.0 0.0 Capex 0.0 -0.2 -0.1 -0.1
Net interest 0.0 0.0 0.0 0.0 Free cash flow -0.2 -0.2 0.7 0.7
Adjusted PBT 0.2 0.5 0.9 1.3 Disposals 0.0 0.0 0.0 0.0
Adjustments -0.1 -0.1 -0.1 -0.1 Acquisitions -0.2 -0.8 -0.5 0.0
Reported PBT 0.1 0.4 0.9 1.2 Dividends 0.0 0.0 0.0 0.0
Taxation 0.0 0.2 -0.1 -0.2 Other 0.0 0.0 0.0 0.0
Tax rate (%) nm nm 5 12 Issue of share capital/(Buyback) 0.9 1.6 0.0 0.0
Reported earnings 0.1 0.6 0.8 1.0 Net Change in cash flow 0.4 0.6 0.2 0.7
Average no.shares (FD) 34.4 55.5 69.7 69.7 Opening net (debt)/cash -0.2 0.2 0.8 1.0
Adj. EPS (FD) (p) 0.3 0.9 1.2 1.5 Closing net (debt)/cash 0.2 0.8 1.0 1.7
DPS (p) 0.0 0.0 0.0 0.0
Balance Sheet Ratio Analysis
Year ending April (£m) 2010A 2011A 2012E 2013E Year ending April 2010A 2011A 2012E 2013E
Tangible assets 0.1 0.1 0.1 0.2 Growth
Goodwill 0.0 1.9 1.9 1.9 Revenue growth (%) n/a 133.3 59.9 21.7
Other intangible 3.1 1.2 1.4 1.2 EBITDA growth (%) n/a 172.8 96.2 34.5
Other 0.0 0.2 0.2 0.2 EPS growth (%) n/a 239.8 31.5 27.8
Non current assets 1.3 3.4 3.6 3.5 DPS growth (%) n/a n/a n/a n/a
Inventories 0.0 0.0 0.0 0.0
Trade receivables 0.4 1.1 1.1 1.4 Returns
Cash 0.2 0.8 1.0 1.7 Gross margin (%) 93.4 88.1 95.0 95.0
Other 0.0 0.0 0.0 0.0 EBITDA margin (%) 19.9 23.2 28.5 31.5
Current assets 0.6 1.9 2.1 3.1 EBIT margin (%) 19.1 21.9 26.3 29.0
Trade payables 0.5 1.0 1.1 1.1 RoE (%) 8.4 15.5 18.0 18.7
Other current liabilities 0.3 1.2 0.8 0.7 RoCE (%) 15.9 13.4 21.1 23.0
Short term debt 0.0 0.0 0.0 0.0
Net current assets -0.2 -0.3 0.2 1.3 Liquidity
Long term debt 0.0 0.0 0.0 0.0 Net debt/equity (%) n/a n/a n/a n/a
Pension 0.0 0.0 0.0 0.0 Net debt/EBITDA (x) n/a n/a n/a n/a
Other/Minorities 0.3 0.0 0.0 0.0 Interest cover (x) nm 93.6 n/a n/a
Net assets 0.9 3.1 3.8 4.8 Net working capital to sales (%) 98.1 93.1 60.7 56.7
Cash conversion (%) -114.7 -40.2 96.4 84.1
Dividend cover (x) n/a n/a n/a n/a
NAV per share (p) 1.3 4.4 5.4 6.9
NTA per share (p) -4.8 -3.4 -2.3 -0.4
2
3. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
Valuation
We maintain our target price of 15p, based on an average of a forward year 1
multiple of 12x adjusted earnings and 7x EV/EBITDA. Comparative multiples for
listed enterprise risk management software (Active Risk: 20x), document capture
software (Kofax: 20x), compliance and supply chain software (Kewill: 10x) and
specialist business process automation (IDOX: 9x) all comfortably exceed the
March 13 Ideagen multiple, showing clear opportunity for upside.
Datum becomes Ideagen
In order to better define the strategic direction of the product set acquired
or developed with Ideagen, the company has undergone a rebranding
exercise.
As below in figure 1, the company is now made up of Ideagen Capture, Ideagen
Content and Ideagen Compliance. The logic remains consistent with previous
explanations, with a ‘foot in the door’ approach often leading to product creep
across further divisions within the same organisation, or the sale of further
Ideagen products within the customer divisions.
Figure 1: The new Ideagen structure
InfoWorker
Core Repository & formal WorkBench
Document Management.
KnowledgeCapture Compliance &
Data capture tools & Quality Mgmt
Over 20 Yr’s Experience Process Worker
Business Workflow & Integrations
Available as traditional On-Premise solution
Or as Software as a Service (SaaS)
delivered via “the cloud”
Ideagen Capture Ideagen Content Ideagen Compliance
Source: Ideagen
3
4. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
The effect of the integration of Root3 and Ideagen has been the creation of a
unified sales force under the new Sales Director, who is ex-Kofax. Sales leads
are being generated and contracts won through a clearly defined quality sales
process. The original product sets are increasingly integrated such that Root3
(Ideagen Capture) and KnowledgeWorker (now Ideagen Content) fully interact,
with live clients already in place (eg City & Guilds, and the Chartered Institute of
Environmental Health).
Key vertical markets have been identified. Regulated, compliance-led industries
offer the best opportunities, especially where Ideagen Compliance is initially
introduced, allowing follow-on from Capture and Content cross sales.
Pharmaceuticals, aerospace & defence, financial services and utilities are
particularly suited to the offerings: Ideagen customers include Astra Zeneca, the
MOD, Allianz, and Severn Trent, as well known examples in each sector.
Ideagen Compliance enables industry standard quality standards to be met and
KPIs to be delivered. Within the target markets, approximately 10% of data will
require management within the Ideagen Compliance suite. Typically this data is
subject to rigorous audit and regulation. Ideagen Capture and Content
complements Compliance through the management of more general data to
provide a unified central repository.
Development
As the cloud continues to develop, if not yet fully adopted across the board,
Ideagen continues to develop its own cloud solution in order to continue with its
current modus operandi of offering divisional solutions within an overarching
group enterprise structure.
Further planned enhancements include support for mobile devices, integration
with other well known platforms, and performance enhancements to allow the
further scaling of the product platform and encourage intuitive use.
KnowledgeWorker (Capture & Content) will be launched in January 2012.
News flow in the period is symptomatic of the quality
Datum’s average contract size continues to underline the credibility of the product
set. Following the September 2010 contract with the Association of Chartered
Certified Accountants (ACCA), with a contract value of £325k over 12 months,
the company has announced further new and renewed relationships with both
Bombardier and the Royal Mail (announced in February). The April
announcement of a £580k contract with a major UK company, the majority
recognisable over 12 months, delivered further momentum.
4
5. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
Commentary on financial statements
We note the company has changed to reporting under IFRS from UK GAAP.
The financial results are very much in line with our forecasts. Boosted by a full
year of Root3 (now Ideagen Capture) and one month of Ideagen itself, headline
revenues have shown exceptional growth of 133%. Underlying this, the organic
growth has been driven as expected by the success of KnowledgeWorker (up
40% in the period). With the operational gearing, headline EBITDA grew 172%, to
£0.5m and adj. PBT grew 135%, again at £0.5m.
These results were delivered largely as forecast, underpinning our confidence in
expectations for FY 2012 and 2013.
Performance: 2011 prelims
(£m)
Forecast Result
Revenue 2.2 2.3
Gross profit 2.0 2.0
EBITDA 0.5 0.5
Profit before tax 0.4 0.4
Adjusted pre tax 0.4 0.5
Source: Company reports, finnCap estimates
With the increased profitability and the £1.7m placing in March to fund the
acquisition of Ideagen, the financial position has been significantly improved. Net
assets at 30 April 2011 were in excess of £3m (2010: £0.9m) including a cash
balance of £0.8m (2010: £0.2m).
Also of note in the year, a capital reduction transferred £3.2m from the share
premium account into retained earnings, eliminating the negative balance.
Renewals and recurring revenue
On a recurring basis the two contracts named previously generate a further
£200k per annum of recurring support revenue for the period of the 3-year
contracts, as well as the follow-on potential of expansion across the customer
group, which has already taken place within one of the significant customers.
Total recurring revenue is currently at about £1.7m per annum.
5
7. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
Cash Flow
Year ending April (£m) 2010A 2011A 2012E 2013E
EBITDA 0.2 0.5 1.0 1.4
Net change in working capital -0.3 -0.5 -0.1 -0.4
Share based payments 0.0 0.0 0.0 0.0
Profit/loss on disposal 0.0 -0.1 0.0 0.0
Net pensions charge 0.0 0.0 0.0 0.0
Change in provision 0.0 0.0 0.0 0.0
Other items -0.1 0.0 0.0 0.0
Operating cash flow -0.2 0.0 0.9 1.0
Cash interest 0.0 0.0 0.0 0.0
Tax paid 0.0 0.0 -0.1 -0.2
Capex 0.0 -0.2 -0.1 -0.1
Free cash flow -0.2 -0.2 0.7 0.7
Disposals 0.0 0.0 0.0 0.0
Acquisitions -0.2 -0.8 -0.5 0.0
Dividends 0.0 0.0 0.0 0.0
Other 0.0 0.0 0.0 0.0
Issue of share capital/(Buyback) 0.9 1.6 0.0 0.0
Net Change in cash flow 0.4 0.6 0.2 1.1
Opening net (debt)/cash -0.2 0.2 0.8 1.0
Closing net (debt)/cash 0.2 0.8 1.0 1.7
Source: Company reports, finnCap estimates
7
8. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
Balance Sheet
Year ending April (£m) 2010A 2011A 2012E 2013E
Tangible assets 0.1 0.1 0.1 0.2
Goodwill 0.0 1.9 1.9 1.9
Other intangible 1.3 1.2 1.4 1.2
Other 0.0 0.2 0.2 0.2
Non current assets 1.3 3.4 3.6 3.5
Inventories 0.0 0.0 0.0 0.0
Trade receivables 0.4 1.1 1.1 1.4
Cash 0.2 0.8 1.0 1.7
Other 0.0 0.0 0.0 0.0
Current assets 0.6 1.9 2.1 3.1
Trade payables 0.5 1.0 1.1 1.1
Other current liabilities 0.3 1.2 0.8 0.7
Short term debt 0.0 0.0 0.0 0.0
Net current assets -0.2 -0.3 0.2 1.3
Long term debt 0.0 0.0 0.0 0.0
Pension 0.0 0.0 0.0 0.0
Other/Minorities 0.3 0.0 0.0 0.0
Net assets 0.9 3.1 3.8 4.8
NAV per share (p) 1.3 4.4 5.4 6.9
NTA per share (p) -4.8 -3.4 -2.3 -0.4
Source: Company reports, finnCap estimates
8
9. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
Key Shareholders Management Summary
% David Hornsby CEO
Bluehone 21 Les Paul CTO
JM Finn Nominees 19 Graeme Spenceley Finance Director
(including Directors) Jonathan Wearing Non Exec Chairman
David Hornsby (dup.) 14 Darren Spillane Sales Director
Les Paul 14
Pershing Nominees 13
Jonathan Wearing 8 Company Description
Darren Spillane (dup.) 6 Ideagen PLC specialises in the development of world class software solutions for on-
Robert Allerston 4 demand Information and Business Process Management. Ideagen Capture is a
specialist data capture company with over 20 years of experience in developing and
deploying high volume Optical Character Recognition capture projects; Ideagen
Content is the developer of the Enterprise Content Management system
KnowledgeWorker, the leading ECM SaaS solution for the UK mid-size enterprise
Distribution of Ratings market; Ideagen Compliance is developer of the Workbench Compliance solution
% used by companies throughout the world to help maintain compliance with many
internationally recognised standards and business processes such as ISO9000, FDA
Buy N/A 21 CFR Part 11, OHSAS 18001 Health and Safety and many others.
Hold N/A
Sell N/A
9
10. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
NOTES
10
11. Ideagen* 27 July 2011
Healthy prelims; Datum becomes Ideagen
NOTES
11
12. Research Contacts
David Buxton 020 7220 0542 dbuxton@finncap.com
Mark Paddon 020 7220 0541 mpaddon@finncap.com
Duncan Hall 020 7220 0546 dhall@finncap.com
Dr Keith Redpath 020 7220 0550 kredpath@finncap.com
Andrew Darley 020 7220 0547 adarley@finncap.com
David Stoddart 020 7220 0549 dstoddart@finncap.com
Will Arnstein 020 7220 0543 warnstein@finncap.com
Lorne Daniel 020 7220 0545 ldaniel@finncap.com
Martin Potts 020 7220 0544 mpotts@finncap.com
Corporate Broking Contacts
Tom Jenkins 020 7220 0511 tjenkins@finncap.com
Stephen Norcross 020 7220 0513 snorcross@finncap.com
Joanna Weaving 020 7220 0514 jweaving@finncap.com
Simon Starr 020 7220 0516 sstarr@finncap.com
Brian Patient 020 7220 0515 bpatient@finncap.com
Mia Gardner 020 7220 0512 mgardner@finncap.com
Victoria Bates 020 7220 0518 vbates@finncap.com
Corporate Sales Contacts
Michael Bell 020 7220 0521 mbell@finncap.com
Tony Quirke 020 7220 0517 tquirke@finncap.com
Sales Contacts
Chris Jeffrey 020 7220 0524 cjeffrey@finncap.com
Rhys Williams 020 7220 0522 rwilliams@finncap.com
Dwight Burden 020 7220 0525 dburden@finncap.com
Elizabeth Johnson 020 7220 0523 ejohnson@finncap.com
Sales Trading Contacts
Mick McNamara 020 7220 0521 mmcnamara@finncap.com
Mike Nally 020 7220 0534 mnally@finncap.com
Jeremy Smith 020 7220 0536 jsmith@finncap.com
Ben Tonnison 020 7220 0535 btonnison@finncap.com
Danny Smith 020 7220 0533 dsmith@finncap.com
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