Canaccord upgrades Idox to 'buy'

Canaccord stated that over the last two months, it had adjusted its full-year 2022 adjusted earnings per share estimates from 2.8p to 2.6p due to corporate activity and underlying growth.

The Canadian bank said that while the initial downward pressure appeared to be due to the disposal of its compliance division, more importantly, subsequent upward pressure was due to the continuing evolution of Idox into a pure-play software business.

While Canaccord moved its adjusted earnings per share forecast to 2.3p following the disposal, it changed pace and upgraded them by 13% due to its acquisition of Aligned Assets earlier in June.

"Therefore, we increase our target price to 70.0p (from 68.0p), mindful of a more focused group structure, and attach close to a Dec 22 UK IT sector average PE multiple to value the shares (we apply a c.5% discount)," said the analysts.

"We believe a 5-10% discount is appropriate given Idox's mix of only 5% top-line growth on our forecasts vs the sector at around 9% but much better margins, at over 20% vs 13%, and cash flow yield, at over 4% vs the sector at under 3%."