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Dotdigital Group plc: THE INVESTMENT CASE

Forecasts remain primed for upgrades at dotDigital

Geographical expansion, product innovation and strategic partnerships continue to be well executed, said house broker finnCap
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INVESTMENT OVERVIEW: DOTD The Big Picture
dotDigital announced figures to write home about

Fast-growing bulk email specialist dotDigital Group PLC (LON:DOTD) is to pay a special dividend to shareholders of 0.41p a share.

The announcement came in the company’s results statement covering the year to June 30, which showed the growth story continuing.

Turnover rose by 26% to £26.9mln from £21.4mln the year before, with recurring revenues accounting for 78% of the total, the company revealed.

Underlying earnings (EBITDA) climbed 17% to £8mln from £6.8mln, and profit before tax rose to £6.2mln from £5.2mln. Both figures were some £300,000 ahead of market expectations.

The firm is specialised in providing Software as a Service (SaaS) technology and tools for digital marketing. Its main product is dotmailer - a powerful email marketing platform.

A surge in emails sent

The volume of emails sent surged to 8.6bn from 6.2bn the previous year, and the average monthly spend per client rose by around 29% to £575.

As well as the special dividend of 0.41p, the company declared a final dividend of 0.43p, up from 0.36p at the same stage of the previous year. The company said it remains committed to a progressive dividend policy, supplemented by special dividends from time to time.

The business, which is debt free, continues to be highly cash generative, with cash at the end of the reporting period standing at £17.3mln, up from £11.9mln the year before.

Off to a solid start

The new financial year has got off to a solid start, with revenue in the first quarter up by more than 20% year-on-year, with clients committing to a larger monthly spend.

The company said the early signs are promising for its forays into Benelux, the Nordic and South African markets.

“2016 was a year of continued strong organic, profitable growth for dotDigital. For 2017, our approach will be further refinement of the partner programme and developing the strategic partnerships, global expansion into the EMEA, North America and Asia Pacific regions through self-service and direct sales teams and to continue building new integrations into more e-commerce and CRM [customer relations management] platforms that focus on the mid-market and small enterprise space,” said Milan Patel, chief executive officer of dotDigital.

“The board believes that the dotmailer platform, with its ease-of-use proposition, deep integrations, professional services, growing list of global partners and its scalability, is well placed to continue to generate strong organic growth not only from the markets it currently operates in today but wider into the global markets it is looking to enter," he added.

finnCap underestimates earnings growth

House broker finnCap was among those that had underestimated how strong the earnings growth would be. EBITDA of circa £8.0mln was ahead of its £7.6mln forecast, even though revenue of £26.9mln was less than the £27.5mln it had forecast.

“Consistently strong revenue growth included 21% in the established UK market (20% of 2H16 revenue) and 58% across the rest of the world (including 43% constant currency growth in the US),” finnCap noted.

“Geographical expansion, product innovation and strategic partnerships continue to be well executed, supported by a strong balance sheet that is also able to accommodate a growing dividend, and an FY16 special dividend given strong cash generation. With EBITDA and cash performance ahead of expectations and board confidence displayed in the dividend, forecasts remain primed for upgrade,” the broker believes.

It has a target price of 70p. Shares in dotDigital eased 1.49p to 52.89p on the figures.

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