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IMIMobile's growth potential unrecognised by market

IMI is first and foremost a software company. In fact it is a software-as-a-service company. It has a suite of products that allow the big banks, mobile phone companies, utilities and retailers to communicate directly to customers via that phone.

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Its technology works on anything from an iPhone 6 to an old 'candy bar' Nokia.

Watching 'Dad’s Army' recently, I was reminded of how financial services used to work.

Arthur Lowe, the pompous Captain Mainwaring of the Home Guard, was also the local bank manager.

What would the starch collared, morning suited, bowler hat-wearing Mainwaring and his ilk have made of my last interaction with the custodian of the Lyall overdraft?

It was accompanied by a small vibration from my inside pocket. Fishing out my smartphone, the text revealed I’d inadvertently strayed into the red again.

Ignoring my financial strife (or more correctly, the fact I regularly forget to move money between my savings and current accounts), this is now the norm.

All financial communication goes via my mobile these days.

What was once my local bank branch is now part of a well-known pub chain, while chats with Derek from the Manchester call centre and ‘Dave’ from Bangalore are now also a thing of the past.  

How I crave those oh so relaxed interactions with my buddies on the sub-continent!

But that’s progress and the sort of progress I’m talking about requires the expertise of companies such as IMIMobile (LON:IMO) to make the magic happen – if indeed you can call it magic.

IMI is first and foremost a software company. In fact it is a software-as-a-service (SaaS) company.

It has a suite of products that allow the big banks, mobile phone companies, utilities and retailers to communicate directly to customers via that phone.

The sophistication is such that IMI is reaching out via anything from the state-of -the-art iPhone 6s right the way through to the old ‘candy bar’ Nokia.

It can send automated but personalised texts, emails, push notifications and voice messages.

The reason my bank uses this particular communication channel is because it reduces the costs. Gone are the endless letters telling me I’ve yet again fallen into the financial equivalent of the Twilight Zone.

It can equally be used to interact and communicate directly with the pay-as-you-go mobile phone user.

In the emerging markets in Africa, where IMI is partnered with local champions MTN and Orange, it provides entertainment content and information services. In India, a market of 1bn mobiles, it is helping communicate with expectant mums.

With a market valuation of just under £90mln it might be easy to mistake IMI as a novice in the field. We will come onto the valuation later.

First, it is worth pointing out IMI has been around since 2000, so it’s got a track record.

In fact, it has an impressive line-up of blue-chip customers – names such as EE and O2 in mobile, while Coca Cola, Centrica and Universal Entertainment also jump out from the roster.

Chief executive Jay Patel reveals 25 clients spend US$500,000 or more with his company and 15 splash out more than US$1mln.

That’s a decent bedrock of client support.

Between 85-90% of IMI’s revenues are recurring, which should help finance director Mike Jefferies sleep more soundly at night.

“The churn rate is minimal and we are 'sticky'; its difficult to rip out a live system,” Patel says.

The gross profit on sales is around 60%, close analysis of the most recent financial report reveals, while the EBIT (underlying earnings) margin is around 15%.

Revenues advanced 28% in the six months to September 30 compared to the year before, while operating profits grew 25% to £3.4mln.

Its debtor days (i.e. how quickly IMI gets paid) are around 70-80 in the UK; 100-120 in Africa and 150 in India.

Those latter two numbers would make Proactive’s credit controller wince a little – but the firm is generally owed by big companies worth US$1bn or more. In other words its debtors are well able to pay.  

Supremely cash generative, IMI is sitting on around £13.5mln even after having splashed out £3.4mln on the acquisition of Archer Digital, so there are going to be no highly destructive and dilutive equity issues.

But are dividends on the horizon? Not for a couple of years. Patel reckons as the world economy tightens, so opportunities will present themselves. 

He is interested in acquiring customers ahead of new products or technology.

“We are waiting  the opportunities to arise,” Patel explains.

“There has been a wall of money gone into certain tech businesses. Many of them have not made money, but they do have customers.

“A lot won’t survive. There will be opportunities.

“So we are giving ourselves some flexibility. If it doesn't happen, then clearly we will start paying dividends.”

So, what you have is a geographically diverse business with a blue chip client base growing at a decent clip.

Why then is IMI trading at a discount to the IT services sector, which is far more pedestrian than software-as-a-service?

Patel reckons the investor circumspection is the result of the general poor performance of businesses in the mobile sector and the Globo fraud and the well-publicised problems of Monitise.

Yet IMI bears no resemblance at all to those two companies.

It is fair to say the firm would gain more traction with the tech savvy investors of America’s NASDAQ exchange.

A few years down the line it is inevitable one of the global software house will come knocking looking for an off-shelf, mobile solution to sell its clients.

Let’s hope when that day dawns Billy Blue-chip pays the going rate – three to four times annual revenues – and doesn’t get IMI on the cheap.

Quick facts: IMImobile PLC

Price: 299 GBX

AIM:IMO
Market: AIM
Market Cap: £222.5 m
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