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Iomart searching for further purchases after profit surge

CLOUD computing and internet hosting firm Iomart has confirmed it remains on the hunt for more acquisitions after posting a 29% hike in interim profits.

ANGUS MacSWEEN: Couldn't explain why there has been a recent wobble in the share price of the company, but he insists that he remains confident of progress being made. Picture: Peter Devlin
ANGUS MacSWEEN: Couldn't explain why there has been a recent wobble in the share price of the company, but he insists that he remains confident of progress being made. Picture: Peter Devlin

The Glasgow business recorded a 23% increase in turnover from £19.9 million to £24.6m in the six months to September 30 with a mixture of organic growth and contributions from companies it bought.

Adjusted pre-tax profits - not including things such as amortisation charges, share based payments and the write off of bank arrangement fees - grew from £4.9m to £6.3m. Statutory pre-tax profits were up by 6% from £4.1m to £4.4m.

Chief executive Angus MacSween said: "It is good, steady progress which is what we have always been about. We are very relaxed and confident about keeping it going."

While Mr MacSween acknowledged there had been a "wobble" in the share price recently - it closed down 4.75p or 2% at 250.25p - he said he could not explain why the market was reacting in that way.

Deals completed in the period included up to £8.1m for Redstation and £23m for Backup Technology Holdings.

Mr MacSween said the latter deal expands Iomart's presence in the disaster recovery and back-up area of the market.

He said: "There is a lot going on there and we are seeing a lot of opportunity in that segment."

While Iomart intends to pursue further deals Mr MacSween admitted the landscape is becoming more competitive to find the right deal.

He said: "One of the challenges now is finding good quality businesses to add on that won't diminish our margins or our quality.

"There has been a lot of consolidating and a lot of private equity money which has come in to play so there are not as many opportunities available in the [merger and acquisition] front as there were but it is still consolidating.

"We will probably do bigger deals in the future. We have got a fairly open mind but disciplined criteria about what we buy. It has to add something to the group."

While Iomart is operating abroad for some customers Mr MacSween confirmed the main focus is likely to remain on the UK and said: "There is a big enough addressable market in the UK. We don't underestimate the cultural difficulties of running a business overseas."

However he conceded increasing the company's footprint in the US and Europe is more likely as customer demand grows.

He said: "It may well be that in the next year or two it may make more sense to expand our footprint overseas as we get to the scale we are getting to and the type of customers we are dealing with."

As a result of the acquisition activity in the period net debt rose to £23.5m, from £2.6m at the same point in 2012. Iomart said it expected to reduce that "substantially" by March 2015 through cash generation.

The company's acquisition spree has been backed by Bank of Scotland and a new facility was signed in the trading period.

A £6m investment in fitting out a new data centre in Maidenhead will see an additional 600 racks of capacity made available early next year. Mr MacSween said the investment gives Iomart around 3200 racks of which it is currently using around half.

He said: "We always knew at some point in time we would need to increase our capacity.

"We are confident it will give us enough capacity for the next couple of years for both organic growth and any acquisitions we might do."

Andrew Darley, from Finncapp, retained a buy rating on the stock and said: "Iomart delivered typically solid interims, with revenue and margin growth, and targeted acquisitions."

Alexandra Jarvis, from Iomart's house broker Peel Hunt, said: "We would emphasise the transformation in terms of scale and breadth of services that Iomart is delivering, underpinned by strong organic growth."

Mr MacSween said the second half of the year had started well and added: "We continue to win business from new and existing customers. We remain confident of achieving another successful year of significant growth in line with the upgraded market expectations."

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