Interactive Investor

Bid collapse is no disaster for iomart

16th September 2014 11:46

Lee Wild from interactive investor

A sell-off at iomart was inevitable on Tuesday after frustrated bidder Cinven confirmed after last night's close it will not buy the cloud computing provider. Iomart shares had risen by over a fifth since news broke at the end of July that the private equity firm, via its IT business Host Europe Holdings, was interested.

It's clearly a blow for shareholders - at 227p, iomart shares are back where they were before the bid euphoria. Cinven cannot bid again for six months, but unless iomart chiefs have a change of heart, why would they?

A final 300p per share cash offer was clearly not enough, and that doesn't seem unreasonable given the shares had traded there as recently as January, and as high as 322p exactly a year ago. Both revenue and profits for the six months to 30 September will be "substantially" higher than last year, says management, and their track record of growth is impressive - they've delivered a compound annual growth rate in revenues of 32% since 2010 and 66% at the adjusted cash profits level.

"Demand for the group's services remains strong and growing as the market continues to move towards the provision of products and services over the internet," they say. "These strong market drivers leave the board confident in the outlook for the full year and optimistic for continued long-term success."

There were long faces in the City. "We admit to our disappointment and surprise," said Andrew Darley at broker finnCap, although he remains optimistic. "Target 325p reiterated, with exceptional visibility and margins augmenting the benefit of the 20+% expected revenue growth for full year 2015."

It's hard to disagree with that sentiment. Achieve that growth and iomart looks well set.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.