IDOX released a trading statement today, sending the shares down a whopping 20% to 36.25p. The good news was:
The Company is encouraged by the underlying progress made in all of its businesses during the first half and continues to be excited by the multiple growth opportunities available to it.
The bad news, which clearly wasn’t received well, was:
However, in light of a slower than expected first half of the year, the Board now thinks it is prudent to anticipate full year EBITDA is likely to be no less than £18 million, which reflects uncertainty of timing as to when those opportunities will crystallise.
At the yesterday’s closing price of 45.80p, the company had a market cap of £159m, giving it an EV/EBITDA of about 10.8 (=(159 mkt + 21 net debt) / 16.7). This put is at around about average for the market, I reckon. IDOX had a PE of 11.9, which was hardly stretched.
If I compute a new market cap based on 36.25p, and use the company’s forward EBITDA of 18m, I get a new EV/EBITDA of 8.2 (=(126+21)/18), which is probably a bit less than the market.
It constitutes about 5% of my portfolio, and I’m receiving a fair amount of pain from it today.
Where from here? Well, I’m sticking with IDOX for now, as I think that the market has severely over-reacted to the news. The company is still expected to grow revenues, debt seems modest, and valuation levels are not high.
Interestingly, IDOX showed a relative 6 month strength of -15% (before the drop today), so momentum would have given you a clue that things might not be all they seem. Still, I know most of you don’t believe in momentum.
Happy investing all, and I hope your day turns out to be better than mine has.