Ingenta: Software For The Publishing Industry

Wed 10:13am by Mark Simpson

7 comments 905 reads

Many subscribers will have attended one of the Mello investor events. One of the highlights is always the BASH, where a panel of investors pitch ideas, and the rest of the panel gives their feedback. The audience votes on whether they are convinced by the investment case. In the last Mello in May, Damian Cannon, who is well-known to Stockopedia subscribers for hosting the Stockopedia Stockslams, presented a company I had never heard of, Ingenta (LON:ING) . This was unusual given that I thought I had a broad knowledge of most of the UK small caps. All of the BASH panel liked the idea, including me. However, the BASH audience was unconvinced, and most poll participants voted it an "avoid". Not to be one to be put off by the majority view, I bought some shares in the company after their recent results arrived and appeared to contain no nasties. But before making it a larger position, I wanted to see if the audience was on to something. Hence, I am writing this StockPitch article.

Summary

Ingenta (LON:ING) is a micro-cap, AIM-listed software and IT services provider, mainly to the publishing and music industries.
The company has a long history, having listed in 2000, but it is one of mixed success. In recent years, it has struggled to generate any topline growth. However, profitability has been transformed under the current CEO, Scott Winner.
A P/E of around 9, which drops to around 7 adjusted for net cash, seems too cheap for a software business with around 80% recurring revenues. Broker Cavendish calculates a sector average of over 25x.
The accounts are simple and conservative, and I found nothing to be concerned about in them. For example, the company expenses all of its R&D costs. The only adjustments they make are for FX and tax rates. However, the treatment of these adjustments by Stockopedia's data provider appears to have recently given the company a much lower Quality Rank than it deserves.
The company has plans to grow the top line organically in the medium term. In addition, earnings-enhancing acquisitions may be on the cards. However, with the CEO and CFO owning almost no shares, there is considerable doubt about how much they believe their own words in this respect.
The recent weak price action means that this won't appeal to Momentum investors. However, there appears to be no currently known fundamental…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Silver Moon

Wed 11:15am

Thank you for all the effort put into this. Although this might be a good time to buy in there may not be as great an upside as in other options.

JonBeddell

Wed 2:28pm

Thanks Mark, a great write up. It seems a nice business at a (very!) fair price but I wonder if the markets they service are simply too small. I also wonder whether to address distinct verticals they need to do a lot of bespoke work, indeed possibly at a client by client level? In the payments businesses I’ve worked in we had a business with similar integrated/recurring revenues with clients across a variety of verticals, but we seemed to bump into these customers and built to win the client rather than having a well developed vertical focus with a product and sales plan adequate to generate sustained growth. I’ll certainly look more deeply at this as it looks a great little business.
thanks again

Jonny

Tortoise investor

Wed 7:59pm

Great article.

You say they don't have many customers. That sounds like a major risk to me. Do you have any more details on how many they have and what their customer concentration is like?

BnB

Wed 8:05pm

One of the key lessons I learned in business was to sell to companies with big revenues and profits. Publishing is not where I’d expect to find those.

yiannos1

Wed 9:53pm

Ingenta (LON:ING)

Held this for a while but did not really understand why it suddenly almost doubled to £2 and exited my position . Definitely not going to get involved again ; very illiquid with no growth prospects and a rather grey area on their accounts lately.

Not going to go bust but increasing their revenues from £10.5m to £11m in 4 years it looks to me that this is another pointless listing in the UK market.

All the best

John LA

Fri 8:22am

Fantastic in depth analysis. I assume it's a niche software with limited competition

Damian Cannon

Sun 3:45pm

Thanks for the hat-tip Mark. You've put in a lot of work here and covered all of the quantitative angles very nicely. A few more qualitative things that I might mention:

1 - The price spike in Dec/Jan was down to Ed featuring Ingenta (LON:ING) as one his NAP picks. Being illiquid and small the shares went on a bit of ride and have been drifting back down to historical levels ever since.

2 - Having listened to the meeting recordings on IMC and taken part in some recent Zoom calls I think future growth is all about penetrating additional verticals such as music, film and gaming. Management have been talking about this for quite a few years now though with not much to show for their efforts.

3 - The publishing side of the business is pretty much a cash-cow at the moment with little growth likely. There may also be some exposure to historical fixed-price or perpetual contracts but I don't have any more detail. Perhaps they are negligible given the quantum of recurring revenue?

4 - The balance sheet is good and the accounts are pretty clean with no debt. They also have something like £20m of tax losses to use up which will help support EPS for quite a few years to come. On this front the directors have done well with their focus on efficiency and cost-cutting.

On the whole I agree with your conclusion that this is a stable business with real upside potential. I am however unsure whether the current management can deliver that growth as they seem to be targeting many different customer bases in the hope that something sticks. Maybe it will but I would prefer it if they offered a solution that customers are desperate to have rather then being in the position of having to sell hard just to get anywhere.

Ingenta: software for the publishing industry

Summary

Unlock the rest of this article with a 14 day trial

About the Author

Mark Simpson

7 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...