Glasgow cloud computing firm Iomart cautions on profit amid energy squeeze

Iomart, the Glasgow-headquartered cloud computing group, has warned investors to expect profits at the lower end of expectations despite rising revenues.

In a trading update ahead of its interim results, due in early December, the firm pointed to strong cash conversion, improved customer renewal levels and continued momentum across all strategic areas.

Bosses noted that the recent volatility in energy markets had presented “challenges” for the sector, but said the company’s “robust business model” and customer arrangements have ensured that additional energy costs have been “appropriately passed through to our customer base”.

For the six months to the end of September, the group expects to report revenue in the region of £52.5 million, which would be up from £51.9m a year earlier, adjusted underlying earnings of about £17.8m, down from £19.6m, and adjusted profit before tax of approximately £7.3m, against £9.1m the year before.

The mix of the business continues to be focused on recurring cloud managed services revenue, which is in line with management expectations. Non-recurring revenue from hardware and software reselling activity has not yet recovered, Iomart noted.

The firm told investors: “As we see increases in energy costs in the market, we have demonstrated that our business model and customer arrangements allow us to flex pricing. We continue to monitor the inflationary environment very closely and will seek to respond accordingly.

“Revenue and profit in the second half of the year are expected to be higher than the first half, however, in the face of potential economic headwinds, it is not expected that margins will fully recover and that profit for the full year is therefore likely to be at the lower end of the board’s original expectations.”

Chief executive Reece Donovan said: “Our team has executed well in the first half of the year, finding the correct balance between managing both the risks and opportunities that we see in the marketplace. We have maintained our tight control on costs and have successfully tested our business model in relation to energy pricing.

Iomart chief executive Reece Donovan. Picture: Peter Devlin

“The strength of our recurring revenue base, strong profit margins and cash generation, give us the ability to continue carefully investing in our skills and capabilities to support the execution of our strategy.

“The market for cloud computing solutions continues to offer long-term growth and our strategic actions put us in a stronger position to benefit from this opportunity.”

In August, Iomart kicked off a fresh acquisition spree with the takeover of an IT provider in a deal worth up to £14.5m. Bosses said the acquisition of Concepta Capital, a holding business for a group of companies that includes the Leeds-based Oriium and Sheffield-based Pavilion IT brands, would add “new complementary solution capabilities and deep technical expertise” to Iomart’s offering.

Shore Capital analyst Martin O’Sullivan noted: “It’s all about building on Iomart’s proven delivery model and further augmenting its offering. While the shares may tread water in the short term, given macroeconomic uncertainties and other factors, the current equity value looks attractive on a medium-term risk/reward basis.”