Iomart has its head in the clouds but its feet firmly on the ground

A SURGE in demand for “cloud” computing has helped profits at Glasgow-based IT company Iomart to more than double during the first half of the year.

Rather than storing programs and data on an individual machine, cloud computing allows users to access software and services via a high-speed internet connection.

Iomart owns its five data centres which are dotted around the UK rather than renting them from other companies. That helps to keep many of its costs fixed and allows any increases in revenues to drive substantial rises in profits.

Turnover climbed by 36 per cent in the six months to 30 September to £15.4 million, leading to pre-tax profits jumping 106 per cent to £2.4m, according to figures released yesterday.

Angus MacSween, the group’s founder and chief executive, told The Scotsman: “Our data centres are still only at 44 per cent capacity so we have lots of space for more organic growth and other acquisitions.”

He also unveiled the company’s latest purchase, having splashed out £900,000 to buy Essex-based website hosting outfit Global Gold. The latest acquisition adds “a good set of customers” to Iomart’s books.

MacSween said the retention of clients following a takeover tended to be “very high”, with just one customer choosing to leave following recent acquisitions.

Those purchases have included buying Switch Media Group in April for £1.2m and. only last week, paying £2.5m for fellow Glasgow-based business EQSN.

MacSween said the multiples paid for the companies – around four-times earnings – compared very favourably with the prices being shelled out by private equity buyers in the sector because Iomart was targeting smaller acquisition targets.

He added that, while he had conversations with private equity firms two or three years ago, he didn’t think that Iomart was now on their radar as a potential takeover target itself.

Finncap analyst Andrew Darley raised his target price on Iomart from 135p to 150p and reiterated his “buy” rating. “With visibility, organic growth and further acquisitions, we believe Iomart merits its premium rating and continues to routinely deliver ahead of market expectations,” noted Darley.

Simon Strong, an analyst at Evolution Securities, said: “The stock has performed well in the fourth quarter to-date, up 18 per cent but, with this level of sustained profits growth, we believe there is further to go.”

Commenting on the growth of Scotland’s listed IT companies – including hospital billing software firm Craneware and internet dating website operator Cupid, run by MacSween’s brother-in-law, Bill Dobbie – MacSween said: “All these firms have an international outlook.

“There are 200 business dinners a year in Scotland and I don’t go to any of them because too much navel gazing goes on.”

“Too many Scottish companies can be parochial,” he added