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dotDigital's earnings to be slightly ahead of expectations

Last updated: 21:39 14 Jul 2015 AEST, First published: 21:37 14 Jul 2015 AEST

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When the numbers are totted up, digital marketing services firm dotDigital (LON:DOTD) expects underlying earnings (EBITDA) for fiscal 2015 will be slightly ahead of expectations.

House broker finnCap is forecasting adjusted EBITDA of £6.2mln for the year just gone.

In a trading update the company said the year to the end of June saw the company post revenue growth in excess of 30% for the tenth year in succession.

Revenues were up 31.5% year-on-year to £21.3mln, with overseas revenues more than doubling. The expansion into the US market is faring well, with revenues up from US$1.4mln in the previous year to around US$3.0mln in the year just gone. The company, which has a sales office in New York, said it plans to open more sales offices in the US, while continuing with its policy of developing its partner network overseas.

Revenue growth across the globe was underpinned by a combination of successful new client wins, particularly in the small enterprise and mid-market sectors and, in particular, among Magento platform users; Magento is an open-source content management site for e-commerce sites such as eBay. 

finnCap noted that the number of clients using the connector to the Magento platform has increased from 101 to 225 during the financial year and the average monthly recurring revenue expenditure has increased by 45% to £1,050.

“We continue to expect further growth from the Magento platform including the new sales offices in the Mid-West and West Coast,” said finnCap’s Mark Paddon.

dotDigital said there has also been healthy growth in recurring revenue from existing clients, and the company has signed up a higher proportion of clients under contracts than in the previous period. 

The average monthly spend by client increased by around 41% from £315 in the prior financial year to £445; this, combined with a focus on longer term contracts (93% of clients that signed up in the year are on contracts between 12 - 24 months) and client retention, has resulted in higher client lifetime values, dotDigital revealed.

The year saw the company churn out cash, and at the end of the period dotDigital had a positive cash balance of £12.3mln, up from £9.3mln a year earlier.

The strength of the balance sheet will enable the company to continue its investment in product development. The company told investors it has been test marketing a number of new pricing and product bundling options over recent months and expects this to make a contribution to future revenue.

Simone Barratt, who took over from Peter Simmonds as chief executive of dotDigital in February, said the hand-over in executive responsibilities had gone smoothly.

"This strong performance is again extremely encouraging and illustrates that our organic growth strategy is working. We look forward to providing a full update on the year's trading together with greater detail on our future growth plans when we announce our full year results in October,” Barratt said.

finnCap stuck with its forecasts, which imply EBITDA growth over the next two financial years of 66%, and said: “The statement confirms that demand for email marketing and marketing automation continues to be strong.”

Northland Capital Partners opined that the company had put in a good stint in the year just ended, with key performance indicators heading in the right direction.

The broker sees scope for growth in a number of directions: geographically; via the indirect channel; professional services; and through larger customers.

The stock is rated on a hefty multiple of 23.6 times consensus earnings for the financial year just ended and 21.4 times earnings forecast for the current year, “but management is delivering”, Northland’s David Johnson vouched.

Shares were up 0.7% at 34.5p in lunchtime trading in a falling market.

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