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LoopUp Group PLC: THE INVESTMENT CASE

Putting the "up" in LoopUp

Between now and 2018, Panmure Gordon sees a compound annualised growth rate for profit in excess of 100%
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INVESTMENT OVERVIEW: LOOP The Big Picture
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Investors who got in early doors when remote meetings enabler LoopUp Group PLC (LON:LOOP) floated in August must be happy bunnies.

The shares, which floated at a pound a pop, had risen to 118p by the end of the year and received a further boost in the middle of January from an upbeat trading statement.

The group said underlying earnings, or EBITDA, more than doubled in 2016 to £2.1mln from £1.0mln.

Revenue rose 34% to £13.6mln from £10.1mln the year before, while revenue from the core LoopUp product and associated add-ons jumped 39% to £12.8mln from £9.2mlm.

To put the latter into context, the group said growth in LoopUp product revenue the previous year had been 36% and the year before that 38%.

In March, the company's official full-year numbers confirmed the strong sales growth, and that the company made a maiden operating profit, turning 2015's £0.4mln loss into a profit of £0.4mln in 2016.

Customer concentration remained well diversified with the largest single customer representing just 2.4% of total LoopUp revenue, down from 2.9% in 2015.

So what is the LoopUp product?

In a nutshell, the company’s core product aims to make audio conferencing a whole lot simpler, and more productive.

It is estimated that 13 minutes – or around a third of these sessions – are wasted trying to patch people or repeating information for the late-comers.

It is an irritant, but if you look at the impact on an international scale and frame it in terms of lost man hours, then it adds up to a £14bn-a-year brake on productivity in the UK and US alone.

So, the company is addressing a potentially massive market.

Sure, there are alternative communications platforms out there developed by software firms and telecommunication companies, but they either fail to address the familiar chaos or are just too complicated to encourage widespread adoption.

LoopUp, on the other hand, thinks it has cracked the problem with its system.

Using Microsoft Outlook it takes just two clicks to organise a meeting and LoopUp sends out alerts to the host when their first guest joins the meeting.

It uses traditional telephony supplied by tier-one operators across four centres globally, but dial-in numbers aren’t the preferred method for joining LoopUp meetings.

Rather, you simply click a link displayed on your computer, smartphone and tablet, and LoopUp then calls you on the phone of your choice.

Onscreen is displayed the participants – so you know who is there and who exactly is talking.

Users can even share biographical details via LinkedIn and there is a “big, orange, Fisher Price-type button” on the desktop that allows them to share documents and presentations.

What the broker says

House broker Panmure Gordon said 2016 sales and EBITDA levels were 3% above its forecasts.

The tech firm has been profitable at the EBITDA level since the final quarter of 2013, so this is no pipe-dream company.

“LoopUp’s patented software guarantees ease of use, and its scalable model addresses a £4.7bn market in which it has grown revenues by 36% CAGR since 2013,” Panmure’s Michael Donnelly said.

Between now and 2018, Panmure Gordon sees a compound annualised growth rate (CAGR) for profit in excess of 100%.

It describes its 150p price target as “conservative”.

Based on its earnings (EBITDA) forecasts,  LoopUp’s enterprise value (market capitalisation adjusted for cash and debt) is just 10.1 times EBITDA.

International software-as-a-service sector peers trade on a multiple closer to 15 to 20.

What the management says

Co-chief executive Steve Flavell said the company offers a “premium experience” and that the product differentiation is showing through in increased market share.

The group has managed to provide consistent top-line growth: 39% in 2016; 36% in 2015 and 38% in 2014.

Flavell told Proactive Investors he was pleased with progress in 2016, not just with the top line, but also in profitability and strategic priorities.

“The strategic priorities we laid out – expanding our distribution, introducing in-bound marketing and continuing to innovate in our product – we made progress on all of those lines,” Flavell said.

Flavell made the point that in years gone by it had been achieving those high levels of growth without doing any in-bound lead-generation marketing.

2016 saw the company form a marketing team, which launched a new corporate web site that included “refreshed messaging and positioning”.

“Progress has been pretty swift,” Flavell said, although the lead-generation process is still at the experimental stage.

The product has been available since 2006, and has always been popular with the professional services community.

“With remote meetings, all the common frustrations, like ‘who just joined?’, when people come on the call, people don’t always know who’s on; the topics discussed, particularly in the professional services world, where everything is very sensitive, the differentiation that LoopUp brings and the additional security of your remote meetings, means we’ve always done well in those sectors,” Flavell said.

That assertion was underlined by landmark customer wins last year that included a global 'magic circle' law firm and a North American financial services firm.

Geographically speaking, 46% of revenue in 2016 came from the USA, 41% from the UK and 11% from continental Europe, which leaves plenty of scope for growth in the rest of the world (2% of revenues).

Future growth opportunities

The more people a company employs in diverse locations, the greater the need for LoopUp’s technology, which means the company naturally sees mid-to-large enterprises as a growth opportunity.

However, as alluded to above, the professional services sector is also a rich seam for the company to mine, even at the smaller end of the scale, as these customer-facing companies typically have a need to hold remote meetings with their clients.

“We see growth continuing to come from both of those target groups,” Flavell said.

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