We are increasingly making use of new technologies in our everyday lives, and the youngest generations are likely to accelerate that trend as they grow older.
As a result, companies have revolutionised the way they communicate and interact with their customers.
According to research by marketing body IPA, adults in Britain spend almost eight hours consuming media per day, up 13% since 2005. Two thirds of millennials look at their smartphone within five minutes of waking up.
Marketing departments now have better knowledge of their customers likes, dislikes and habits. Enhancements in areas like artificial intelligence means they are able to tailor communications better to individual customers to take advantage of these insights.
Three AIM-listed companies helping lead this trend by designing easy-to-use products for marketing departments at some of the largest organisations, making themselves market leaders in the UK and beyond.
IMImobile (IMO)
IMImobile helps companies like BT, Vodafone and Unilever communicate with their customers using text and multimedia messages, via email and through apps like Facebook Messenger. It also helps the NHS text appointment reminders to patients, thus saving the institution huge amounts of cash.
Gresham House Strategic (GHS) invested at IPO in June 2014. Now, IMI accounts for 43% of its portfolio. Manager Graham Bird recalls IMI had a wide range of products, different business models, a large proportion of its business in emerging markets, a founder-chaired board and complex balance sheet.
“Each individual component not being a reason not to invest in itself, but when you added them all up it made for quite a complex story to understand,” Bird says.
Chief executive Jay Patel has done a good job in transforming the company. He’s slimmed down its product offering, focused more on developed economies, shaken up the board and improved governance.
IMI has seen mid-teens organic growth supplemented by a complementary M&A strategy, produces strong cashflows with healthy margins and converts more than 100% of operating profit into cash.
The acquisitions of TXTLocal, Archer Digital and Infracast allow IMI to cross sell its core products to a larger client base, providing clear top-line synergies.
Its November interim report boasted of a three-year gross profit compound annual growth rate of 22%. Revenues in the six months to 30 September grew 48% year-on-year to £53.1 million. Bird also expects a “modest dividend” to be implemented soon, “to demonstrate they have shareholders’ interest right at the centre of what they’re doing”.
It recently signed some “small but interesting” contracts across the pond, and Bird thinks cracking the US could be a real “game-changer”.
IMI currently trades on a forward valuation of around 10 times operating profit, compared to around 15 times for peers, “so there’s a good uplift story purely on the re-rating opportunity”.
It’s already grown threefold since floating into a £157 million company. The share price has more than doubled to 255p.
Dotdigital (DOTD)
dotDigital’s Dotmailer platform allows companies to plan and execute marketing campaigns to customers. The software allows users to take their insights into customer behaviour and tailor communications to their habits. For example, if a company knows their customer is on their phone during their commute home, it can schedule emails to be sent at that optimum time.
For Liontrust’s UK smaller companies team, it’s almost the perfect investment as it satisfies three out of three criteria they like their investee firms to exhibit. These are high recurring revenues – over 70% of dotDigital’s turnover is recurring – intellectual property and sticky distribution networks.
Matt Tonge, co-manager of the Morningstar Bronze Rated Liontrust UK Smaller Companies Fund, says for new clients, Dotmailer pays for itself within six months. “As it’s generating such a high return on investment, you’re very unlikely to stop using it because it’s going to cost you revenue, so it actually becomes really sticky,” he says.
While dotDigital’s main niche is in email marketing, it has made itself omni-channel. There’s an argument that email usage is dying out, but, while Tonge says there’s definite societal change at play, email’s not going away any time soon.
Its partnership with US ecommerce giant Magento is also a positive. It is “riding on Magento’s coat tails very effectively”, says Tonge, and the fact only a low single-digit percentage of Magento’s customers are signed up to Dotmailer gives scope to win more clients.
Interim results to December were in line with market expectations, with revenue growth of 25% to £18.8 million. Broker finnCap reckons full-year revenue will have grown 41% overall, boosted by November’s acquisition of Comapi.
The share price is up almost sixfold in the past five years to 82p, but the stock has de-rated by a fifth year-to-date. It has a market capitalisation of £240 million.
Netcall (NET)
Netcall’s Liberty platform is a call centre management software that sits in the cloud and helps public sector clients like borough councils and housing associations direct callers to the correct departments. It also helps with live chat, improving customer engagement online.
The share price has faced headwinds over recent years and is currently down a third since February 2015. That’s due to the company transitioning its business model from gaining upfront licences to recurring revenues. This is a tricky thing for listed companies to do, says Tonge, because it hits revenues and forecasts hard.
But Tonge says it’s managed the job relatively successfully and has increased its average contract size in the process. Also, due to the change, Netcall now hits Liontrust’s trifecta of criteria.
A more recent setback came due to its August 2017 acquisition of MatsSoft, the UK’s sole low-code platform. The market took the news negatively as investors did not perceive it to be a natural fit and shares fell 20%, eventually reaching a four-year low in October.
But Tonge reckons MatsSoft complements Netcall’s existing business. Low-code development is a way to build apps more quickly by reducing the need to code, meaning anyone can design solutions for their businesses without the need for IT experts.
Therefore, MatsSoft can help local councils build their own workflows, thus increasing their digital transactions. Figures from the Cabinet Office estimate that a digital transaction is 20 times cheaper than one by phone, 30 times cheaper than one by post and 50 times cheaper than one done face-to-face.
“If Netcall can help councils build more digital transactions with the general public then it will be better for everyone and will help Netcall make the acquisition a success,” says Tonge. It also has the ability to cross sell its products to a new client base, which should improve sentiment.
Andrew Darley, director of research at broker finnCap, adds: “With Blue Prism (PRSM) showing that UK markets appreciate high-growth tech, MatsSoft’s take up by customers and increased understanding among investors can transform Netcall as MatsSoft gains confidence and scale.”
Recent results for the six months to end December saw the £72 million firm increase revenue 32% to £10.7 million, with recurring revenues strengthening 71%. Pre-tax profit was £280,000, down from £920,000 due to the MatsSoft purchase.
Darley has a target price of 75p, suggesting upside of 50% from its current 50p level. Netcall also pays a healthy dividend and has a forward yield of 2.4%.
