Digital marketing technology and services provider Dotdigital (LON: DOTD) revenue growth accelerated in the first half, helped by currency movements. International growth is propelling the business and there is a growing cash pile.
In the six months to December 2022, revenues were 9% ahead at £33.8m, but pre-tax profit fell from £8.9m to £7.7m, with investment in the team and additional marketing holding back short-term profitability. There was a slight dip in margins because of the growth in lower margin SMS.
Contracted annualised recurring revenues are £51.9m, so this underpins second half revenues. Professional services income has been weaker. Average revenues per client improved from £1,422 to £1,573.
On a constant currency basis, US revenues were flat but there are signs of improvement in the second half. APAC growth is accelerating, although the rate is still lower than previously achieved between 2018 and 2021.
Cash continues to be generated and net cash reached £49.6m by the end of 2022. Even after interest rate hikes this does not earn much income.
Expansion
New product launches are important to the continued growth of the business. Management is keen to expand the addressable market through continued product development and potential acquisitions.
Dotdigital CXDP has been launched and it offers the ability to integrate data from different sources and more personalised email campaigns. This will help to win larger customers.
The dividend has risen steadily, and it is well covered by cash generation. There could be potential for a higher dividend, although the focus is on reinvestment in the business. A 1p a share final dividend is forecast, but that could be cautious.
finnCap forecasts flat full year pre-tax profit of £14.5m. At 96p, the shares are trading on 24 times prospective earnings.
The share price is well below its peak, but the rating remains relatively high. Growth prospects are good, and acquisitions could help to bring the multiple down.
