Analysts at Canaccord Genuity downgraded software firm Idox from ‘buy’ to ‘hold’ on Thursday, citing a now “fair” valuation.
Canaccord said Idox management had tidied up the group over the last couple of years across the spectrum of accounting policies, commercial contract management and internal reporting systems.
However, it added that Idox’s share price had now reached its target price, leading it to lower its recommendation and only nudge its target price slightly higher from 70.0p to 75.0p.
The German bank stated that at its modestly raised target price, Idox shares were on a price-to-earnings ratio of around 29 times annualised to December 2022, compared to the rest of the sector at around 33 times.
“We continue to believe a discount of 5 to 10% to sector average is fair given organic sales growth at 5% Vs sector circa 10%. Only a small discount though as Idox has enviable adjusted EBIT margins, at circa 22% est, versus sector at 14%. This margin throws off cash that will likely be used to make further strategic bolt-on acquisitions going forward,” said Canaccord.
“Reflecting this 5 to 10% discount we increase our target slightly to 75.0p/share (the sector average has increased slightly over the last couple of months).”
