Stunning results from this technology star highlight the potential for investment outperformance on AIM 

dotdigital Group plc (LON:DOTD) has rapidly become one of our small cap favourites and the latest results certainly didn’t disappoint.

Founded in 1999 as a web design agency, dotdigital has developed a globally compelling product suite for email and digital marketing.

Having grown significantly since admission to AIM in 2011, when it’s market capitalisation was only £19m, its marketing automation platform is now used by over 70,000 marketers in 156 countries worldwide, empowering global marketers to achieve outstanding results. Global expansion and an expanding range of products  has seen revenues grow eleven fold over the last 8 years and the market capitalisation hit an historic high of £339m in July 2019, when the share price stood at 114p.

The group’s expansion has been boosted by it partnering with many of the leading ecommerce platforms including Magento (now part of Adobe), Microsoft Dynamics 365, Salesforce and Shopify.

Results for the year ending 30 June 2019 were stunning, with revenues rising 19% to £51.3m, including organic growth of +15%, and adjusted operating profit up 25% to £11.8m.

33% growth in adjusted earnings per share to 3.88p was even more impressive and materially ahead of consensus market expectations of 3.4p.

The group acquired Comapi in November 2017 which specialises in ‘live chat’ and has built a software platform that allows clients to communicate directly with their customers via email, SMS and social messaging apps. The Comapi technology has now been fully integrated with dotdigital’s platform, with 19% of the group’s customers using more than one channel, helping to grow average revenue per user 14% to £966 per month.

The all-important recurring revenue as a percentage of total revenue increased to 86% thereby offering excellent visibility into the future.

The key partnerships have also been strengthened with revenue through Magento up 27% to £11.8m.

Despite the ongoing impact of GDPR, revenue from the EMEA region delivered double digit growth, but more distant overseas markets were the star performers. Having initially struggled to progress in the US, the group now appears to have found its feet with revenue in this key geography rising 27% to $9.0m. The APAC region was even better, reporting revenue growth of 83% to AUS$3.8m.

dotdigital comments how innovation is at the core of everything and they are committed to the continuous evolution of the technology, reflected in the considerable investment in the period. Despite this, excellent operating cash inflow of £12.3m still resulted in free cash flow of £6.3m, boosting year end cash to £19.3m.

The outlook was extremely encouraging with the first quarter of the current 2019/20 financial year starting well.

The house broker commented how “there are few companies we can point to which consistently deliver 15% organic growth, PBT margins over 25%, and reliable cash conversion” reiterating their target price of 135p, 37% above the current share price.

Having held the shares for several years and remaining enthusiastic buyers, we would echo their comments.

To discover other exciting investment opportunities on AIM please contact Chris or Stephen at small cap investment specialists Fundamental Asset Management by calling 01923 713890 or emailing [email protected]