The IRI result was a meaningful improvement. Recall that IRI are a performance management (experience monitoring) technology company, with a primary focus on payments systems, and unified communications.
The transition to a SaaS model, and COVID related deal flow impacts (namely delaying them, or causing customers to outright cancel) crushed profits in the 1H, but a much stronger 2H performance helps restore a degree of confidence in the model.
Cashflows, critically, remains strong. IRI is a capital light business model, and a collapse in cashflows would likely have proved deadly to investor support.
The improved top line outcomes, and the solid cashflow generation means the balance sheet drawdowns should cease, leaving IRI in a still solid near net cash position.
Margins are perhaps something of an “adjusted” leap of faith, with a sizeable difference between reported and normalised.
If you think earnings are momentarily depressed, and you take the adjusted margins at face value, than the valuations are not too bad for this pocket of the market.
Of course, if the earnings aren’t, then the whole point is moot. Still, street expectations, will provide for a rebound to around 80% of pre COVID earnings, are below the earnings hurdle to generate a market like return. If management are correct, and that deal flow is genuinely only a function of COVID and the SaaS transition (and not a function of changed consumer preferences) than earnings growth is likely to surprise materially to the upside.
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This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
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