Idox property division breaks new ground
Specialist software company Idox has no shortage of ideas when it comes to product offerings. The brand offers services across property ownership, healthcare and even government elections.
But Cassie Herlihy, associate director at Gresham House, said this can also be the struggle of the business in its appeal to investors: there’s not an easy way to show what Idox can do.
“It’s classically one of those websites where you look at it and there’s loads of words, and you’re like, ‘OK, I’m still none the wiser of what they actually do’. Even having been invested in this, I think there is some work they can do in improving the story,” Herlihy said.
“But it’s over-complicated by the fact that it has three different divisions. Taking a step back, what does it do? It’s essentially providing information management systems with a range of different applications.”
While Idox can be a confusing business, it’s one Herlihy knows well. The company has been part of the Baronsmead Venture Capital trust since 2002, where they watched it grow from a market cap of around £20m to £260m. Gresham House also invested in the holding through its UK Smaller Companies fund in 2023.
The part of the company most exciting to Herlihy is its property sector business. In the UK, Idox has over 60% penetration across local authorities for property.
“If you owned a house in a particular council, and wanted to do an extension there, the process you’d go through online is using Idox’s software. It facilitates that process, both front-end and back-end, allowing it to be seamless, more efficient, more effective,” Herlihy said.
“It has completed five acquisitions over the past few years of small data asset businesses whereby a property developer or a local government could then have access to very accurate underlying data on properties or other geographic features within an area to make more informed decisions.
“That’s an industry that’s growing really nicely and really quickly, and it’s building a broader platform that can cross-sell to the local authorities, but also more broadly to asset owners. That’s where our broader thesis of growth sits.”
In the past five years, Idox has increased its share price by almost 45%. But the past year has proven more difficult, with the stock dropping 8.5%, as of 25 February. Herlihy said some of this strain may come from the two other parts of the business, including the healthcare and election sections.
“The other two bits of the business, I’ve described as non-core. They’re not growing to the same extent. They’re not aligned to the same kind of structural growth drivers. And the earnings profile is slightly more lumpy, so it’s certainly not a focus of the group going forward,” Herlihy said.
One option to cause a re-rating for the company would be to divest the two smaller parts of the business from the main property chunk.
“If it is able to dispose of those two non-core parts of the business at the current group multiple of three times revenue, then Idox can simplify the story so it’s really clear what the business does,” Herlihy said.
“You don’t need to explain all these different things, which means the market will start getting it and looking at it. It will also drive cash, so firepower to be invested in the higher growth parts of the business, and firepower for further M&A which it has already been doing. Also by selling a bit of the business at least in line with the current valuation, it shines a light on how undervalued that remaining bit of the business is, which should help to drive a re-rating.”
Aberdeen in a spin over ME Group
Instant-service vending equipment is typically associated with chocolate bars and fizzy drinks. But for FTSE 250 constituent ME Group, its capabilities span photobooths, digital printing kiosks, children’s rides, fresh juice and pizza vendors – and even dog-washing machines.
However, the company’s sector that most excites aberdeen’s Amanda Yeaman – who co-manages the UK Smaller Companies and the UK Smaller Companies Growth trust funds – is its laundry division.
“Photo booths are showing steady growth and that business is cash generative. But laundry machines are the exciting bit, growing at more than 20% per annum,” she said. “The company is rolling out its self-service laundry machines at pace and the operating metrics are impressive.
“We see an opportunity to increase the number of its ‘Revolution’ washing units by four times while delivering attractive margins and returns. The overall rate of growth will step up as laundry becomes the largest part of the business.”
Formerly known as Photo-Me International, the Epsom-based company changed its name in 2022 to better reflect the diverse nature of the products it offers.
Yeaman and co-manager Abby Glennie first bought into the company in July last year, after aberdeen’s stock-screening tool – The Matrix – initially flagged it as fitting the fund’s quality, growth and momentum criteria.
They have been gradually adding to the stock since purchase as the business has been trading well. Yeaman and Glennie first bought the stock at a price-to-earnings ratio of 13.5x. As at the end of February 2025, shares are trading on a 14.3x price-to-earnings ratio, with an EV/Ebitda of 6.4x and a dividend yield of 3.8%.
“It’s one of few companies I can think of that has little-to-no competition,” Yeaman continued. “It operates in 18 countries, with material competitive advantages – one being the long-term, trusted relationships with site owners combined with an established team of 650 field engineers.
“This is a business with a very strong franchise and is very difficult to repeat or compete with. The rating is compelling given the scale of opportunity, the level of free cashflow and competitive advantage.
“The machines are ideally located and, interestingly, the longer they have been in locations, the more usage goes up by. The company is also signing more contracts for rollout in new locations. Momentum and execution have been strong.”
The company’s products boast strong credentials. For instance, its Revolution laundry machines at Leamington Spa are usually in operation 20 hours a day, out of a possible 24 – which the fund manager described as “hugely impressive”.
It is also the biggest supplier of children’s rides – the types seen at service stations which move back and forth – with more than 1,000 of these now in situ across the UK.
“We see huge potential in the laundry business. There’s potential for growth by entering new geographic territories and new market segments. The company is demonstrating innovation, adding new services, and there’s potential for M&A. We have seen impressive returns with return on invested capital at more than 35%,” Yeaman concluded.
“It partners with leading retail and leisure companies, including Sainsbury’s, Morrisons and Co-op, and there’s scope to grow its partner base further. We also like the firm’s long-term approach, which is driven by the fact there is family involvement.
“The strong cash generation is appealing, there’s net cash on the balance sheet and the valuation is, we believe, highly attractive.”
As sweet as (Raspberry) Pi
Originally a pocket computer designed by a charitable organisation for children, the Raspberry Pi has come on in leaps and bounds since its launch in 2012.
“They provide the computing power inside Heathrow’s departure boards. They control the Kenya Wildlife Service’s observation cameras. They power EV chargers. Indeed, DeepSeek can be run on a Raspberry Pi computer. It’s a bit slow, though,” Rathbones’ Alexandra Jackson told Portfolio Adviser.
Jackson, who heads up the Rathbone UK Opportunities fund, added Raspberry Pi to her portfolio in June 2024, after it floated on the London Stock Exchange at 280p per share. The manager bought more at 330p and 380p, respectively, then sold more than half of the fund’s position when the price reached between 590p and 680p.
“It had become the most expensive semiconductor stock in the world, trading on over 70x earnings,” she explained.
Now at a market cap of £1.2bn, Raspberry Pi – which makes single-board computers – is a constituent of the FTSE 250. While it only floated for the first time last year, the company was founded in 2008 – four years before the product itself was launched.
Jackson said: “It’s basically a mini operating platform that plugs into monitors, keyboards and displays. The company doubled its sales and profits between 2021 and 2023 and has more cash than it has debts.
“Yet because it’s so new to the market, it’s not well owned, covered or understood. This still hasn’t stopped the shares from going up – a lot.”
The manager is bullish on the long-term outlook for semiconductor companies, AI developers and edge computing businesses, as they will be key for linking smart products without needing to “constantly send data all the way back to the servers at the heart of the cloud”.
But now, she said, there are some stock-specific risks for Raspberry Pi thanks to its significant run-up in share price.
“Sales volumes will need to accelerate from here to justify the multiple. That may be difficult to deliver over the next 12 months as Raspberry has no new products in the pipeline right now. And its customers are still destocking.
“So while we are bulls on the stock long term, there are some short-term considerations that are influencing our weighting.”
Jackson pointed out that the broader semiconductor theme is difficult to access via UK-listed companies, with hardware stocks remaining scarce.
“Raspberry is in fact the only listed pure, semiconductor play in the FTSE 350,” she said. “We also own the IT resellers that sell software to small and medium-sized businesses in the UK. This gives us exposure to a broad spectrum of corporate tech spending across, for example, cyber security, AI and cloud computing tools.
“But we don’t have to pick exactly which software company or part of the market will dominate each year – it’s enough to know that this spending tends to go up.”
This article first appeared in the March issue of Portfolio Adviser magazine