Make a killing on a firm that helps power the net
DETECTIVE chief inspector Barnaby, hero of Midsomer Murders, may seem happier on the beat than on a computer. But All3Media, which produces the popular ITV drama, relies on complex IT systems to make TV shows. And
Redcentric helps the firm get the most out of what the internet has to offer.
Redcentric works for clients large and small, from Oxford University to Evans Cycles. It also works for Government departments and agencies, such as the Ministry of Defence, NHS, National Savings & Investments and the Legal Aid Agency.
The shares are 191¾p and should deliver long-term growth.
Redcentric provides the IT plumbing that allows these organisations to function effectively. It offers simple but vital services, such as secure storage of data through to streaming phone calls via the internet, supplying sophisticated 3D design software and installing intranet systems to connect stores, factories and offices.
The group has about 2,000 customers, most of which are big enough to need serious IT help but not so large they want to spend millions of pounds on state-of-the-art servers.
Even Government departments prefer to outsource big IT projects these days, realising it is more cost effective to rent data storage and other services than own the hardware themselves. They used to turn automatically to US giants such as IBM. Now some prefer to support British businesses, such as Redcentric.
About 80 per cent of Redcentric’s customers are on rolling contracts, usually lasting three years, so it has a base of steady, predictable income. But it also has potential for growth.
Chief operating officer Fraser Fisher moves up to become chief executive next month and has several plans to expand the business. A seasoned hand – he has been with the group for the past two years – Fisher expects to deliver at least 10 per cent growth a year, equally split between organic expansion and acquisitions.
The organic growth should come as Redcentric acquires new customers and existing ones grow and need more IT help. Most take up two or three of Redcentric’s services, so the effect on sales and profits can be substantial.
The provision of IT services is also highly fragmented in the UK, so Redcentric has hundreds of small competitors that lack the cash to invest in top-of-the-range hardware. Fisher intends to acquire some of these, if they can increase Redcentric’s profits and fit the business strategically.
The approach has worked well so far. Redcentric bought the loss-making Calyx in April and already expects it to be profitable this year.
Analysts expect group profits of £18.4million in the year to March 2015 – a rise of 18.7 per cent in a year – and a 1p rise in the dividend to 4.5p.
Midas verdict: Redcentric is a strong, well-managed company in a sector that will continue to grow as companies rely increasingly on IT for every aspect of their business. Buy.