dotDigital

Digital marketing specialist dotDigital (DOTD) has reported a stellar set of results for the year to June, which reveal a jump in pre-tax profits of 140%.

Croydon-based dotDigital has five brands, the largest being dotMailer, which has a particular focus on monetising the use of email marketing. As clients look to maximise their marketing spend, the AIM counter is clearly reaping the benefits. It is now sending out 130m emails each month, a rate that is growing rapidly – indeed, at the end of September it sent 10m emails in just one day.

The AIM counter has been investing in its infrastructure, so with good operational gearing it should be able to push more volume through, without a major increase in costs. It targets a broad spread of market segments, and last year boosted client numbers by 30% to 4,500, of which the top 20 account for less than 15% of total revenues.

Monthly billings make up two-thirds of revenues, with little in the way of bad debts due to a raft of clients paying by direct debit. Sales jumped 49% to £9m, but the profit line of £3.3m was flattered as dotDigital added back £1.1m from the likely final payment due to search engine optimisation (SEO) business Netcallidus – an acquisition made last year.

A number of new initiatives are under way, including a rival product to 'Survey Monkey', an online surveys operation. The product is on trial with 500 customers. If successful, dotDigital sees big upside, as it has the ability to integrate it with its clever use of email marketing. Moreover, with net cash doubling to £2.6m, it is well placed to target bolt-on acquisitions.

Chief executive Peter Simmonds says 'we have enjoyed a strong start to the current year, with revenues significantly ahead'. Due to ongoing investment, broker Charles Stanley predicts a flat 2012 pre-tax profit of £2.2m (after stripping out the one-off gain this year), producing EPS of 0.59p. This is a great little business, enjoying excellent margins, and strong demand for its products. Buy.