Update: Termination of coverage

Edison Investment Research is terminating coverage on Innovation Group (TIG). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.

Update: Software business building momentum

Innovation Group hosted a capital markets day on 2 July showcasing its software business. IBM was revealed as the systems integration partner involved in the recent £46m contract win with a major UK insurer. As the world’s largest software services company, IBM offers further credibility and significant sales and marketing clout to Innovation’s software capabilities. Innovation’s current 31.5p share price ascribes little or no value to its software business. We believe this is overly bear...

Update: £46m software deal

Innovation’s £46m deal with a major UK insurer is the company’s largest software win to date. With £12m revenues expected to be recognised over the next 12 months, our FY15 estimates now look well underpinned. The rating remains very undemanding. A sum of the parts suggests a 34p per share valuation for the BPS business alone, while this deal significantly strengthens the prospects for the software business to generate substantial incremental value beyond this.

Outlook: Solid foundations, set for an advance in H2

While Innovation's H1 results were distorted by a number of factors, underlying progress in BPS was encouraging. The Insurer Software business was heavily hit by contract slippage, but deal flow since period end supports a strong bounceback in H2. Our estimates have not changed significantly, on which basis the valuation looks very undemanding. We believe that achieving the H2 revenue earnings ramp, software and property BPS deal flow all provide strong catalysts for share price upside in H2.

Update: Transitional H1, set to move forwards in H2

While benign weather and slippage of software licensing deals will affect profitability in H1, we expect a bounce back in H2 continuing into FY16, supported by the recently announced £3.6m software deal and the closure of others, which are in advanced negotiations. Further software deal flow should provide reassurance over momentum in the Software business, while the forthcoming change in segmental reporting should shine a light on the strengths of the Business Services operation.

Institutional Comment: Daily comment

Institutional Comment: Daily comment