TPXimpact – this is a price recovery situation, now oversold at 26p, its shares have a broker’s TP of 65p – now is the time to slip into a few for the bounce

12.02.2025

On Thursday of last week the technology-enabled services group TPXimpact Holdings (LON:TPX) issued a Q3 Trading Update which saw its shares fall from 33p to 24.85p in reaction to its corporate slowdown.

However, taking a look at Broker analyst estimates for the next few years, I would suggest that they have been oversold and are ready to recover in price fairly soon.

The Business

The company is recognised as a leading alternative digital transformation provider to the UK public services sector, with over 90% of its client base representing public services.

The technology-enabled services company is focused on people-powered digital transformation, providing digitally native technology services to clients within the commercial, government and non-government organisation sectors.

Its segments consist of Consulting, Digital experience, Data and Insights, KITS, TPX Norway, Questers, and RedCortex.

It provides fully digital, data and technology capabilities across the whole digital lifecycle: working to Government service standards from discovery through to alpha, beta and live service.

The company offers its clients additional specialist expertise and ramp-up capacity through its partner network, providing skills and knowledge in six core competencies: data strategy and governance; data engineering; data analytics and insight; data science and artificial intelligence; cloud engineering and data operations, and open and linked data.

The Q3 Trading Update

Last Thursday, 6th February, the £24m-capitalised group issued a Q3 Trading Update for the three months to end-December 2024.

The company stated that its business had met management expectations, with profitability and margins aligning with its forecasts.

The first nine months of the year saw the group secure a total of £65m of new business, some £30m of which was contracted within Q3.

However, the expected return to normal trading was somewhat short in its timeframe.

Management Comment

CEO Bjorn Conway stated that:

"Whilst short-term market conditions remain challenging for our Digital Transformation business, we have a strong pipeline of opportunities and remain confident in the Government's commitment to improve public services and drive efficiencies through digital transformation and harnessing the potential of AI.

The Digital Transformation business, and the Group overall, remains well positioned for growth as Government's spending plans begin to take shape.

We continue to see exceptional performance from our teams in delivering value and impact for our clients and our long-term relationships and commitment to these clients leaves us well-placed to continue to support their success and provide opportunities for our people to grow and develop.

TPXimpact is a much simpler and more coherent business than it was two years ago with strong trading brands, long-term customer relationships, and in-demand capabilities that are a strong foundation for future growth. 

We are in the process of planning and budgeting for next year, ensuring our strategic goals continue to align with the Government's growth priorities and I look forward to sharing updates on our continuing progress in the months ahead."

The Outlook For 2026

Whilst the outlook for the balance of this end-March 2025 year remains challenging, the group has outlined that its new business pipeline remains strong and that it expects normal market conditions to return in Q2 of its trading year to end-March 2026.

The group is confident in the company's strategic direction and future growth opportunities that the Government's ambitious agenda for digital transformation should provide.

It remains on course with its three-year strategy to simplify the business, to improve margin conversion and then build solid platforms for its future growth.

The Equity

There are some 92.16m shares in issue.

The larger holders include Lombard Odier Asset Management (19.02%), Eric Grant Harris (10.10%), Canaccord Genuity Wealth (8.49%), Dowgate Capital (6.90%), Neal Gandhi, Dir (6.56%), Steve Winters, former Dir (0.99%), Gresham House Asset Management (0.82%), Bjorn Conway, CEO (0.59%), Maven Capital Partners (0.16%) and Christopher Sweetland, Dir (0.12%).

Broker’s Views

At Dowgate Capital, its analysts Lorne Daniel and Paul Richards rate the group’s shares as a Buy, with a Target Price of 65p.

They consider that the group was impacted by the hiatus in government spending ahead of the General Election and Budget.

Its Q3 trading met expectations while new business showed a positive trend to reach £30m following £26m in Q2 and £9m in Q1.

However, they note that the spend on digital transformation had been impacted by delays in the procurement of large programmes, while spending controls have slowed the ramp-up of new business wins and the rate at which backlog can be expended, while the Government’s Comprehensive Spending Review has been delayed from March until June.

They have estimates out for the current year to the end of next month, for £76.0m (£84.3m) in revenues, but with adjusted pre-tax profits of £2.8m (£1.8m), generating earnings of 3.1p (2.1p) per share.

For the year starting in April, they see £84.0m sales, £5.3m profits and 4.1p per share in earnings.

Over at Allenby Capital its analysts comment that:

“TPX has had a challenging start to Q4, due to a slowdown in the rate of UK Public Sector spend and decision making on digital transformation programmes.

Management is confident that normal market conditions will return in Q2 FY26, albeit revenue will be lower than initially anticipated, as the Government remains committed to improving public services and driving efficiencies through the use of tech and AI.”

My View

This group’s shares were trading at 55p last July, however by the start of this year they had fallen back to 45p by the start of this year.

I now take the view that it could well be the best time to pick up some cheap stock in TPXimpact, especially after its shares fell to as low as 24.85p on the back of last week’s slowdown guidance.

But take another look at the broker’s estimates 2.1p earnings in the end-March 2024 year, 3.1p for the year to the end of next month and then up to 4.1p in the coming year starting 1st April.

I see them recovering to trade the 35p/40p range but now set an easy Target Price of 32.50p, so would we be ‘this April’s fool’s’ to miss this bargain, now at 26p?

Helping to deliver net-zero

(Profile 12.02.2025 @ 26p set a Target Price of 32.50p)