Questor: a British ‘gem’ that leads the world in the undiscovered niche of software deletion

Questor share tip: if you want to be sure your data has been destroyed, Blancco is the firm to turn to – and the growth prospects seem huge

Richard Evans 4 November 2020 • 6:00am

Laptop — Blancco is an expert in data deletion Credit: Dominic Lipinski/PA

We have a rarity to offer readers today – a British software company whose technology is as good as any in the world.

The firm, Blancco, operates in a market that few will even be aware of: data deletion.

“You would think that erasing the data on your phone or on your firm’s computers would be as easy as clicking on a button,” said Tommy Bryson of Euronova Asset Management, which holds Blancco in the European Mid & Small Cap Equity fund it runs for Vontobel on a subcontracted basis.

“In fact, it’s very hard to destroy data completely – even if you do a ‘factory reset’ on your iPhone, say, the old data will still be there.

“If you really want to be sure that your data has gone, so that you can trade in your phone or dispose of your company’s old computers, you need specialist software. There are very few sources of such software around and no one else has anything as good as Blancco’s product.”

The firm’s “enterprise” division is key to its growth. Companies routinely get rid of old IT hardware when they upgrade or decide to move their systems online to the “cloud”. They need to be sure that the data on their old computers is securely destroyed, both to comply with data protection rules and for their own protection.

Many have relied on the rather low-tech method of physically destroying hard drives and sending them to landfill. But as companies take their environmental responsibilities more seriously, they are turning instead to secure deletion of their data followed by recycling of the hardware.

“There is huge growth potential here,” said Mr Bryson. “The amount of data stored in data centres is forecast to grow more than fourfold between 2016 and 2021.” At some stage, all that data will need to be securely deleted.

When you have world-leading technology, the problem becomes finding the best way to tell potential customers about it and sell it to them. Blancco is tackling this via a variety of approaches: in some cases, it has direct relationships with customers and in others it sells via partners.

One is Amazon, which offers customers of its cloud service, AWS, Blancco software to delete their old data. Another is the Indian arm of Deloitte, the global consultancy. “This relationship should in time allow Blancco to sell via other parts of the Deloitte network,” Mr Bryson said.

Blancco sells its software on a subscription basis, which tends to result in more reliable revenues.

Apart from the growth in the markets it serves, it has another way to grow. It talks of a six-part cycle through which data passes over its lifetime (create, store, use, share, archive and destroy), and aims to expand from its current involvement in just one, destroy, into others such as archive.

The company has another, smaller business that sells software which can remotely check whether mobile phones are operating properly. Its customers are insurers that sell mobile phone cover.

The finances of software firms tend to follow the same course and Blancco is no different. It has invested heavily in sales in marketing but now hopes to see its reward as revenues start to grow far more quickly than costs.

That should lead margins on one measure to rise from 12pc last year to 30pc in time, although the firm is not currently profitable at the pre-tax level.

Mr Bryson said he expected returns on capital to rise from 10.6pc to 27.5pc in five years’ time. Cash generation is strong and currently the firm has no debt, which gives it plenty of room to borrow should it want to make acquisitions to, for example, address another step in the data cycle.

Mr Bryson described Blancco as a “classic smaller-company gem with a leading niche market position”.

Questor says: buy

Ticker: BLTG

Share price at close: 191p

Update: Sabre

We tipped Sabre, the car insurer, in September 2018 on the strength of a conversation with Mr Bryson when he was at another firm. He owns it in his current fund too, and said the insurer had stuck to its strategy of maintaining margins rather than chasing growth.

“As a result, its dividend looks completely secure, unless regulators tell insurers to stop paying them during the pandemic,” he said. The shares are depressed as the market awaits a turn in the insurance cycle, and the result is a forecast yield of 8.8pc. A strong hold.

Questor says: hold

Ticker: SBRE

Share price at close: 226p