Shares in iomart tumbled yesterday following a slip in full-year revenues and profits at the cloud computing company, which is eyeing up acquisition targets as it looks to return to growth.

Turnover during the year to the end of March was down 8 per cent at £103 million, reflecting lower non-recurring sales of equipment and consultancy services. The company also suffered from an increase in customer churn rates in the first part of the financial year, though this has now stabilised.

Pre-tax profits dipped by 2% to £12.2m but with net debt cut by more than £13m to £41.3m, chief executive Reece Donovan was upbeat about the Glasgow-based company’s prospects.

“You can see we continue to deliver strong levels of recurring revenue and cash,” he said. “It is a testament to the strength of our business model.

“We said last year that we had re-done the strategy and we are executing really well on that, and that sets us up for growth in the future.”

READ MORE: Customer churn drags on iomart profits

He added that iomart is well-positioned to handle “short-term” pressures in the wider market, including rising energy prices which are an issue for the whole of the cloud hosting industry. The company was largely insulated from rising energy costs last year through hedging agreements but has now started increasing its charges, with more than a third of customers on new price points.

With a new £100m credit facility secured at the end of last year, iomart said it has made “positive progress” in evaluating potential acquisition targets. After signing a partnership in March with cyber security specialist e2e-assure, chief financial officer Scott Cunningham said the company is looking for other types of deals to enhance revenues and profits.

“Twelve months ago we would have said we were looking for companies involved in managed security, and also skill sets around public cloud that would compliment our hybrid cloud strategy,” he said. “In security we’ve come up with an alternative solution which is to partner with e2e, so in terms of focus at the moment it’s bit more on the Microsoft ecosystem, so companies that are familiar with the Microsoft offerings and have an ability to service that on an ongoing basis.

“But the reality is we are looking for businesses in our area that are growing, to ensure they really [provide support] in three areas which are skills and capabilities, customer base and thirdly, potential routes to market in terms of whether someone has a strong indirect channel, for example, or something else that can help the core iomart business.”

READ MORE: Iomart shares rise over ten per cent 

Trading in the first two months of the current financial year was said to be in line with the board’s expectations, though the company admitted the wider business environment is challenging.

“Covid 19 has seen the acceleration in the adoption of digital transformation and remote working, both of which are likely to enhance long-term drivers to the cloud but short-term we have seen a lack of larger-scale IT projects,” the company said.

“It appears clear that the UK economy will experience some negative factors in the short-term, from intensifying inflationary pressures, supply chain challenges combined with geopolitical uncertainties. While iomart will not be completely immune to this economic backdrop, the requirement for organisations to be supported with their hybrid cloud challenges will continue to grow for the foreseeable future.”

Analysts at Investec said the stock should be an “excellent tech defensive” against recession risk and have maintained their 300p target price. The shares closed yesterday’s trading nearly 10% lower, down 18p at 168.2p.