Oxford Metrics Shares, OMG, Leap 30% On Yotta Sale – Could It Go Further?

Oxford Metrics (LON: OMG) shares have jumped up to 30% this morning as the company releases the news that it has sold its Yotta unit. The interesting question of course is whether there's more movement to come here and that might well depend upon a little metric the market has;t quite twigged to as yet. Which is that the business left behind of the faster growing part – this could engender a full rerating.

Or, of course, it might not, that's something that we'll find out. But that's the duality here.

The announcement itself is that Oxford Metrics has sold Yotta to Causeway Technologies. The cash consideration – proper cash, no shares – is £52 million. Given that the Yotta gross revenue was only £8.1 million that's a fair old multiple they've been able to sell at there. Which would explain a goodly portion of today's price rise.

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The basic strategic decision also seems to have merit. Yotta was an offshoot of the basic Oxford Metrics technology, but was aimed at entirely different markets than the core business of Vicon. So, once Yotta was brought to some sort of maturity – where it's worth something – why not sell it and so be able to focus on that core business, Vicon?

OK, we can run with that. Whether it's entirely the correct decision is something that time will tell us of course. But the £52 million produces a good capital base for the ongoing company. Further, it'll allow bolt on acquisitions that do complement the Vicon platform over time. So far so good.

Now, as to where the Oxford Metrics share price is going to go after this there could be two schools of thought. One is simply that we've already seen the bounced and that it'll be static at this new base level of perhaps even drift back. That's the bear case. The bull case is a little different. For one of the things they say in the release is that Vicon is “the Group's larger and higher-growth division.”

That's important. For the full valuation of Oxford Metrics shares will be the blended growth rate of both divisions, both Yotta and Vicon. Getting rid of Yotta brings in that cash, very nice thank you. But it also increases the growth rate of the company. By, of course, unloading the slower growing arm.

In theory this should mean that each unit of sales at OMG is now more highly valued – because there's a higher growth rate attached to each current unit of sales. Or, the other and more correct way of putting this, as Oxford Metrics is now a high growth rate company there could well be a substantial rerating of the share – a move upwards in the price earnings ratio.

What should, in theory, happen in stock markets sometimes actually do as well. Which means that any trading position needs to be alert to the two possibilities here. One, that today's jump is what it's going to be and that's that, or that there will be that rerating on those higher growth rates.