Idox and Proactis:Two Penny Shares to Profit from Public Sector Streamlining

I’d like to offer you a free report today called Ten Simple Rules For Maximising Your Penny Share Profits. It won’t cost you a penny. It’s just my gift to you for being a loyal reader. You can access this at the end of today’s Penny Sleuth.

Now, to today’s idea…

If I were the next Prime Minister I would slash public spending on day one.

I would cut back on public sector pay and pensions. I would reduce benefits. I would cut red tape, quangos and batty health and safety regulation. I’d reduce the army of public sector administrators whose daily task is to control our lives.

In short I would do what any good businessman would do. I’d cut back on anything that is unproductive. And I would preserve all – such as higher education – that generates prosperity.

No doubt I would make myself highly unpopular. But I would calculate that the country would have five years to get over it before deciding whether or not to vote for me again.

Honestly, I think this would be good economic policy. It might go some way towards reassuring all those holders of Sterling and gilt-edged securities upon whom we depend to finance our national profligacy.

But this issue of Penny Sleuth is not about me getting on to my political soap-box. The point is this. Whoever wins the next election public spending must be cut. As ever in the wonderful world of the free market, there are plenty of businesses out there who would like to make this happen – and reckon that they can make money by doing so.

Shares that profit from government outsourcing

Already several companies such as Capita (ticker: CPI), Connaught (ticker: CNT), Mears (ticker: MER) and Parkwood (ticker: PKW) make a good living by doing jobs previously done by public servants.

Mears, for example, maintains public sector properties and Parkwood runs municipal sport centres. These tasks have been outsourced by governments. That’s a favourite ploy that slims the public sector without cutting service provision – although, of course, it only delivers a net gain if the private sector contractors can do the job more efficiently than their public sector counterparts.
But outsourcing can only go so far. What is also required is both to reduce the scope of the public sector and also to make its own practices more efficient. The former is dependent upon political decisions, but the latter can be achieved once two obstacles have been overcome.

The first is the ‘if it ain’t broke, don’t fix it’ attitude of some public servants. And the second is that it is sometimes necessary to spend money first in order to save it later.

Two penny shares well-placed to benefit from a tighter public purse

But two penny share companies have overcome these hurdles, are doing growing business with local authorities and can only be rubbing their hands together at the prospect of an even tighter public purse.

The first of these is Idox (ticker: IDOX), and a slide in its annual results presentation last week revealed the wide range of local government functions that could not be dispensed without an outcry.

Here are just a few: planning, building control, building standards, environmental health, trading standards, licensing, anti-social behavior, contaminated land, with sub-headings such as ‘asbos’, ‘dog control’, ‘tree preservation orders’ and ‘high hedges’.

All of these have to be administered and the key to doing so cheaply is to move them on-line. Information, application forms can all be made available over the internet, and Idox helps to make this happen. Despite being a profitable and dividend-paying company the shares of Idox trade on just seven times earnings and are rated as a buy by broker Investec.

A second beneficiary of the public sector efficiency drive is Proactis (ticker: PHD), another profitable, lowly-rated, dividend-paying company.

Proactis specializes in ‘spend control’ software, which enables finance officers to authorize spending decisions, keep track of what is being spent, ensure that this is within budget, and that the best value is being secured.

A case study of one of its customers, the Denbighshire County Council, illustrates the extent of the problem. With staff spread across five directorates, six county offices, seventy schools and dozens of other locations, Denbighshire has an annual spend of about £130 million, over 4,500 suppliers, and receives about 180,000 invoices a year.

Thanks to software supplied by Proactis the Denbighshire Council has got to grips with this and it is one of over one hundred public sector names included in Proactis’s three hundred and fifty customers.

Surprisingly the share price of both of these penny share companies has been subdued. Presumably that’s due to fears that the general election will simply be used as an excuse to defer any decisions at the Town Hall.

But such is the necessity of cutting costs and improving efficiency, whatever the hue of the next government, the future for both Idox and Proactis looks pretty bright to me.

Now, just before I go, here’s that free report I promised you. All you need to do is click on the link below and enter the password: sleuth

Click here: Ten Simple Rules For Maximising Your Penny Share Profits

I hope it’s useful.

Good investing,

Tom Bulford
For The Penny Sleuth

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