This software firm could deliver almost 50% returns, one broker says

It wouldn't be a great surprise if you'd never heard of IODM Ltd (ASX: IOD), considering its modest size and relative lack of profile.

But the team at Shaw and Partners have had a look at the company and initiated coverage with a buy recommendation, while also adding the caveat that it's a high-risk stock.

So what is IODM?

As the Shaw analysts explain, IODM is a provider of accounts receivable software tailored for the education market.

The company apparently has 20 universities in the UK onboarded, or being brought onboard, "and has recently expanded into the US, Canada, Japan, Mexico and South America'', Shaw said.

The company was founded in 2008 and, Shaw said, launched its IODM connect platform in 2021 with a focus on the global education sector.

The Shaw team explained further:

Today, the growth engine is the UK. IODM is demonstrating strong momentum in this market which we believe is only likely to gain further momentum in the years ahead. With a proven platform and reputation, it seems UK universities are increasingly receptive and key foreign exchange payment partners more engaged. Building on the success in the UK, IODM has recently expanded its revenue share agreements to cover four new regions, including the US, and has also introduced a new foreign exchange payment partner, TransferMate, to broaden its reach and introduce some competitive tension. Successful execution beyond the UK could be game changing for the stock.

Growth expected to surge

The Shaw team says the company has a demonstrated track record of customer growth and expects revenue to grow at a compound annual rate of 47%.

The Shaw team added:

We forecast IODM will be cash flow positive in FY27 and Cash EBITDA positive from FY28 onwards, which compares to losing $3.5m in FY25. We believe IODM has reached an inflection where its fixed cost base is covered allowing high incremental margins to be realised. This will be a key milestone for the stock and could lead to a re-rate.

Good news released by the company recently included a deal to provide its platform to one of the "largest international student universities in the UK", although it did not name that entity.

Shaw and Partners has a price target of 23 cents on IODM shares, compared with 15.5 cents currently.

If achieved, the price target would represent a gain of 48.4%.

The company was valued at $92 million at the close of trade on Wednesday.