An intelligent choice?

Over the past year I have been buying shares in a company called Access Intelligence for prices between 3p-3.75p. This is a micro-cap company which describes itself as a "leading supplier of Software-as-a-Service (SaaS) solutions for the full life cycle management of a company's governance, risk and compliance."

As with all of my share selections, I'm looking at a medium to long term investment and felt that this micro-cap has significant potential.  The company has a market cap. of just £9.1m, and the results which were released on March 5th 2013 show that the company produced revenues of just over £8m, and a small loss of £114,000.

On the face of it the results don't look particularly impressive until you dig deeper.

Firstly this is a company that is currently investing heavily in it's future to increase long term shareholder value, and initial indications are that this investment is paying off.

Whilst turnover was up 11% from 2011, most significantly, contracted not yet invoiced revenue was up 101% to GBP5,453,000 (2011: GBP2,713,000) and recurring revenue was up 16% to GBP5,562,000 (2011: GBP4,807,000) at 69% of sales (2011:  66%). Gross margins are a very healthy 70%.

The company also boasts a solid balance sheet with £2.8m cash and very little debt. In fact a small dividend will be paid to shareholders during this month (approx 1.25%) as a sign of their confidence in the future.

There will be continuing investment in 2013 with the full benefits coming through in the latter part of the year, and the company states that "Access Intelligence's solutions are core to companies achieving compliance and there continues to be significant opportunities for growth, both within our enviable customer base and regulated markets as a whole."

The shares leapt an impressive 23% today, although the reasons for this are unclear since it wasn't driven by any news (a tip possibly? leaked news of a contract win or bid approach? who knows?). However, the company looks a good medium to long term bet to me anyway, and the following research note also suggests that at the current price of 4p, the shares are significantly undervalued:-

http://www.accessintelligence.com/downloads/07032013_accessintelligence_initiation.pdf

"Applying this suggested recurring revenue multiple range to Access Intelligence implies an enterprise valuation range of £11m to £14.4m, or 5.5p-7.0p, considerably above the current share price."

It should also be noted that during December, Joanna Arnold (Chief Operating Officer) bought £200,000 worth of shares at 4p a piece, and other Directors were also hefty buyers during March 2012.