@UK

@UK is currently a bulletin board favourite and has enjoyed a spectacular run in its share price over the past month or so, rising from a share price of around 5p to its current 38p. It's another great example of how an AIM micro-cap can suddenly capture investors imagination and multi-bag within a very short time. Of course the thing to watch out for is whether the rise is justified or simply a result of poor liquidity and over enthusiastic punters. At the current share price, @UK's market cap. is currently £32m.

I have been aware of this company for some considerable time. The price originally spiked from  around 5p to 15p towards the end of 2012 and then slowly fell back again, and I did have a brief look at the fundamentals. Unfortunately I never invested. In truth I didn't and still don't really understand their business and the potential market, but as ever, well done to those who took the plunge and have seen their investment increase sevenfold in no time at all.

It appears that the excitement centres around two recent trading statements released by the company. The first one in early July stating:-

 "We believe we have the platform in place and market opportunity to significantly grow the international arm of the business to become a truly global technology provider within the next 3 - 5 years, generating annual turnover of over GBP50 million of which approximately 80% will be derived internationally."

That is some claim, and if true, then even at £32m, @UK is still cheap with a long term view since I believe that their gross margins will remain high (currently 79%).

A further strong trading update was released in early August:-

http://uk.advfn.com/news/UKREG/2013/article/58690768

which contains lots of encouraging noises about trading in the second half. Investors appear excited about their tie-up with Visa and certainly this line is also encouraging :-

"Investment in the first half of the year to support the Visa roll-out resulted in movement into a net debt position, which has since been reversed.

The second half year has started strongly with significant cash generation to provide the funds for international rollout."

However, whilst the company could be cheap with a long term view and I may miss out on a multi-bagger (even from the current price), I'm unlikely to chase the shares since, as I have mentioned in previous blogs, I like to have at least some understanding of the business and I do like some margin of safety (with the majority of my investments).

I've briefly outlined the bull case for @UK, but there are bear points to be aware of. Firstly in my experience most companies (particularly small ones) have difficulty accurately predicting turnover and profits for the next 6 months let alone 3-5 years in advance. £50m turnover sounds impressive, but is it realistic and deliverable given that revenue in the past two years has hovered around £2m. In fairness with the Visa tie-up, and what I gather is a change in business model, then a comparison with previous figures may not be appropriate.

In the short term though, the price does look expensive, since despite the two very positive trading statements :- "Ronald Duncan, Executive Chairman, commented, "We are delighted with the progress made in the first half of the year, both financially and operationally, and expect to deliver full year results in line with market expectations."

Importantly market expectations are for earnings around 0.94p which puts the shares on a p/e ratio of more than 40. That said with explosive growth, and if they exceed expectations, then a quick look at ASOS's history will tell you that exceptional growth can mean companies stay on high multiples of earnings for very long periods.

Finally the business lost over £750,000 last year, and had negligible cash and net tangible assets, although for balance, it also had negligible debt, and as the trading statement points out, it is beginning to generate cash in the second half of this year.

In conclusion, apart from knowing that @UK operates in the cloud eCommerce marketplace, I don't fully understand the potential going forward and as a consequence will pass on this opportunity.
I have no idea how things will pan out over the next few years, but given my interest in the AIM market, I will be following with interest to see how things develop.

Good luck to the company and investors, and as always, this remains a blog recording my personal thoughts and experiences of investing in the stock market and no advice is ever intended or given.