Intelligent choices?

Access Intelligence plc is one of my long term holds, and I last mentioned the company in July 2014

http://michae1mouse.blogspot.co.uk/2014/07/access-intelligence-interims.html

The company released their final results at the end of April, and I am hopeful that the next year or two may prove to be transformational for the company. Firstly, turnover was up a modest 2% on last year at around £8.5m. Encouragingly recurring revenue was up 8% at £6.6m making up 77% of sales and providing a solid financial footing for the company going forward. The company reported a small operating loss of £21,000, and cash on the balance sheet stood at just over £1.1m, although most recently the company disposed of Willow Starcom to K3 Business Technology for a total consideration of £1.75m which significantly increases their cash reserves.

Access Intelligence is cash generative, but over recent years has been investing heavily (around £4m per annum) in new product development. This is where it is getting interesting because whilst they "believe that during 2015 the Group will benefit from the significant investment made in new product development in previous years.", this exceptional level of investment to redevelop their integrated software platform will come to an end in 2015.

Hopefully, in 2015 and beyond, Access Intelligence will move swiftly into a profitable, cash generative, growth company which will be able to return generous dividends to shareholders. My very rough calculations suggest that if they cut development spend even by £1m from £4m to £3m per annum, and revenues increased modestly, if you add back around £800,000 for impairment of intangibles then adjusted EPS would come somewhere between 0.6p-0.8p. A p/e ratio of 12 then gives an SP somewhere between 7p-10p, against a current share price of  just over 3p. In reality I would expect development spend to fall more significantly and revenues to increase more robustly.

Further points of interest are that Access Intelligence has gross margins of 72%, and recent reports suggest that a possible acquisition of Cision UK and Vocus UK is likely, making the growth story even more compelling.

There was a small tick up in the share price on Friday and whilst share sales have left the share price unmoved in recent weeks, a small number of buys quickly moved the price upwards.

On a separate note a company called Intelligent Energy caught my eye in the FT Weekend. Intelligent Energy is a hydrogen fuel cell company and relatively new listing. Sadly, since the IPO the share price has made an inauspicious start falling from £3 to 77p in less than 12 months. It is clearly a company that is burning through cash at a rate of knots and will require more fundraisings to further it's development. However, the technology does look exciting and it boasts a very creditable client list. I have given the final results a cursory look, and management appear confident of meeting full year expectations, with this bit piquing my interest:-

"DP&G division - our objective is to build a
             portfolio of customers generating high quality,
             long-term, recurring revenues and free cashflow,
             creating substantial demand for Intelligent
             Energy's proprietary fuel cell technology to
             address some of the most important challenges
             facing global growth
                o    Excellent progress has been made toward
                      finalising the landmark, long term power
                      management transaction with GTL
                o    The proposed agreement is to provide economic,
                      efficient and clean power to over 26,000
                      telecom towers
                o    In April 2015, an interim agreement on
                      c.26,000 towers started to recognise c.
                      GBP10m revenue per month ahead of completing
                      this long-term transaction
                o    The GTL contracts are expected to be free
                      cashflow positive to IE from completion
                      with cashflows then projected to increase
                      substantially over time as the margins
                      in this business expand"

They describe this as a proposed landmark £1.2BN revenue transaction. The market cap. currently stands at £145m (ADVFN figures - not checked).

For me, the share price looks due for a bounce this week given that the chart suggests it has reached  a temporary nadir at least, the technology looks exciting and the FT has suggested that the company could be taken over by a big carmaker. If I was a trader then I'd take a punt on Monday, it could recover some lost ground quite rapidly.

KBC Advanced Technology

Many of my regular readers may have noticed that I haven't been posting as regularly as I did when I first started. There are essentially two reasons for this. Firstly, I have been very busy in recent months leaving me little spare time to post and secondly, as regular readers will know, I am essentially a micro-cap investor. I tend to try and buy shares in these companies when there appears little interest from either private or professional investors. In short when I believe a company is unloved, undervalued and overlooked, but has the potential to achieve significant growth over the next few years. However, it is often more difficult to buy reasonable quantities of shares in these companies because of liquidity issues. It can therefore take me some time before I have finished buying sufficient quantities where I am then in a position to reveal which companies I currently hold. Clearly, I am not going to risk alerting other investors to possible opportunities before I have built up my own holding. Although, I suppose in practise I have largely found that few private investors are prepared to invest at the stage that I tend to, and certainly professional investors don't join the fray until the companies have achieved a far higher market capitalisation, and hence have become more liquid. The exceptions of course are where a company requires extra capital through an equity issue.

Anyway, I have found time to post today albeit about a company that I don't hold shares in, but which I believe may provide a good trading opportunity and long term investment depending on your preference. My interests lie elsewhere at the moment and hence free capital is currently tied up.

The company in question is KBC Advanced Technology. This is an outfit that has been on and off my radar for a number of years. KBC describes itself as, "a leading consultancy and software provider to the global hydrocarbon processing industry".  In truth I'm a little disappointed that I didn't free up some capital to at least take advantage of a trading opportunity that occurred in the recent sell-off when oil prices suffered a sharp decline and KBC was dragged down on sentiment. Hey-ho you can't win them all, and I suspect there is still significant upside to come anyway.

If I had to pick just one reason to invest in this company it would be because in recent weeks and months the Directors have been buying shares like they're going out of fashion. Not piddling little amounts either.

KBC's final results were issued mid March, and they make for interesting reading. Revenues were up 17% with adjusted profit up 13% at £9.5m, although reported profit was down at  £6.7m from £7.1m the previous year. You clearly take your choice as to which figure you care to use for the p/e ratio, but it might be reasonable to take the adjusted figure since this strips out depreciation and amortisation and arguably provides a clearer picture of the underlying business. Using this figure gives a historical p/e ratio of 8, and given a pretty bullish outlook with the pipeline of contracted work up by 13% to a record £88.0m, on the face of it the shares could be considered cheap at the current 107p.

The balance sheet looks pretty sound with a cash pile of nearly £12m and negligible debt. Net assets stand at £66m against a market capitalisation of £78m, although around half of the NAV is goodwill and intangibles which as I have opined before are worthless if a company gets into trouble, however unlikely it is in this case. If I had a concern it would be that net cash used in operating activities amounted to £6m, although this issue is addressed to an extent in the main body of the report.

Since the results they have also announced a cooperation agreement with Kongsberg Oil & Gas Technologies which looks a potentially lucrative arrangement for both parties.

In conclusion, I believe on a balance of all the known facts and not withstanding the vagaries of the oil and gas sector, I am pretty convinced that the company and it's share price has significant short, medium and long term potential, and a look at the long term chart might point towards a price of £4+
over a medium/long term time frame, highs last reached back in 1998, who knows?

P.S. Still holding on tightly to my shares that I have mentioned in the past including Avesco, Trakm8, Belgravium, Angle etc. I believe all of these companies may have only just started their significant growth stories despite recent gains in their share prices. "Mighty oaks from little acorns grow". Here's hoping anyway.