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.