Small cap Crimson Tide (AIM: TIDE) has produced good interims today, showing a rise in both profits and revenues.
For the 6 months to June 30, 2015 pre-tax profits increased 140% to £60k from £25k for the same period in 2014. Notably, this was achieved on revenue growth of only 10% with turnover of £673k (2014: £614k).
Net cash balances increased from £239k at the end of 2014 to £499k at 30 June 2015 partly assisted by asset finance from Lombard for new hand-held devices purchased for new contracts.
Gross margins are now over 90% and being operationally geared, the increasingly large contracts that are being signed for its MPRO5 software service (average term 3 years) are delivering steady and predictable profit growth.
It’s got blue chip clients across a range of industries. In the first half it won a contract for mpro5 to distribute The Evening Standard (it already does the Metro nationally). It addition, its deal with Nestle is continuing well: following initial roll-out in Australia, it has now being used in German and Brazil.
Another major contract for a major UK supermarket was signed following a long pilot during the first half.
In addition, it will be targeting opportunities in healthcare as well as food health and safety, where executive chairman Barrie Whipp sees ‘tremendous upside”.
I’ve been a fan of this company for a while, and admittedly its progress has been slow but steady – still that is the kind of company that wins the race and delivers great returns for early investors.
I’d strongly recommend that any investor looking for a combination of profitable growth that will drive share price appreciation take a good look at Crimson Tide.
Currently, its share price trades between 1.75p-2p. However, I expect it to burst through this range as soon as the market cottons on to this growth story. (In the meantime, it can be picked up fairly cheaply).
Analyst Eric Burns at house broker WH Ireland expects full year pre-tax profits of £177k for 2015, rising to £421k in 2016 and £921k in 2017.
He commented in a note out this morning: “TIDE remains a cash cow with a £361k cash inflow from operating activities (against EBITDA of £198k) taking cash balances to £500k. A building level of recurring contracted revenue also adds weight to theinvestment case. We retain a Speculative Buy rating and 2.25p price target. “
Personally, I think that with increased marketing effort and a steadily growing reputation in the market it could well beat these targets in fairly short order.
Executive chairman Barrie Whipp isn’t given to hyperbole, quite the reverse. Thus the bullish tone of his comments accompanying these results is worth noting: “The Board and I feel that we are now seeing the benefits of the substantial gearing that we have generated. We are confident that the new channel strategy will result in greater opportunities and look forward to the future with ever increasing optimism. “
Of course, small caps are inherently risky and any investor should do their own research. Still, I’m expecting that regardless of the macroeconomic scene this will be a multiple of its current price within 2-3 years.
The writer holds shares in Crimson Tide