Seeing Machines share price

Posted on 3rd June 2016 by Admin

This is just an update following the unusual movements in the Seeing Machines share price.

Yesterday I contacted Ken Kroeger, Chief Executive of Seeing Machines, to try and find out if he or FinnCap knew of any reason for the recent falls. What he told me was: “Everyone’s view is that it’s Dixon’s selling of the original holding from the IPO”.

Hopefully, that should put some minds at rest. There is a natural tendency to jump to the wrong conclusions when trying to reason why a share price is so volatile, particularly as ‘buys’ are often reported as ‘sells’ with this share.

Certainly, the business is progressing and I don’t believe long term holders (investors) should be concerned – though day traders will have to have their wits about them.

Re. Fleet I’ve had it confirmed by Kroeger that Seeing Machines has “responded to a taxi tender in Dubai and expects a response in the next few weeks”. I also believe a similar process is underway with the Public Transport Authority in Dubai and that a response to that tender will likely follow along a similar timeframe.

The reason for the tendering process is that as government agencies they are required to put contracts out for tender.

In addition, See is also close to appointing 2 more distributors for the Fleet product, but they are not signed up yet.

As to how this week’s retail roadshow has been going, the feeling is that it has been very “positive”.

The writer holds shares in Seeing Machines.

Seeing Machines making progress

Posted on 31st May 2016 by Admin

Seeing Machines produced a positive trading update today and I firmly believe that this company is very undervalued at its current price of 3.25p.

What was lacking was hard detail on contracts won in fleet and more detail on its share of the auto spin-off. Yet, if only half of the fleet trials convert and the auto spin-off goes ahead smoothly it should multi-bag by Christmas.

The company is making great strides, communication as to how well it is doing is increasing and I’m confident that positive news flow will drive the share price forward to reflect the growth in business.

Some of the following update is based on a very recent, exclusive interview with CEO Ken Kroeger. In it he was at pains to stress that he’s going to be making a big effort keeping investors informed about developments. For example, Seeing Machines is in the process of revamping its website and he explained: “What I am trying to do is create an ongoing, regular conversation with investors through our website. The Seeing Machines website will become the portal for investors and if they want to drill down into the companies they can.”

He’s slightly hamstrung by the fact that trials of such an innovative product take time to convert and confidentiality is an issue that often prevents disclosure.

I can see that the company is light years ahead of where it was only 3 years ago. It is now converting its computer vision based IP into commercial product and starting to promote these product brands/companies: CAT, Guardian, Auto, Nucoria etc.

Yet, that is probably of scant consolation for shareholders who have seen the share price sink over the past few months.

From my most recent conversation with him and today’s RNS, I’ve put together the following:

Caterpillar

As the update explains, here Seeing Machines is moving “from a low-volume, high-value hardware business to an annuity and licensing-based revenue, high volume, lower unit cost product business model. Aside from the A$21.85m one-off Caterpillar licence fee that will boost revenues for the current financial year, there should also be recurring and growing revenues from product and services. These amounted to US$420,000 from Jan-March 2016 and are expected to grow in the quarter from April-June 2016.

That said, excluding the one-off revenue for this financial year Seeing Machines expects “other sales and service revenue to be lower than the last full year.”

Fleet

This product became available to customers in September 2015, without a formal launch and minimal marketing. The salesforce, comprising mining experts, eventually had to be replaced by road transport experts.

Since then, it has formally launched an improved product (with front facing camera) at mining shows: 3 in the US and 2 in Australia under the ‘Guardian’ brand.

Following the launch of Guardian, it has built up a very solid pipeline of product assessments with potential customers, “over 30 around the world” according to Kroeger.

To give some idea of the volumes he’s talking about he added: “If we successfully converted all of those assessments we’d probably have somewhere around 120,000 – 150,000 vehicles in those fleets.” Moreover, some of them are apparently very big companies.

While he doesn’t expect a 100% conversion rate, he did reveal that these assessments are going “really well”. In addition, Caterpillar has also made its first fleet sale.

Kroeger also explained: “We are currently designing the second generation solution, again, with VSI and other external expertise. It will be lower cost and modular in design so that it can be sold as a complete stand-alone solution as it is now or it sold as a companion or add-on to an existing telematics solution by only using some of the module (camera, HMI, image processing and not the geo-positioning or telecommunications elements that could be present in an already-installed telematics service); again being lower cost as result.

“The logic in this approach is that we are working with large telematics companies to provide them an affordable technology that they can sell to their customers in high-volume at the lowest possible cost while still providing a direct to market, Guardian solution that is affordable to operators that require the complete technology solution due to not having a telematics solution in their vehicles or where the telematics solution is not compatible with ours. The telematics suppliers are seeing a lot of consolidation and are looking for means of differentiation. Our discussion with them are focused on turing them into an additional, high volume, channel to market with their existing customers.”

For those seeking names, Kroeger added that he was currently working with 2 global telematics companies (“with over 1m connected trucks combined”) and that, if possible, he’d hope to provide more detail in the next Fleet update — which I expect to be in a couple of weeks.

Naturally, investors may be frustrated that he can’t put those names out immediately. Still, if he says it is happening you can be certain it is. What he can’t control is the marketing sensibilities of huge multinationals that prefer to be named at a time of their choosing.

There’s also been progress in Auto, Aerospace and Rail but I don’t have much to add to the RNS.

Understandably, the lack of detail is a frustration, made harder to bear by the downward moves in the share price. However, I’m very confident that continued patience on the part of investors will be amply rewarded over the next few months.

Of course, there is no substitute for your own research and investors should always take care not to invest more than they can afford to have tied up for a year.

The writer holds stock in Seeing Machines.

Seeing Machines confirms auto spin-off by end of June

Posted on 16th May 2016 by Admin

In an exclusive interview today, Seeing Machines’ CEO Ken Kroeger confirmed to me that the innovative developer of eye-tracking technology is on-track for the launch of an spin-off company by the end of June this year, raising between US$60-100m

“We’re trying to close the finance by mid-June. We’re expecting it may slip a little bit but we’re pretty far advanced and have made an offer to the CEO; we’re starting to structure an org chart and plan what the business looks like as it moves beyond this organisation.”

The new entity will employ around 70 people (some part-time), there are likely to be a total of 5 board members including the CEO, with one representative from Seeing Machines on the board.

Kroeger couldn’t reveal who the cornerstone investor is nor the exact percentage stake that Seeing Machines would hold, saying in today’s announcement only that it would retain a “significant equity stake” in the new company.

From my own research, I’d guess that the cornerstone investor, described as a “US-based investment firm with extensive experience in automotive technologies” in today’s announcement, is likely to be GM Ventures. As to the other investors, I’m less sure.

Still, Ken Kroeger confirmed that all will be revealed quite soon: “Within the next 4-6 weeks we should be able to start telling people who these organisations are, how much we own, how much we will own.”

There are two be 2 rounds of investment plus an employee share option scheme and he’s been looking at what the market cap table will look like through those different phases. The initial round of investment will be followed by one further investment 2 years down the line.

“I think we’ve shaped the investment strategy to put us in front of the sorts of organisations we would want as partners and that there is an expectation that they have the same objectives. So we’ve been looking for people that are strategically aligned in order to make sure that this goes to plan,” he added.

Kroeger also confirmed that a lot of the recent selling has been by an Australian Superannuation fund (Dixons Advisory), an original investor in Seeing Machines’ IPO that until recently held an 8% stake. Apparently, holders had been advised to sell as the shares were converting from paper to electronic versions.

It certainly seems like an odd time to be selling out of a company making great strides in one of the hottest sectors in automotive.

As this is overhang is cleared, good news flow should propel Seeing Machines’ share price much higher over the next few months.

Incidentally, Kroeger revealed that the company, anxious to keep investors better informed, will also be launching a new investor-focused website in around 7 weeks.

The writer holds stock in Seeing Machines

Seeing Machines accelerates product development

Posted on 22nd March 2016 by Admin

It appears that Seeing Machines (AIM: SEE) is making good progress in bringing its world-leading, eye-tracking technology products to a variety of transport markets.

Re. today’s news that one of the world’s leading contract manufacturers has taken a 12% stake in Seeing Machines, investing A$12.8m (£6.7m) for 129.7m shares at 5.2p, a 20% premium to the recent share price, finnCap analyst Lorne Daniel commented: “In our opinion, VSI, as well as providing as a source of finance, offers a low-cost development and manufacturing partner for the road-going and other devices.”

Following on my previous interview with Ken Kroeger, I also wanted to add some interesting snippets from last Friday’s interview that might be of interest to those investing (or thinking of investing) in the company.

Fleet

Seeing Machines has started designing the next generation fleet product (which it appears will be manufactured by VSI). It will not only be better than previous iteration (with a forward facing camera) but is expected to be about 40-45% cheaper.

In addition, Ken Kroeger revealed: “We are talking to 8 or 9 of the biggest telematics companies in the world now and getting quite a bit of interest from them.”

Asked whether the deal was going to be exclusive or non-exclusive, he replied: “It will be non-exclusive. I think we will have to offer some differentation; maybe it will be region by region. A lot of these companies have 400,000 – 500,000 units under management.”

As to the product Seeing Machines would offer them: “This next generation will remove all the things that the telematics companies have: they all have GPS, telecomms, power. So we are building more of a partner unit that will sit beside the telematics unit and only provide the services that it has to have as opposed to all the services inside. Again offering a lower cost product that will act as a companion to the telematics product.”

In terms of how this business model will operate, he explained: “I think where this is going, we will start looking at more channel type relationships, looking at our own business model almost like software as a service where they get a piece of hardware, pretty much like a mobile phone deal where you pay something for this low cost unit, it is installed and then we are scraping more of a monthly payment – parallel to the telematics model.”

Rail

Not only has a third trial just started on the railway side but Seeing Machines has also submitted a tender to the Transport Authority at a big US city for a safety solution for its commuter trains.

If successful, it will garner a lot of publicity and Ken believes: “It would really launch us into that rail space.”

Fortunately, the improved algorithms resulting from the auto development mean that SEE’s product doesn’t need a lot of re-engineering to be used for rail, thus reducing the cost and time of deploying it. As Kroeger explained: “It re-captures the faces now very quickly. The old mining technology, our previous set of algorithms, took 15-30 seconds to find and lock onto the face, whereas it now takes less than a second. So you can move away and come back without it losing its effectiveness.”

Indeed, its continually improving its algorithms, as Kroeger revealed: “One of the biggest changes inside the business is that there is this new science called Machine Learning. Instead of writing software to do something you write software that can learn as you feed it new information. So we started doing that about a year and a half ago.

“It was as part of a continual push to improve those algorithms, not only for performance but also in the automotive space you have to deliver them on cheaper and cheaper platforms. You have to continually drive your prices down, so in order to do that you go to cheaper and cheaper processing. You have to keep on improving them.”

I had been concerned whether Seeing Machines could maintain its technological lead in this area but it seems that it has the ability to maintain this ‘moat’ around its business.

Again, Kroeger enthused: “What makes us special, why it is so perfect for us is that there is no other company in the world where, literally we walk into the office in the morning and there are thousands of hours of video captured the day before of drivers. We take that information and it goes through a truthing process, where we have people looking at the video very very closely. They identify where people had a fatigue event and they can annotate that video to highlight key parts of the video. They can look at 1 minute before, 10 minutes before, 1 hour before and deep learning starts to look for tell-tale signs that are common across all users to develop a more predictive algorithm.”

The writer holds stock in Seeing Machines

Crimson Tide issues earnings upgrade

Posted on 25th February 2016 by Admin

Aim-listed Crimson Tide, issued a very encouraging update today in which it detailed that it expects to beat profit expectations for the year ending 31 December 2015.

It noted: “Profit before tax will be higher than market expectations and significantly higher than for the previous year.”

In addition, analyst Eric Burns at house broker WH Ireland raised his profit forecast for the stock from 2.25p to 3.5p and changed it from a ‘Speculative Buy’ to a ‘Buy’.

The outperformance was due in no small part to the massive win with Tesco that I wrote about on this blog some time ago. (17 September RNS in which Tesco was not named).

In a detailed note out today, Burns confirmed that he expects it to start paying a dividend this year, which coupled with earnings upgrades should lead to a further re-rating of the stock.

He wote: “Forecast risk exists due to the phasing of new customer rollouts (with Tesco being an example of upside risk as it was rolled out faster than anticipated) but recurring revenue is building (65% est of our FY16 revenue forecast) and provided TIDE can continue to build its subscriber base there could be material upside to the shares trading on 12.9x our new FY17 EPS forecast. In our view, the introduction of a dividend in the current year (which we now forecast) will add to the shares’ attractions.”

The EPS for FY16 is estimated at 0.11 putting it on a forward PE of 15.8, dropping to a PE of 12.9 with EPS of 0.22p for 2017.

However, I expect upgrades for 2017 as Tesco and Nestle sign up more users to its subscription-based software as a service.

Just to reiterate, Crimson Tide is a fast growing, profitable, operationally-geared company with great scope for growth. It has no debt and plans to pay a dividend. What’s not to like?

I’d be very surprised if more small cap funds don’t start piling into this very soon. Indeed, given the illiquid nature of AIM stocks and the fact that the shares are tightly held, this could easily double again in price within 18 months. It is currently around 3.5p to buy.

Of course this is my personal view and not a recommendation to buy. You should do your research before ever investing in a stock and never invest more than you can afford to lose.

The writer holds stock in Crimson Tide.

See and Tide float my investing boat

Posted on 21st January 2016 by Admin

I’m hardly surprised that stock markets around the world have been tanking, indeed the surprise for me has been how long it has taken for people to realise that the global economy is in a very bad way. Moreover, things are likely to get a good deal worse as the US economy weakens.

This doesn’t mean I’m completely bearish about stocks: I favour some small caps. In an era of low GDP growth, innovative and well run small caps will still thrive. One of which, Crimson Tide (TIDE), has been re-rated slightly following good news but it has much further to go.

Another, Seeing Machines (SEE) has barely moved despite lots of evidence that it is making inroads into selling its eye-tracking technology into the Driver Monitoring Systems of automotive manufacturers, while conducting successful trials with fleet managers.

The price is stuck at around 5p and I guess it won’t start to move until official RNS news comes out detailing launch dates of cars containing its technology and signed contracts with trucking and bus companies. I’m taking advantage of this stalled stock price to load up, as opportunities like this don’t come round too often in my experience.

With its technology proven by the likes of Caterpillar it isn’t a jam tomorrow stock but rather a caviar fairly soon one. We’ll see – perhaps I’ll end up eating my words?

One piece of information I haven’t seen elsewhere is that Miton hold around 4% of SEE. And fund manager Gervais Williams is still keen on the stock as he revealed in this article (P62 ‘From Tech Acorns…)

I hold both companies but do please conduct your own research before investing your hard-earned cash.

Every little contract helps Crimson Tide grow profits

Posted on 30th September 2015 by Admin

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”.

Potential

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

Seeing Machines driving forwards

Posted on 23rd September 2015 by Admin

AIM-listed Seeing Machines is making great inroads into its target markets, yet the year end figures alone don’t really give much indication of this. Hence the price at around 4.5p has remained static. However, at this level it appears undervalued.

For the year to June 30, 2015 revenues grew 20% to A$21.2m, although this Australian company produced a thumping loss: A$10.2m (approx £4.7m), which was significantly up on the previous year’s A$2.7m. Moreover, cash outflow rose to A$21.5m, offset by a fundraise of A$10.8m, leaving net cash of A$14.4m.

Still this loss has to be seen in the context of a growth company that is investing heavily in R&D, sales and marketing while making good progress in cracking markets for its innovative driver safety software products aimed at 6 key global markets.

These markets are:

truck and mining equipment
commercial haulage fleets of trucks
cars
rail
aviation and simulators
consumer electronics.

Mining

It has successfully cracked the truck and mining equipment market with an alliance with Caterpillar, the largest manufacturer of such vehicles. Post the year end it announced that it had signed a US$17.5m deal with Caterpillar whereby Caterpillar will take over responsibility for manufacturing, marketing and sales of its DSS off-road product. In addition, to this payment (US$9m of which Seeing Machines will receive by January 2016), it will also receive royalty fees for DSS hardware, software licensing, monitoring and analytics services.

This is quite an achievement given the state the global mining industry is in and shows that even in markets hit by macroeconomic turmoil, the benefits of its products are unquestionable and it can deliver growth.

Commercial fleets

Caterpillar will also distribute its ‘Fleet’ product, which was launched in April. Given that the company is estimated to have over 3m vehicles in this area it bodes well for future growth in this segment.

The fleet product is essentially a cheaper version of its caterpillar driver monitoring system designed specifically for trucks, busses and other commercial fleet vehicles. It provides drivers and supervisors with real-time notice of when a driver is either tired or distracted. It has already made its first order for 750 units in South Africa and has put in place distribution networks around the globe.

Cars

It’s perhaps the development in the car industry that are really going to grab headline over the next couple of years and hopefully increase its profile among the general public. Here it has been working with a Tier 1 automotive safety supplier Takata. Its first product in this market is likely to be launched at the Los Angeles Car Auto Show in November. It will be in the Chevvy Super Cruise from General Motors, which will be on sale in 2016.

In addition, it is working with a number of other auto-manufacturers on safety and entertainment systems so the prospects for further launches appear excellent.

The quality of its partnerships is also quite staggering for a £45m small cap. In the area of aviation it is working with Boeing to develop a pilot monitoring system. One has been installed in a Boeing Flight Services 737 Flight Simulator at the Brisbane International Airport. They are also working with a subsidiary of Caterpillar, EMD to develop a train driver monitoring system. Lastly, in consumer electronics they are working with Samsung on televisions that can monitor audience reaction. Most companies would probably be viewed as a bright prospect working with these alone.

Analyst view

Lorne Daniel, analyst at house broker finnCap has forecast a small adjusted pre-tax profit of A$0.8m in 2016 on revenues of A$43.2m. Revenues are anticipated as falling slightly in 2017 to A$43.2m with an adjusted pre-tax loss of A$9.1m as the exceptional boost from the Caterpillar deal falls out of the figures. However, he sees the business taking off in 2018, forecasting sales of A$65.8m and an adjusted pre-tax profit of A$8.3m.

Despite the company investing almost £15m a year, it appears fully funded for profitability. Of course, given the scale of its ambition it is just possible that it could raise more to finance another ‘transformational’ partnership.

When I spoke with Lorne Daniel he was certainly very enthusiastic about the company. Indeed, in a note issued on September 22 he estimated the mid-term value of the company at £480m based purely on a sum of the parts valuation on the prospects for the Caterpillar/DSS, OEM auto and fleet businesses.

I’ll quote his concluding paragraphs to explain how keen he is on the company. “This is not a blue sky valuation. There is little if any credible competition in its markets, and revenues are already flowing from them. There evidentially little risk in the CAT business; there is a strong pipeline for the automotive OEM opportunity; and straightforward execution risk in the commercial fleet business. We have ascribed no value at all to the rail, aviation or consumer electronics market opportunities at this stage.

Even discounting the above £480m valuation of a mature business by 75% for the risk and time needed to achieve these sales levels would suggest a £120m value or 12p per share target price at a minimum.”

It is hard not to agree that Seeing Machines is terribly undervalued, particularly if you look at the valuation of a peer called Mobileye. This US-listed, Israeli company develops vision-based advanced driver assistance systems providing warnings for collision prevention and mitigation. Its systems appear less impressive than Seeing Machines and fortunately non-competitive, although the company is already making solid profits and is valued at US$10bn.

Prospects

Seeing Machines’ technology is proven, as are the deal making skills of its management. Coupled with the realistic prospects for the future this seems as close to a multi-bagging one-way bet as you could wish for.

Of course, it may get taken out by a bigger company long before then. Market Eye certainly has the cash to do it and acting soon would mean paying a fraction of the price it would cost to buy this Aussie innovator in a couple of years.

Alternatively, given the progress this company is making in actually enabling computers to see and gauge human reactions, it would be no surprise if Google or Apple already have their eyes on Seeing Machines.

The writer holds shares in Seeing Machines.

You should always conduct your own research before investing.

Crimson Tide set for a re-rating

Posted on 18th September 2015 by Admin

Small cap Crimson Tide (AIM: TIDE) seems set for a re-rating following news of its latest big contract win, a £1.1m revenue deal over 36 months with one of the country’s leading retailers, much of which should go down to its bottom line.

It’s a pity Crimson couldn’t name the company as it would most likely have set a rocket under the share price. Still, every little bit of revenue helps.

Given that rollout of the deal for its MPRO5 software service is expected to start by the end of this year, with invoicing building during a deployment process the impact should be felt most heavily in the 2016 financial year.

Analyst Eric Burns from house broker WH Ireland commented: “Whilst clearly positive news, we leave forecasts unchanged for the time being (FY 2015E estimated revenue £1.4m, pre-tax profit £177k, earnings per share (EPS) 0.04p; full year 2016 estimated revenue of £1.8m, pre-tax profits of £421k, EPS 0.09p) and will review our assumptions once the rollout dates become clearer. We reiterate our ‘Speculative Buy’ recommendation and 2.25p share price target.”

Much of Crimson Tide’s work delivers margins of around 80%. Even if one were to assume lower margins on the work, this deal should significantly boost pre-tax profit forecasts for 2016.

The news follows an announcement in June of a deal worth “at least £218,000 of contracted revenue” over its 4-year term.

More significantly its relationship with Nestle appears to be progressing well in Australia and it is apparently working on installing further systems in Germany and the US.

Given this is a minnow, with a market cap of only £8m, I’m expecting an upbeat interim statement at the end of September after which profit forecasts should be significantly increased.

As a debt-free, profitable company that is growing revenues and profitability, with increasingly good earnings visibility, it seems cheap at 2p.

In a year’s time, I expect that this will look very much like a buying opportunity regardless of how well the overall economy or stock market is doing.

Of course, small caps are by their very nature a risky play. Still, in this instance I’m very happy to eat my own cooking. I’m in good company as David Newton’s Helium Special Situations fund increased its holding to 20.45% in January this year.

Video interview

If you’d like to learn more about the company, watch my interview with executive chairman Barrie Whipp, from last year. It gives you the basics about the business.

The writer holds stock in Crimson Tide

SQS Software falls on profit downgrade

Posted on 9th September 2015 by Admin

SQS Software issued a veiled profit warning when reporting its interims yesterday and promptly fell 15.7% to 480p.

It’s had a great run since December 2011 when its shares were only 146.50p and investors clearly decided to take profits. Given the balance of risks, that seems like a sensible move.

The cause of the fall was the revelation that: “We will further react, adapt and manage potential impacts on our clients from continued global economic uncertainties. For all these reasons we have to be more cautious and anticipate our profits for the full year to be slightly below the Board’s previous expectations.”

According to management, analysts had expected adjusted pre-tax profit for the full year to be in the region of €22.5 to €25m, but it has been downgraded to around €21m. It has been hit by lower gross margins in Regular Testing Services (RTS) business (34% of revenues), which have declined from 33.6% from the first half of 2014 to 26.4% in this half.

This news is hardly disastrous but, if you’re bearish on the prospects for both the US and German economies as I am, they could be in for tough times. Certainly, the balance of risk in the short term is to further downside.

For the six months to 30 June 2015, revenues increased by 16.1% to €150.3 with pre-tax profits of 5.2m against €3.3m for the same period a year earlier.

Although its two recent US acquisitions should drive up US business, paying for them has increased its net debt to €26.5m. Moreover, operating cash flow was also negative to the tune of €5.2m, compared with an outflow of 2.6m at the same stage in 2014.

That said, the company explained: “we continue to expect receivable days to return to more normalised levels during the second half of the current year to

deliver strong cash generation resulting in a significantly strengthened balance sheet by the end of the current financial year.”

Management confirmed that, as payments are weighted to the second half, by year end it expects positive cashflow to the tune of €26m — as in 2014.

In a note issued yesterday, Canaccord Genuity reduced its price target from 730p to 650p and maintained its ‘Buy’ stance. Analyst Arun George commented: “We downgrade our full year 2015 adjusted pre-tax profit forecast by around 7% to €22.8m and full year adjusted pre-tax profit by around 6% to €27.7m. Given the uncertainty on the timing and path of margin recovery, we reduce our price target to 650p (previously 730p). This implies an estimated calendar year EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) of around 8 times.”

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