Investing for growth

The company describes itself as a “global technology group.” Of the three businesses the firm operates, only one, Bulgin, turned an operating profit in the period, with Checkit losing money and Elektron Eye Technology (EET) breaking even. The company aims to use the operational and financial resources of its established business, Bulgin, to invest in Checkit, which it describes as an early-stage, “high-growth” business. Meanwhile, EET appears to be something of a turnaround proposition.

Bulgin makes sealed connectors for demanding environments and delivered 90% of the firm’s revenue during the first half of the year. Yet the firm is pinning its high-growth ambitions on Checkit, which provides cloud-based work management software based on interactive checklists. The directors are ploughing a lot of the firm’s money into the enterprise. But it delivered just 2.5% of the revenue generated in the period and made a big operational loss, so there’s a lot of distance to travel before the vision is realised. Meanwhile, EET provides ophthalmic instruments and sensing and testing equipment and provided 7.5% of overall revenue.

Overall, revenue rose 17% compared to the equivalent period last year, with Bulgin revenues up 14%, EET going 33% higher, and Checkit shooting up 146%, which appears to support the directors’ view of its fast-growth potential. Overall operating profit moved 180% higher to £1.4m, but Checkit was a big drag on profits and lost £2.2m. If it breaks even, or moves into profit in future periods, I reckon there’s potential for a surge in profits that could lower the current valuation, or drive up the share price, or both.

During the period, 36% of revenue came from the UK, 30% from the rest of Europe, the Middle East and Africa, 26% from the Americas, and 8% from the Asia Pacific region and China. I reckon the firm’s international business has plenty of room to grow, and progress has been gathering pace.

A positive outlook

The company continued a programme of selling off old brands and businesses with the sale of Queensgate Nanofor for £0.8m, which is deferred based on revenue performance. However, £0.1m has been received since the end of July to add to the net cash balance at the end of the period, which came in at a healthy-looking £6.8m, up from £5.2m at the end of last year. One of the things I like about the Elektron Technology is its sound balance sheet with no borrowings, which should support the ongoing growth strategy.

Chief executive John Wilson said in today’s report the double-digit growth in sales in the first half is “representative of the continuing multi-year transformation of our business.”  The outlook is positive over all time frames and operational momentum has carried on into the second half of the year. I reckon Elektron Technology is worth considering for its ongoing growth potential.

The post Should you invest in fast-growing Elektron Technology, down 10% today? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The share price had slumped at the time, and by market close Wednesday we’d seen a fall of more than 60% since a peak in July 2017.

But Thursday saw a 50% spike, with the price reaching 36.5p in morning trading, after the company revealed it has signed a supply and development agreement with an as-yet-undisclosed US company.

Nanoco said the deal means it “will scale-up and mass-produce novel nano-particles for advanced electronic devices and supply them from its state-of-the-art production facility in Runcorn, UK.“

Expanding the Runcorn facility to cope with the quantity of materials needed will require capital expenditure, and the contract partner will contribute.

Turning point?

These are obviously still early days, but with commercial supply expected to begin in early 2019, it’s looking like a serious stream of cash really might not be too far in the future now. Liquidity was always going to be a key issue as it is with any ‘blue sky’ growth company — even if it’s successful, early investors can still be diluted out, depending on how much cash needs to be raised to reach profitability.

Some of that worry has now been lifted, especially as today’s news comes on the back of a couple of earlier agreements. 

With Nanoco having net cash of £5.7m at 31 July 2017, and a placing having raised an additional £8m late last year, I’m cautiously optimistic.

Multibagger

Shares in Elektron Technology (LSE: EKT) have had a better time, trebling in two years to 23.5p, with Thursday’s full-year trading update providing a small boost.

The cloud-based technologist reported a 10.9% rise in total sales for the year.

Checkit, which “continues to make progress with its real-time operations management product suite,” brought in a 66.7% rise in sales. That is the firm’s smallest unit, though, with just £0.5m in sales, but Elektron’s biggest business seems to be performing solidly too — sales of £27.3m from the Bulgin arm amounted to a 13.3% rise.

The only sales downside came from IMC, with a 12.9% fall to £2.7m.

Orders received during the year amounted to £33.1m, up 17.8%. Net cash rose from £1m at 31 January 2017 to £5.1m a year later, though that does include £1.9m from the disposal of Sheen Instruments, Digitron and Titman Tip Tools.

Should we buy?

Elektron told us its order book for the new financial year currently stands at more than £9m, which looks like a healthy start. And its disposals, it says, enable it to “focus solely on the businesses which the board believes offer greatest potential for growth.”

The problem is, it’s difficult to value the shares right now, as the company appears to be just on the point of turning a profit. Results for the first half showed an operating profit of £0.1m (from a loss of £1m a year previously), and positive EPS of 0.1p (from a loss of 0.6p). 

I’d want to see full-year results, and maybe one more year’s worth, in order to put some meaningful fundamentals together. For now I’m on the fence.

The post Is Nanoco Group plc a small-cap growth stock to buy after soaring 50% today? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Brain stormer

Neuroscience digital health company Cambridge Cognition Holdings (LSE: COG) has a market cap of just £30.30m. It was slightly higher this morning, but the share price is down more than 8% after publication of its interims for the six months to 30 June. Cambridge operates in a risky area, developing and marketing software products to improve brain health, so investors should expect slips along the way.

Today’s results were in line with management expectations and showed a year-on-year dip in total revenues from £3.26m to £3.21m, and a loss before tax of £390,000, more than double last year’s £150,000. The loss per share tripled from 0.6p to 1.8p, but at least the cash balance has grown, from £1.38m to £1.82m.

Services smile

Cambridge has been working hard to broaden its revenue base to make it less reliant on one-off large contracts, two of which temporarily boosted revenues last year. Services offered the main area of revenue growth, up 57% on last year, which should bring more revenue stability and offset the 26.1% drop in software and 78.6% drop in hardware sales that now make up a shrinking proportion of earnings.

CEO Steven Powell highlighted a 7.4% rise in gross margins and said investment in the sales team boosted its sales order pipeline by 65% to record levels. “This shift to good quality, high margin and repeat business is a welcome move and one which will help to drive our recurring revenue, giving us greater visibility as we continue to build the business.”

City analysts are positive, predicting earnings per share growth of 57% this year rising to 109% in 2018. If they are right, today’s drop could be a buying opportunity, but as I said, approach with caution.

Our friend Elektron

Today’s half-year report to 31 July from cloud-based solutions specialist Elektron Technology (LSE: EKT) has enjoyed a warmer reception, with the share price up more than 5% at time of writing. The stock has doubled from around 7p to 15p since mid-May although with a market cap of just £28m, sudden movements in either direction can always happen.

Elektron has been boosted by growth in its internet of things business Checkit, including Tuesday’s news of a contract win worth more than £225,000 annually in recurring revenue, rising to £600,000. The star of today’s show was its Bulgin business, which reported a 7% rise in sales to £12.5m and a strengthened order book, up more than 20% year-on-year. 

Checkit out

Group revenue rose 3% to £15.3m with the net cash balance rising from £500,000 to £2m over the year. With a strengthened Bulgin order book and the continuing rollout of Checkit, the board expects an improved trading performance in the second half. Elektron may be risky given its size, but it is also one to watch.

The post 2 minnows that turned £5,000 into £10,000 in just 1 year appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.