Forscene has already been used by a number of broadcasters to edit and show clips from major sporting events such as the Rugby World Cup, but management has described this latest deal as the company’s most significant yet. The UK broadcaster is paying for the proof of concept study and Forbidden is collaborating with an unnamed US editing software specialist on the study to help it achieve the best results. 

If the proof of concept study proves successful, Forbidden expects to increase the amount of work it does both with the UK broadcaster and its US collaborator, which could accelerate the company’s growth. 

Immediate revenue 

According to the press release,  the proof of concept study will generate revenue immediately for the company, great news for shareholders as Forbidden desperately needs sales and income to bolster its weak balance sheet. Indeed, for the year ended 31 December 2015 Forbidden generated gross sales of only £708,717, on which the company reported an operating loss of £2.7m and cash reserves fell by 62% year-on-year to £1.7m.

The study isn’t the only good news Forbidden’s shareholders have received this week. 

On Tuesday, management issued a press release informing shareholders that Forscene will be used this summer at two major sporting events, in each case for the first time. The first new sporting event is a global tennis tournament occurring in London, the second is a major international sports event for disabled athletes held in Brazil this year! Forscene will be used to edit and distribute highlight packages to social media and various websites.

A transformational year 

It’s clear that 2016 is already shaping up to be a transformational year for Forbidden Technologies. Along with the deals covered above, Forbidden has signed a number of other deals with customers this year and but we’ll have to wait until the company releases its interim results before it’s possible to gauge how these deals will add to sales.

Overall, as a speculative play Forbidden looks attractive. Sales are growing and the company has cash on the balance sheet, although it remains to be seen how long this money will last for. Management has made an effort to cut costs over the last year, and this has reduced cash burn, which is a step in the right direction. Contracts signed this year should also go some way to helping the company report a profit. 

Still, as with all early stage companies, Forbidden is a high-risk, high-reward play that’s not suitable for widows and orphans. But if you’re prepared to take the risk, Forbidden could be a winner. 

The post Forbidden Technologies plc jumps 19% after signing new contract appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares in Forbidden Technologies rose by as much as 60% following the news, which means that Forbidden will now benefit from access to Microsoft’s global sales force. This looks like a great deal for Forbidden.

What the deal means

Forbidden’s Forscene platform is a professional grade, cloud-based video production platform. It’s used to process video after shooting to prepare it for television or online use. Like all cloud software, the concept is that Forbidden provides software as a service (SaaS). Rather than owning and running expensive production software on their own servers, Forbidden’s customers are able to pay to use the Forscene platform online.

Forbidden says that this will be the first time that Microsoft has been able offer “a true cloud-based, feature-rich video post-production platform”.

How big is the opportunity?

Forbidden’s research indicates that the global market for professional video editing is worth $366m. Given that the firm’s sales have not yet managed to break through the £1m mark, this suggests that the opportunity available to Forbidden is quite large.

According to Jason Cowan, who is Forbidden’s Business Development Director, both customers and prospective customers “have been crying out for the ability to set up and run their own Azure – Forscene solution”.  Mr Cowan believes the offering will particularly appeal to productions which need to be turned around quickly, such as sports and news content.

When will the cash start flowing?

This deal should definitely help to increase sales of Forscene. However, Forbidden chief executive Aziz Musa warned investors that the deal will take time to produce results. Mr Musa said that while “some income” was expected from this deal in 2016, “we anticipate its financial impact being most acutely seen from 2017”.

This suggests to me that it’s worth taking a closer look at Forbidden’s finances. Does the firm have the cash it will need to make it through another year or so?

Is there enough cash?

Forbidden’s 2015 results show that sales were £708,717 and the firm incurred an operating loss of £2.66m. The cash flow statement shows that £2.7m of cash flowed out the business last year.

Given that Forbidden’s cash balance was just £1.7m at the end of last year, I think there’s a risk that the firm could run out of cash at some point this year.

In my view, today’s gains provide Forbidden’s management with an ideal opportunity to raise some extra cash through a placing. I’d argue that this would be a prudent move, to ensure that the business can be certain of trading through into 2017 without a further shortfall.

As an investment, the outlook for Forbidden depends on whether the firm can deliver on its commercial goals. Last year’s management reshuffle was designed to improve sales performance. Today’s deal seems to be a good starting point and I’m inclined to give Forbidden the benefit of the doubt.

As a result, I’d rate Forbidden Technologies as a speculative buy.

The post Forbidden Technologies plc Rockets Higher On Microsoft Corporation Sales Deal appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.