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The Aimzine Snippet column each month highlights an announcement or situation which we believe is worthy of further investigation
Firstly, we must confess that this month’s Snippet is a late replacement for our original choice, which was Kiotech (KIO); This Biotech Company issued some good results on 13 August which showed that it has a lot of potential. At first the share price did not react significantly to the positive results and we thought it would make an ideal candidate for the ‘Snippet’ column. However, subsequently Kiotech has been the subject of an FT article, it has been tipped by T1ps.com and it has made a very exciting acquisition. Not surprisingly, Kiotech’s shares have soared and are up over 100% in the last month. Kiotech’s may still have much potential but it is no longer the ‘secret’ that it used to be.
So much for the one that got away, instead I would like to highlight the position of Eckoh Plc (ECK). Many readers will know of this speech recognition specialist company. Once a darling of the tech boom, the Company suffered a lot of bad publicity following its involvement in the ‘Richard and Judy’ vote rigging scandal two years ago. This matter was settled out of court at the end of 2008, but now Eckoh are in the news again.
This time Eckoh are having trouble with their largest shareholder, OCS Trading, who hold 11.3% of the Company’s shares. OCS has requisitioned an Extraordinary General Meeting to challenge the Company’s appointment of a new Chairman. Readers can click on these links to read press comment about OCS’s challenge in the Independent and on FT.com.
OCS has built up its stake in Eckoh over the last year and can clearly see some value in the Company. OCS has not been alone in buying Eckoh shares and several directors were seen increasing their holdings earlier this year.
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several directors were seen increasing their positions
earlier this year
Yet another buyer has been the new Chairman designate, Christopher Batterham, who has picked up 500,000 shares in recent weeks. Mr. Batterham’s most recent purchase of shares was for 250,000 at 8.25 pence on 26 August. This was two weeks after the notice of an EGM was sent out. This suggests that Mr. Batterham must be confident that OCS’s bid to install their candidate as Chairman will be defeated.
So here we have a company which is recovering after serious issues but it has a significant shareholder and some directors who obviously think there is some value to be had here. A read through of Eckoh’s Final results for the year to 31 March 2009 should explain the attraction. We have summarised some key points below:
- Cash on Balance Sheet of £5.2 million.
- Further £3.2 million due to be paid to Company in 2010
- Several recent major contract wins
- On track to grow revenues and profitability in 2009/2010
Nik Philpot, Chief Executive Officer, concluded his report with the following Outlook statement:
‘The trend seen in 2008/9 is expected to continue into the coming years with the Speech Solutions division representing an increasingly large proportion of the overall revenues. The higher margin achieved in this area will increase the blended margin in the Group. In addition, increases in headcount will be moderate in comparison to the growth in revenue meaning that net profit growth will substantially be following the growth in Speech margins.’
‘The Directors are delighted that the efforts consumed in selling non core businesses and restructuring the remaining core activities have got the Group to the point which has long been anticipated whereby each and every new contract won is expected to feed the profit line. The Directors are pleased with the progress made and are committed to ensure that shareholders obtain value from these efforts.’
Profits for Eckoh are forecast to grow from £700,000 for the year to March 2010 to £1,800,000 the following year. On these forecasts the Company trades on a 2011 p/e of just under 10, which is not high for a Company with good quality revenue and a substantial cash pile.
We believe that the Company is worthy of further investigation. The 2009 Final results are a good place to start such investigation – click here.
net profit growth will
substantially be following
the growth in Speech
margins
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Written by Michael Crockett
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