A wise reader recently suggested to me that perhaps I could pause occasionally with the incessant cynical kicking of the dross at the bottom of AIM and/or Mr Woodford and spend a bit more time trying to highlight quality small cap stocks that people could put on their watch-lists. Well, I’ll take up the challenge and start with a decent looking stock that announced its full-year results last week, namely Arcontech (ARC).
This is in the fintech space and provides products and services in the financial market data processing space. It’s not the biggest business in the world and appears to have been on AIM almost since time began in relative terms having joined in 2000; however, for some time now, it has moved beyond the vicious cycle of cash constraints and essential placings and it looks well-placed to take advantage of the market opportunity from here. The results for the year to 30 June 2018 show revenue of £2.5 million, up from £2.3 million last year and profit before tax of £575,000, up from £373,000. There are no particular funnies in the cash flow statement and it pays a small-ish dividend of 1.3p per share which is a good discipline if nothing else; I wouldn’t want it to pay too big a dividend while it is in the growth phase.
It is investing in sales staff and one would expect decent operational leverage with any contract wins and I like the tone of the Chairman’s statement with a focus on cost control, investment and some caution about the sales cycles. It has over £3 million cash and no debt, so there are no issues on the balance sheet. Unfortunately, this sort of business doesn’t come cheap and it is currently trading at about 161p, valuing it at £21 million. This is double where it was trading a couple of months ago which is a tad frustrating but that doesn’t mean the opportunity has gone altogether.
As I mentioned above, this one has been knocking on the door for a long time now but perhaps now is its time as it can finally invest appropriately in the sales side of the business. In any event, I see the downside as fairly limited as the cash balance provides a bit of a buffer and it doesn’t need much by way of new contracts and growth to fill out that current valuation quite comfortably. Not sure if this positivity thing is really my bag but this looks worth a look.
Filed under: Arcontech, Whitbread, Costa Coffee, Tony Baldry, One Media iP, Kin Group, Malcolm Stacey
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