[NWSPF, PPLXF, INVGF] Innovation could take some time NewMedia Spark; ReNeuron
It's not rocket science but Innovation Group's strategy of becoming profitable before floating has distinguished it from the rest of the technology sector this year.
The company provides software and consultancy to insurance firms, both in the UK and abroad. The attraction of its products is the ability to facilitate group-wide procurement of services such as legal advice and repair work. Buying these in bulk saves money, just like any other commodity.
Innovation began trading profitably in the months ahead of its June listing. Yesterday's maiden results showed a better-than-expected pre-tax profit of £3.6m, on turnover of £9.6m, against last year's £631,000 loss and sales of £21,000.
Rob Terry, the chairman and chief executive, said that since then, the business has grown from being dominated by just two clients to enjoying a customer base representing about half of all insurance claims processed in the UK. CGNU, Royal & Sun Alliance, Direct Line and Axa are all recipients of Innovation's services.
Innovation has also accelerated plans to develop a presence in the US, and has relocated its business development director Stateside to hasten discussions with potential North American clients.
Moreover, the group's reliance on third party intellectual property has been diminished following the acquisition of Technology in Marketing. While Mr Terry has spent about £45m on acquisitions since the float, he still has £46m left to fund further expansion.
Analysts are forecasting pre-tax profits £8m on sales of £23m this year, putting the shares, up 7.5p at 767.5p, on a heady forward multiple of 126. Still, Innovation is growing rapidly and has delivered on its pre-listing promises. Its strong relationships with customers in the UK have been forged despite stiff competition from the likes of SAP and Andersen Consulting. While further success depends on sustaining the momentum overseas, especially in the US, the shares hold long-term attractions.
NewMedia Spark
Newmedia Spark, the incubator aiming to become the 3i of early stage internet investment, has had a roller-coaster year as New Economy stocks have turned from market heroes to market zeros. Floated at 10p a share in October 1999, the stock soared to 171p in January but has since sunk back to 27.5p.
It takes real bravery to speak of buying opportunities in the dot.com world nowadays, but this column has never been shy.
NewMedia Spark is run by Michael Whittaker, the former chief executive of Collins Stewart, and most of its investments are in technology, software and infrastructure rather than consumer-related dot.coms.
Though pre-tax losses totalled £1.4m for the six months to September, against £2.8m the previous year, the business has total assets of £173m, worth 54p per share. Cash balances have risen from £39m to £100m following the recent acquisition of Internet Investments, another New Economy incubator.
The 54p net asset value includes yesterday's whopping write down in the value of NewMedia Spark's unquoted investments, by £45m to £121m. Most of the reduction is on the assets of Cell Ventures, a Swedish investment firm acquired at the peak of the dot.com bubble in March.
However, a handful of Cell Ventures businesses are regarded as potential winners, including eTV, a digital television business, and DX3, which provides software to enable secure online video streaming.
After what the markets see as tough write down of the unquoted assets, and with 20p of the NAV backed by cash, the downside looks relatively limited. Negative sentiment is likely to weigh against the shares in the short term and there is always the risk of further write-downs. But further out NewMedia Spark looks promising.
ReNeuron
The decision by MPs to allow human embryo cloning to obtain stem cells for medical research is already generating fallout in the stock market. Yesterday PPL Therapeutics [OTC Foreign: PPLXF], which has found a way of making human stem cells without the need to produce an embryo, issued a statement saying investors were wrong to mark its shares down after the vote. It said alternative method of stem cell production would be valuable should eggs be in short supply.
Meanwhile, ReNeuron, which owns the rights to technology that can mass-produce stem cells from a single tissue source, said it was taking its lead drug, a painkiller, into phase II clinical trials. The programme is separate to ReNeuron's core stem cell work, but the painkiller could become an important source of cash to fund the main research. The shares, up 3.5p at 190p, are, of course, risky but are the market's most focused play on this area.
independent.co.uk
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[PPLXF] PPL THERAPEUTIC PLC FOREIGN - UK
[INVGF] INNOVATION GRP PLC FOREIGN - UK |
