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Technology
someone else to turn your heating on…
I think the mainstream may be quite slow
to adopt it,” he says.
STOCK PICKING
In terms of finding stocks with worldclass
technology, balancing the risks
against the opportunities is key. “There
are a lot of concept stocks that could
do very well, where there is quite a lot
of sales growth and profits still to be
generated,” says Williams.
“Generally, our strategy has been to
slightly steer away from those. This is
partly because the excitement of the
future is already reflected to a degree in
the share price, so there is substantial
downside if it doesn’t materialise, but
also because we believe we can make
much better returns by investing in
companies that aren’t at the leading edge
but are still innovative. They are taking
existing products but modifying or
updating them, so the technology risks
for the new adopters aren’t too high but
the commercial benefits very substantial.”
He cites software firm K3 Business
Systems. “Their technology has started to
be adopted by Microsoft, who are using
it in Germany and the US,” he enthuses.
An exception is his holding of four per
cent of small cap Seeing Machines, which
is at the cutting edge of driver monitoring
systems for safety.
“They have many leading auto
companies working with them and
recently sold the rights to their
technology in the mining industry to
Caterpillar. As the Caterpillar money
came in, it allowed them to devote more
resource to develop their customer base
in other areas,” says Williams.
He admits that he mitigates the risks
by working with industry partners “who
have better knowledge than we have and
who, more importantly, have done more
due diligence than we are allowed to”.
Hence he used Caterpillar’s adoption
of Seeing Machines as third-party
verification.
This is a classic example of today’s
smart tech investor – spotting the value
of the genuinely new but using tried and
tested investment practices as back up. n
CHRIS MENON is a freelance
investment writer. He holds shares
in Seeing Machines
FIVE FOR THE FUTURE?
For most investors, exposure to small cap tech stocks, or even their bigger cousins,
is likely to be achieved through an investment fund. But for those with the
knowledge, time (and nerve), here are five small cap tech stocks worth a look.
Gfinity
This stock, which is on AIM, could benefit from the increasing popularity of eSports,
where consumers watch live streams of games tournaments. According to Juniper
Research, the 2015 Gfinity Championships in London topped 30 million viewers
worldwide. Small cap specialist Hargreave Hale has a 10.3 per cent holding.
Oliver Bedford, Manager of the Hargreave Hale AIM VCTs, says: “Although online
gaming events already attract large global audiences through online broadcasting
platforms, it remains a nascent industry that is yet to fully exploit the commercial
opportunity. Gfinity is a leading European player in eSports.”
Seeing Machines
AIM-listed Seeing Machines developed head and eye-tracking
technology, which was used by Caterpillar in the mining industry to
monitor driver fatigue and reduce costly accidents. Caterpillar then
bought the rights to use and market the system for its business for
US$17.5 million. The technology is also used in next-generation
semi-autonomous vehicles, such as General Motors flagship Cadillac
CT6, and the firm is working with another 10 auto manufacturers. Tech
analyst Lorne Daniel, at house broker finnCap, said: “We see a company
with a mid-term value of at least £480 million, even on a conservative basis. That
compares with the current £40 million market capitalisation.”
GB Group
GB Group offers identity verification and tracking solutions on the internet. It
has a vast number of connections to multiple databases, which is very difficult to
replicate globally. More internet commerce means more business and demand for
GBG. As that explodes, GBG is growing proportionately. House broker Peel Hunt’s
tech analyst Alexandra Jarvis said: “We believe the company can sustain strong
organic growth through international expansion, its expanded product base and
ongoing innovation, supplemented by acquisitions. GBG is uniquely placed in the
ID intelligence market and the strategic value of this business continues to grow.”
K3 Business Technology
Software integrator and vendor K3 Business Technology supplies software to
the retail, manufacturing and logistics sectors. It’s increasingly moving up the
value chain, selling products that contain its own intellectual property at a higher
margin. These products are also being sold internationally through third-party
vendors such as Microsoft. According to finnCap analyst Andrew Darnley: “Global
recognition through membership of Microsoft Dynamics’ Inner Circle demonstrates
the solution quality and in turn raises K3 product visibility on the world stage, with
increasing channel interest and first global contract wins.”
Intelligent Energy
This AIM-listed company designs and develops hydrogen fuel cells for low-cost,
mass-market applications. It operates in the automotive, consumer electronics
and distributed power and generation sectors. Notably, Apple sells its Upp phone
charger and it’s said to be developing a long-life fuel cell for the iPhone. Zeus
analyst Dr Tom McColm described it as “one of the UK’s most sophisticated and
exciting technology companies”. In the automotive sector it’s working with some
leading Asian car manufacturers.
64 january/february 2016 www.blglobal.co.uk