As travellers head off for the long bank holiday weekend, there are bound to be horrendous delays at UK airports. Increased passenger numbers and tighter security measures will generate lengthy queues. But does this have to be quite such a painful process? Well, no. One company has developed proprietary technology that enables bags to be scanned using innovative 3D, rather than traditional 2D X-ray machines. Although around 15% more expensive, these machines are better at identifying suspect packages – thus improving security and reducing the number of manual checks. Clearly this is a win-win situation for passengers and airport staff alike – better safety with shorter waiting times.
Gamble of the week: Image Scan Holdings (IGE: Aim, 20p)
Furthermore, the patented IPR (Intellectual Property Rights) isn’t only used at airports. It can also be used at prisons, ports, sporting events and in industrial applications. Industry is a particularly attractive arena, as the image resolution offered by IGE’s products is much greater than existing options.
This has recently led to £1.7m worth of orders being received from British Nuclear Group (BNG) and another large corporation for top-quality inspection systems. Other potential applications could be within the automotive, aerospace and healthcare markets.
This is great news for a small company like IGE. But possibly the biggest opportunity comes from its new portable bomb-detection system, known as the TPXi. The TPXi has already won orders valued at £250k, including four units for the British Transport Police. Customers like the device’s high-quality images and ability to differentiate between organic material, such as Semtex, and metal objects, such as weapons.
So far so good, but what are the risks? Being a small firm operating in a large global market, the danger is that it will not be able to offer its customers adequate service. Management has recognised this and begun to appoint well-respected distributors, such as Rapiscan and KeTech, to provide the required level of client support. IGE has also decided to license its IPR to third parties, such as Scanlogik, which should further accelerate sales.
Although the order book is growing (currently around £2m) and the sales pipeline is strong, contract lead times are typically more than one year, so don’t expect revenues to rocket in the short term. With existing cash burn at around £1.2m a year, there is a possibility that the firm will require additional funds to finance increasing orders. However, industrial customers do typically make up-front payments to secure their contracts.
Nevertheless, with the ongoing war on terrorism, together with the increasing penetration of its sophisticated technology within inspection applications, this should provide a springboard for growth. I spoke to the CEO, Nick Fox, this week and he was “very optimistic for the future, and expects to break even within the next two years (if not sooner)”.
Clearly, IGE is not for orphans and widows, but in my view it offers high potential rewards for more speculative investors. There are no up-to-date broker forecasts, although I understand KBC Peel Hunt are due to issue a research note shortly.
Recommendation: SPECULATIVE BUY at 20p (market cap £7m)
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