With increasing international travel and use of the internet, new technologies to counter terrorism, illegal immigration, crime and ID theft are being introduced around the world. One such measure is biometrics: the unique identification of individuals by using voice, iris, DNA, hand and facial recognition technologies. As any holiday-maker to America will know, the US immigration department launched biometric passports in 2005, employing fingerprints to identify visitors. The UK Government also announced last week that it is to be mandatory for all domestic air-passengers to be finger-printed at Heathrow’s new Terminal 5 when it opens on 27 March. This system is also set to be implemented at Gatwick, Manchester and Heathrow Terminal 1 – and will probably also be rolled out across all UK airports. Within ten years, the Government’s longer-term vision is to have photographs and finger-prints of all British citizens registered on a national database. Similar measures are being installed all over the world and this is driving up demand for biometrics. Indeed, the industry is forecast to expand by 20% per annum to $7.1bn by 2012. And this stock will be a major beneficiary:
RCG Holdings (Aim:RCG)
RC Group (RCG) is the number-one biometrics provider in the Asia Pacific region. The firm is run out of its new operational hub in Malaysia and manufactures top-notch security and access control systems, incorporating facial and fingerprint recognition.
Along with traditional homeland security applications, the group has also successfully made inroads into new markets, including biometric devices for the consumer electronics (eg, PCs), aviation, banking, healthcare, manufacturing, logistics, retail and entertainment sectors.
And that’s not all. RCG Holdings also develops the means of tracking goods, assets and documentation by way of niche products embedded with Radio Frequency Identification. This technology involves implanting a mini-tag into goods, which can then be tracked through low-frequency radio signals. The firm’s systems are used in warehouse management, asset tracking and carparks. Globally, the company is expected to grow by about 18% per annum from $5.0bn in 2007 to $27.9bn by 2017.
The financials look good too. Sales jumped 50% to £92.4m in 2007, thanks to impressive growth, notably in China and the Middle East. Diluted earnings per share were up 21% to 13p – albeit on a negligible tax rate – while the balance sheet was strong, with £39.7m of net cash (or 17p per share).
The chief concerns are growing competition, a potential economic slowdown and management overstretching themselves in pursuit of new, related opportunities, such as intelligent surveillance, Wi-Fi and wireless broadband. Furthermore, two issues that seem to be holding the shares back are the thin 0.7% dividend yield and the uncertainty surrounding a 27% stock-overhang following the death of a major shareholder, Madam Nina Wang, last April. Nonetheless, chief executive Raymond Chu “is confident that the company will continue its rapid growth in 2008” and the shares look far too cheap, trading on attractive 2008 and 2009 p/e ratios of 5.1 and 4.7.
Recommendation: SPECULATIVE BUY at 70p (market capitalisation £163m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments