Although it has a market capitalisation of just £18m, Aim-listed OMG punches well above its weight. It owns three divisions: Vicon (72% of sales), Yotta (25%) and 2d3 (3%), all operating in growth sectors and supplying innovative products that analyse complex digital images.
Vicon, the oldest, generates all of OMG’s profits and enjoys a 60% share of its niche segment. It sells advanced motion capture technology to gaming companies and Hollywood studios, and has been used in blockbuster films such as Spider-Man, The Da Vinci Code and The Polar Express.
The equipment is also deployed in the less cyclical world of medicine and university research, which, according to CEO Nick Bolton, is “a good place to be” in today’s climate.
The other two fledging units are currently loss-making due to investments in their cutting-edge technologies. Yotta’s systems allow highway authorities to gauge the state of repair of their roads by simply driving a mounted camera around, rather than having to send someone out with a trundle wheel and a mobile phone.
OMG plc (Aim: OMG)
2d3, meanwhile, operates in the booming unmanned aircraft and aerial surveillance sector, providing UK and US armed forces with state-of-the-art intelligence gathering and reconnaissance information in warzones around the world.
The big question for shareholders, given the “mixed trading” environment, is how long they will have to wait before tasting the “jam tomorrow”. My instinct says it will take until 2011 before the group is firing on all cylinders, but when it does, it should become a money-spinner. I would expect the experienced management team to increase revenues and Ebita from £27.5m and £2.5m in 2009, to at least £33m and £3.3m by 2011.
On this basis, I would rate OMG on a ten times Ebita multiple, which, after adjusting for £2.1m in net cash and discounting back at 12%, delivers a fair value of 41p a share. As always, there are a few possible hitches. As a relatively small business, OMG carries a greater degree of risk than if it were larger and more diversified.
It is also exposed to foreign exchange fluctuations (74% of turnover is overseas), lengthening sales cycles, and margin pressure, and it will undoubtedly be hit if there is a brutal contraction across the film/gaming industry. Nonetheless, OMG is profitable, well-financed, pays a dividend and offers excellent opportunities in niche expanding markets.
Recommendation: speculative BUY at 27p (market cap £18m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments