New technologies such as biometrics – used to identify individuals as much as fingerprints are – are being introduced globally to counter terrorism, illegal immigration, crime and ID theft. And although the British government has decided to scrap its version of biometric passports, many other countries are ploughing ahead.
Enter RCG Holdings, whose shares are dual-listed on the Aim and Hong Kong stock exchanges. It is one of the largest providers of biometrics in Asia Pacific, and manufactures top-notch security and access control systems, incorporating facial and fingerprint recognition. Along with traditional homeland security applications the group has also penetrated new sectors, including consumer electronics (such as PCs), aviation, banking, healthcare, manufacturing, logistics, retail and entertainment.
But that’s not all. RCG also develops niche radio frequency identification (RFID) technology. This embeds mini-tags into products, and identifies them through low-frequency radio signals. RCG’s systems are used in warehouse management and asset tracking. Sales are expected to jump 13% to HK$2.77bn (£236m) in 2010 with underlying earnings per share coming in at a hefty HK$2.45 or 20.9p. This puts the company on a ludicrously cheap p/e multiple of 2.2.
Admittedly, this could prove to be a ‘value trap’, especially if anything unpleasant is about to crawl out of the cupboard. However, one fact suggests not. The CEO has just forked out £31,000 to buy the firm’s stock, and the company recently declared that its “trading and financial position remain in line with expectations”. Other possible traps to watch include concerns over margin erosion triggered by cut-throat rivals, an economic slowdown plus management simply overstretching themselves: a possibility as the firm pursues new related opportunities such as intelligent surveillance, Wi-Fi, wireless broadband and machine-to-machine communications.
Three further issues seem to be holding the shares back too – the possibility of the firm de-listing from Aim, uncertainty surrounding a 23% stock overhang following the death of a major shareholder (Madam Nina Wang) and speculation about the financial woes of Tony Chan (who owns a 22% stake). All the same, the fundamentals still look sound with proforma net cash hovering in the region of £1m and a ‘20-for-1’ stock split planned for the end of July. House broker Evolution has a HK$15-per-share price target.
Recommendation: speculative BUY at 44p (market capitalisation £125m)