By HotStockRockets | Sunday 7 May 2017
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
How often do you see a small AIM company raise a good whack of money relative to its market cap (in this case the new shares issued are just under 20% of the enlarged total) and still see its shares go up on the day? Once in a blue moon. Well it has happened with Falanx (FLX), whose shares closed at 7.5p-8p.
First the placing. £2 million was raised at 6.875p - very close indeed to the prior bid. Non Exec Chairman Mike Read stuck in £50,000 and while there are a couple of folks in there who you might view as dirty flippers most of the stock is pretty tight. We discussed this at length with the brokers responsible and the flippers will be easily digested. In fact, they may be out already. Sordid spivs. So the placing is impressive and provides the working capital needed to accelerate growth.
And boy is Falanx growing. The trading statement issued alongside the placing is a stormer. Results for the year to March 31 2017 are said to be "in line" with management forecasts. That is to say sales zoomed by 50% to £2.7 million.
Falanx Intelligence continued to grow profitably. It now has more than 70 blue chip clients demanding Business Intelligence, Security Consultancy and Intelligence products and generated sales of £1.8 million (an increase of 13%) and EBITDA of £300,000.
Falanx Cyber Defence's customer base grew to 29 significant clients - it generated c£1 million of sales but this is the key phrase - it saw revenue "doubling in the second half of the financial year". Having become 'UK Govt CHECK' accredited it can now pick up a stack more work from the bloated State and so expect that sales momentum to continue this year. Remember this unit was only in for 11 months of last year.
Falanx Cyber Technologies MidGARD 'Security-As-A-Service' platform went live in late March 2017 gaining early adoption amongst Falanx Cyber Defence clients, including a major IT Cloud Services company. Clearly its impact in the year just ended was minimal - but it will be a major driver of growth this year.
Chairman Read stated:
"This has been a genuinely transformational year for Falanx Group. The Falanx team has delivered on our promise to generate outstanding growth and develop new technology. We have also capitalized on our excellent relationships and highly regarded services to significantly enlarge our client base. The foundations are now in place for a profitable year of robust growth."
The bold emphasised phrase is ours. At 7.5p-8p, the market cap is now c£12 million. The company has a strong net cash position and will be materially profitable at a PLC level this year. It is hard to make accurate forecasts but the shares may well trade on little more than twice, now, current year sales. In this sector, and given the balance sheet strength, the fact that the company is going to be profitable this year and the rate of growth, that is really too low.
We tipped this stock at a 4.25p offer and have already revised up our target price twice. We do so again. The stance is a very strong HOLD but we increase our target to sell from 8p to 10p. We expect that target to be reached very soon indeed.
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