By Tom Winnifrith | Monday 15 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.
We own Falanx (FLX) shares and are currently well over 100% up on our investment with stock at 9.5p mid. HotStockRockets readers are now 100% ahead on the share tip too. So with the stock surging on the basis of the massive cyber attack that started on the NHS on Friday what to do? First realise that this is a political scandal.
I've swapped emails with the company over the weekend and spoken to it today. It is desperate not to be seen to be profiting from what is a ghastly crime so will not be going on a media blitz. But it is clearly very well placed. I refer you to the last statement on trading:
Continuing Sales growth is being driven by the newly formed Sales and Consultancy team. In addition, access to over 2000 potential new Cyber Security and Intelligence clients is provided by highly regarded channel partners, including;
-- CDW Corporation: The $9bn NASDAQ technology solutions provider, who recently bought Kelway, one of the UK's leading IT suppliers;
-- NASSTAR Plc : The AIM listed, managed IT services provider;
-- Sentronex: One of the UK's leading Financial Services IT solutions providers;
-- Mersey Internal Audit Agency and Audit Yorkshire: providing access to over 100 NHS Trusts in the UK.
So right now Falanx derives very little revenue from the NHS. But it is fair to say that it is very well positioned now that even the NHS realises how vulnerable it is and that action needs to be taken. All MPs seem to be saying that the NHS must spend more on cyber security and it is hard to see how Falanx will fail to benefit in a very material way.
But MPs in the party led by the IRA supporting communist Corbyn, saying that the wicked Tories must give the NHS more dosh to spend on cyber security are missing the real scandal here. In 2016 the 15 NHS Trusts that were deemed most vulnerable to cyber attacks were given £100 million to tackle this threat. They have the cash and guess what? Not a cent has been spent. They have just sat on it. This is nothing to do with politicians goofing it is to do with sheer management incompetence within the NHS.
In the private sector the managers responsible for this would be picking up black bags this morning. But this is the NHS and so whether it is failing to spend cash allocated for tackling cyber security or stopping Dr Shipman from killing his patients, no grossly overpaid managers ever take responsibility for failure. That is the real scandal.
You can bet that those Trusts and all others across the UK are today reviewing their options and will be taking action. Of course there are many players and Falanx is just one of them but it has an in house solution which it can deploy rapidly. So will it get a lift from this? You bet.
The point is that even before the cyber attack Falanx was on track to be profitable and cash generative this year ( to March 31 2018) on the basis of sales hitting c£5 million. And following a £2 million placing the other day its balance sheet is in great shape. But it seems a slam dunk cert that there will be other attacks so this issue will stay in the spotlight and hat means that my forecasts are almost certainly going to be increased materially. With a 65% gross margin on its in-house IP the operational gearing could be massive..
At 9.5p the market cap is c £12 million. So the upside is clear. Having said all of that with no hard numbers on how big this is, if the excitement really takes off I am sure that top slicing for we patient long term shareholders may be in order. I see that the Mail on Sunday was tipping a soon to float cyber security firm valued at multiples of where Falanx is and this could be a case where one is investing in a place which just becomes really "hot" and all normal valuation metrics go out of the window.
So are we top slicing yet? No. Will the shares end this week higher than where they are now? Yes. Is it possible to say how high? Er no. One cannot say where this is going but one thing is for sure the shares will head higher.
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