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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.
Falanx (FLX) has finally released its results for the year to March 31. The numbers were in line but it is the forward looking statement that is the dazzler. That is not reflected in the share price which came off by more than 10% on the session at 6.75p-7p. We think the market called that wrong and here is why.
Total sales last year increased by 50% to £2.7 million. The high margin cyber division saw sales up by 300% to £1 million while Intelligence Revenues were 13% ahead at £1.7 million. This year's numbers will see a continuation of those trends but also the benefits of bolt on acquisitions such as Cloudified from last week and the launch of the MidGard platform. Having made a small gross loss in 2016 the gross profit last year was £548,653. At a net income level the loss was £1.7 million down from £2.6 million. The cashburn from operations - including capex - was broadly similar to the loss.
Following a £2 million placing in the spring the company is debt free and indeed now sits oin a healthy cash pile.
The dramatic ramp up in cyber sales and launch of Midgard are the keys to 2018 performance with the company boasting that "Falanx continues to see new clients and opportunities in its' pipeline post the financial year-end. Market conditions remain robust and we view the future with confidence - Strong sales opportunities for all three trading divisions"
NE Chairman Mike Read predicts that Falanx will reach breakeven within 12 months given that "market conditions for growth of Cyber Security and Intelligence for the new year are extremely favourable."
Our view is that sales in the current year could reach £5 million which would be enough to see the company reporting a small profit while next year on sales of as much as £8 million the profit should be well over £1 million with - given historic losses - a zero tax charge on those gains. Clearly the timing of orders is uncertain so those forecasts should be risk weighted.
But the market cap is - at just under 7p - £10.5 million. We would have thought that a forward PE of 15 is far from demanding for such a strong growth play and that implies a share price of well over 10p. On that basis the shares - tipped by us at a 4.25p offer - are, at worst, a strong hold with a target to sell of 10p+
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