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Idex: Worst quarter in a decade – guess how much it’s worth?

By Cynical Bear | Saturday 18 August 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Neil Woodford doesn’t have many quoted stocks in Woodford Patient Capital Trust (WPCT) but I thought I’d look at three classic picks this weekend, two of which I’ve touched on before, the third being a brand new entrant. I’ll start by catching up with the two Norwegian quoted companies in the portfolio – first up, Idex.

Idex is listed in Oslo and operates in the potentially interesting sphere of biometrics and fingerprint technology. I last looked at it HERE and it’s worth a quick re-read to see the full picture of the historically poor financial performance, but thought I would update my views as its half-year results came out this Thursday.

Idex is in a slight state of flux at the moment as it has singularly failed to make headway with its fingerprint technology on smartphones but does, to its credit, seem to be making some headway in terms of bank cards, at least in terms of pilot schemes and various nascent contracts.

However, these aren’t coming through to the revenue line just yet. The revenue for the three months to end-June was at its lowest ebb for some time down to a mere £30,000. The costs however remained the same and just like the last three years, the company has burned through £5-6 million in the quarter.

The cash balance is now under £18 million and although the company is confident about its outlook, one has to expect that, yet again, it will be knocking on the door of its 25% shareholder, Mr Woodford, looking to raise another £20 million or so by the end of the year.

The best part though is the valuation. Believe me, I do understand that valuation is based on the future and that Idex just might start generating revenues in the biometric cards space, just might, but, astonishingly, the current market valuation of Idex is over £260 million.

The business made £30,000 of revenue in the last three months and has been trying and failing in this space throughout this decade spending about £100 million in the process so far and is valued at a quarter of a billion quid!

I can’t get my head round that valuation but just like many other Woodford quoted stocks like RM2 International, Xeros Technology, Eve Sleep etc, eventually reality will kick, not that will stop him putting more funds down the hole in the meantime.

If one does believe in the biometric future of bank cards, I suggest one takes a look at a competing company listed in Sweden called Fingerprint Cards. One can find its half year report HERE. This company was once a lot bigger as it made great strides in the smartphone market but as margins have been hit, its revenues have been impacted quite dramatically. Nevertheless, in the last three months, it still generated more than £30 million revenue.

It is pivoting its business as needs be and is being tough on costs. There is a stark contrast with the management messages about cost control at Fingerprint Cards and the ongoing drift at Idex where it just seems to carry on each month spending until the money runs out. Fingerprint Cards has plenty of cash in the bank, a proven track record in the space and, as at now, is valued at about £230 million, less than Idex.

Personally, I’m not convinced by a future of fingerprint protected cards but if I did picture the next decade in that way, I know which Scandinavian entity I would be backing. Regardless of all the analysis above, I find it simpler with most investment decisions just to ask What Would Woodford Do and then take the alternate route.

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