AIM & PLUS NEWSLETTER – IMAGINATIK ‘SPECULATIVE BUY’ – 1 DEC 08

From AIM & Plus Newsletter – 01 December 2008

IMTK 2.875p £3.8m AIM
SPECULATIVE BUY

AIM listed Imaginatik raised a few eyebrows this month as it released a positive set of results for the six months to 30th September 2008. The company describes itself a leading idea and innovation management software firm. Its core software product, Idea Central, helps companies to combine the ideas of its workforce in order to identify revenue enhancing, cost saving, operational efficiency and many other ideas that can aid improvements to the business. In essence, Idea Central is a suggestion box but in a software package.

Using the company’s software and consulting services are over 100 clients, including a number of international blue-chip companies including Kraft, Cargill and Bayer, amongst others. As well as being a customer US drugs giant Pfizer is a shareholder in the company, owning just over 6% of the capital. The majority of Imaginatik (58%) is owned by co-founder and Chief Executive, Mark Turrell.

Over the past two years the company claims that Idea Central has been responsible for saving its customers at least £170 million. At present, with cost savings high on the agenda of many companies, the proven ability of the software to help to generate money saving ideas should be highly attractive to potential customers.

Results for the first half of the current financial year showed revenues up by 56% to a record half year total of £1.8 million. Boosting sales were 10 new annual fee paying customers which were added during the period, as well as a quarter of the existing customer base increasing their expenditure with the company.

Encouragingly, the amount of recurring revenues more than doubled from £1.41 million a year earlier to £2.93 million giving the company good earnings visibility. Net cash stood at £461,000 at the period end, the position being enhanced by a £222,000 placing in September.

Although Imaginatik is not yet making profits the half year results suggest that they will not be far off if progress continues to be made. Renewals of £1.4 million already booked in for the second half of the year and 13 pilot projects that were ongoing at the end of September bode very well in this respect.

If the house broker is to be believed then Imaginatik will post a pre-tax profit of £0.1 million for the full year to 31st March 2009, rising to £1 million in 2010. On a 2010 price earnings multiple of 5.75 in our opinion the shares look cheap. However with progress still to be made on the contract front before targets are met there are clear risks involved.

SPECULATIVE BUY

Panmure Gorden Analyst note – 17 Nov 2008

Imaginatik (IMTK.L, Mkt Cap £3.8m)

We had a company meeting with CEO Mark Turrell and CFO, Shawn Taylor, following interim results. The results themselves showed good progress with highlights including; turnover up 56% to £1.80m –following 10 new clients signed on annual contracts and 8 new customers on pilots – the operating loss was reduced to £0.25m down from £0.47m loss yoy, annual recurring revenues up over 100% to £2.93m. We note that net cash is £494,000 up strongly from £108,000 yoy – but did benefit from £237,000 in from a placing. Our key criticism is that the numbers are just too small to be attract the mainstay of institutional investors. That said we are impressed by the way Imaginatik is able to sign up larger corporates. ‘Sales’ is always a key area (of weakness) for smaller companies and we note that Imaginatik has appointed a new VP of Global Sales and increased sales team- it is looking to increase sales headcount to 9 by the end of cal2008 – it should, in our view, take c6 months before there is any revenue uptick from this investment. As the downturn gathers pace the sales focus should move from ‘innovation’ to ‘cost savings’ and pleasingly we note that Imaginatik has saved its customers “at least £170m” over the past two years – illustrating that it is already positioning itself for a change in buyers concerns – it needs to ensure that it is in budget holders’ minds as the source of cost reduction. Also of note is the IBM sales relationship. Looking ahead Imaginatik has £1.4m of expected renewals (renewals are H2 weighted) revenue to be booked in H2 and given this, the  new business pipeline (which it describes as “strong”) combined with currency translation gains – 78% of revenue from the US – the company is confident of a successful outcome. We like the area, the ‘what it does’ stacks up nicely with key buying and technology trends, with the sales emphasis targetting in-house and IBM channel sales we remain impressed that the company is configured correctly to deliver continued growth. The management team – CEO and FD – both look capable of delivering value for shareholders.

 

 

 

George O’Connor 

Software & IT Services analyst

Panmure Gordon & Co

Moorgate Hall 

155 Moorgate 

London 

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Panmure Gordon analyst comments on Imaginatik – 7 Nov 08

From Panmure Gordon newsletter – from analyst George O’Connor – published Fri 7 Nov [Note: he was an invited guest at our user forum].

Imaginatik (IMTK.L, Mkt Cap £3.9m)

We spent a few hours at the Imaginatik European end user conference yesterday. In our view this was a well-attended event with participants from a range of blue chip companies. The event is part technology showcase, user forum but also a feed for Imaginatiks sales pipeline. We admit to being fanboys of collaborative platforms –it is early in the adoption cycle but for us there is much momentum around concepts like ‘crowd sourcing’ and tools to enable distributed workforces and we still have along held view about geographic comparative advantage in the corporate setting. Indeed, remembering from our education there are good illustrations of working collaboration – think peer review – and look into industries like engineering and manufacturing (think Aveva’s PLM offer) and there are many commercial illustrations too. Disappointingly, the company investment case is stymied as Imaginatik is too small and too illiquid for the mainstay of institutional investors. While we admit to being concerned about the outlook for ‘innovation’ in a downturn we are more relaxed given the company’s ‘heavy’ emphasis on ‘process management’ – investors with memories stretching back to the formation of the business process re-engineering (BPR) movement are aware that downturns are fertile for companies preaching a ‘do it this way message’. There are lots of positives in Imaginatik – producising the CEO remains an opportunity and we still think that the front end – or addressing user generated content – is still also a big opportunity. To remind Imaginatik is a leader in the provision of Innovation and Collaborative Problem Solving software and processes. The ongoing client base includes Nokia, Chevron, Pfizer, Kraft, Cargill, GE Aviation and Lexmark. In truth, Imaginatik is a useful play on IBM websphere and Lotus groupware technology. The ‘smarts’ should be the back end process. We like the practical use of industry standard tools and solving a business need and the tactic of working with HR departments on general Human Capital Management (HCM) approach. While this is an interesting niche we highlight that groupware tools are more pervasive, as indeed are collaboration and project management tools including ‘out of the box’ from Microsoft. In addition companies are increasingly using social networks in an enterprise setting.