Buy note......from 26 april10 May 2018 09:55
Darren Atwater
By Darren Atwater | Thursday 26 April 2018
Falanx at 4.9p is capitalised at just over �12 million. The company's trading statement lacked hard financial metrics. It really should fire its PR firm as that is an own goal. But the message was positive with both organic growth and acquisitions being bedded down well. Tom says that this cyber security play will issue a statement with numbers in a couple of months and full year to March 31 results will be out, as they were last year, in July.
At UK Investor did you hear Luke Johnson? Neither did I but his key point, apparently, was only buy shares in companies with high gross margins. Those at Falanx are 50%. That is a good point in its favour. So too is visibility of sales. Its cyber contracts are multi year deals. So all those new deals signed in the second half of the year just ended will make a minimal contribution in the 12 months to March 31 2018 but will be there making a full impact for this year and, at least the two that follow.
If you chatted to Falanx last Saturday it was clear it is not changing guidance. That is to say that, based on its run rate and new contract pipeline, it would expect tgo reach breakeven in the first quarter of the financial year just started - i.e. within weeks. With net cash of at least �800,000 there are no funding worries at all. There should be no more share issuances.
So: strong balance sheet, earnings visibility, at breakeven, sales soaring, high gross margins, dissed by the man who really gushes about frauds like Globo & Quindell (Ed Croft & his crap Stockopedia stock picking system) - all the boxes are ticked for Falanx.
In terms of profits the year just ended will show a loss but, boosted by the recent purchase of First Base Technologies with its massive reccurring revenue stream, profits in the current year should be at least �1 million. In the year to March 31 2020 - next year - sales should grow by as much as �4 million leaving pre-tax profits at or around �3 million.
A growth company with a sold balance sheet and good earnings visibility should be on a mid teens prospective PE. That gives a 12 month target market cap of �45 million. Put another way the shares should almost quadruple on a one year view. BUY
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