It may seem perverse given the current state of the oil and gas industry, but I would point out that 85 per cent of KBC's revenues are derived from oil refiners, the part of the industry that has been doing incredibly well. That's because the plunging oil price and rising output has sent US Gulf Coast crack spreads to five-year highs, a sign of refiners' profitability. KBC's smart software and consultancy activities optimise performance and profitability for cost-conscious clients, so this underpins demand too.
The company's latest award is a $4.36m (£2.8m) technology contract with Advisian, the consulting arm of WorleyParsons, for KBC's Petro-SIMTM, MaximusTM and MultiflashTM software. This contract consolidates a number of KBC product licences into a much larger global deal. KBC has also entered into a collaboration agreement with Advisian to pursue projects involving consulting, software implementation, design and engineering services, initially for the oil and gas, refining and petrochemical business sectors.
The contract is notable as it's the first time a contractor has purchased all of KBC's software, and follows on from two other contract awards announced in September: a three-year award worth $8.5m (£5.5m) with a Middle Eastern client for margin improvement and workforce capability development across three refineries; and its largest award ever in the former Soviet Union. It's clear to me that momentum is building in the business which is why analysts Paul Hill and Hannah Crowe at research firm Equity Development believe second half pre-tax profit this year will be 50 per cent higher than in the first half. In turn this should drive up the full-year outcome by 10 per cent to £10.5m.
It's worth flagging up too that guidance from finance director Eric Dodd is that KBC's net funds of £10.6m at its half year-end are set to rise to somewhere between £13.2m and £14.7m by the December year-end, so once this is stripped out from the company's market capitalisation of £106m this means that KBC is in effect being valued on 8.5 times current year operating profit of £10.8m. In my opinion this is not an exacting valuation for a company with a high-margin technology business that makes around £7.4m of operating profit on turnover of £21m and which could be easily worth £60m to £74m on a standalone basis alone. Moreover, with the benefit of a strong balance sheet KBC is being able to tender for further multi-million-dollar contracts without stretching its finances.
So although KBC's shares hit a 14-year high of 144p at the end of last week, and have risen by 15 per cent since my last update seven weeks ago when the price was 112p ('Small-cap value plays', 22 Sep 2015), I feel the re-rating has further to run to a range between finnCap's target of 160p and Equity Development's target price of 169p. Interestingly, this range neatly coincides with the post dot-com highs in 2001. Please note that I first recommended buying the shares at 69p ('Fuelled for growth', 5 May 2013).
Trading on a bid-offer of 127p to 129p spread I continue to rate KBC's shares in a positive light and see the profit taking in recent days as another buying opportunity.
Please note that I have written two other columns today, both of which are included in the list below.
MORE FROM SIMON THOMPSON...
I have published articles on the following companies in the past three weeks:
■ MS International: Buy at 180p, initial target price 240p ('Making waves', 19 October 2015)
■ Pure Wafer: Buy at 175p, new target 200p ('Valuation anomaly worth exploiting', 20 October 2015)
■ Greenko: Hold at 87p, new target 100p ('Greenko's cash return', 20 October 2015)
■ Elegant Hotels: Buy at 108p, target range 130p to 135p ('An elegant investment', 20 October 2015)
■ BP Marsh & Partners: Buy at 157p, target 180p ('Cash-rich value play', 21 October 2015)
■ Crystal Amber: Buy at 170p; Dart Group: three month trading buy at 468p; Grainger: three month trading buy at 247p; Leaf Clean Energy: await news on Invenergy asset sale ('A quadruple play', 22 October 2015)
■ UTV Media: Buy at 184.5p, target 215p ('On the right wavelength', 26 October 2015)
■ Globo: shares suspended at 28p ('Globo bombshells', 26 October 2015)
■ Globo: shares suspended at 28p ('The truth about Globo', 29 October 2015)
■ Getech: Sell at 38p ('Getech warns', 3 November 2015)
■ Redde: Run profits at 178.5p; Trakm8: Run profits at 250p; 32Red: Run profits at 95p; Manx Telecom: Run profits at 208p; Burford Capital: Run profits at 189p ('Five companies that keep on delivering', 3 November 2015)
■ Gresham House: Buy at 345p, 12-month target price 450p ('Sowing the seeds for growth', 9 November 2015)
■ Inland: Run profits at 73p, target 80p ('Tapping into hidden value', 9 November 2015)
■ K3 Business Technology: Run profits at 361p ('In the money, 9 November 2015)
■ Fairpoint: Run profits at 190p, target range 200p to 220p ('Riding a seven year high', 10 November 2015)
■ KBC Advanced Technologies: Buy at 129p, new target range 160p to 169p ('Running oily gains', 10 November 2015)
■ Epwin: Run profit at 138p ('Decked out for further gains', 10 November 2015)
■ Simon Thompson's book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 and is being sold through no other source. It is priced at £14.99, plus £2.95 postage and packaging. Simon has published an article outlining the content: 'Secrets to successful stockpicking'
