BULL POINTS:
■ Run by Tom Black, man behind Detica
■ Homeland security insulated from spending cuts
■ Backed by blue-chip investors
■ Remained largely under the City's radar
BEAR POINTS:
■ Growth by acquisition is risky
■ Revenues still minimal
The people behind the storming success of security technology consultancy Detica are back, this time through IT security group Digital Barriers.
The Hatfield-based company was set up late last year by Tom Black, the brains behind Detica, before raising £20m via a share placing at 100p per share and flotation on the Alternative Investment Market (Aim) in March. The plan is to pull together equipment manufacturers and equipment/software integrators to supply equipment, such as digital CCTV, radio frequency ID and even thermal imaging, that will help protect people and buildings from security threats,
Suppliers for the so-called homeland security market are fragmented. This has led to under-investment in the past, meaning, for example, relatively simple CCTV systems. The switch to digital systems would permit much cleverer use of the hours of imagery collected, such as applications that process CCTV images to identify unusual behaviour in and around key targets.
Mr Black is joined at Digital Barriers by Colin Evans and Zak Doffman, both former bosses at Detica, re-creating a team with quite a track record for investor wealth creation. Mr Black led the £12m management buyout of Detica in 1997, before floating its shares on the London market in 2002 with an £87m value. It grew into one of Britain’s leading security consultancies and was bought by BAE Systems six years later for £531m.
| IC TIP RATING | |
|---|---|
| Tip style: | Speculative |
| Risk rating: | High |
| Timescale: | Long-term |
| What do these mean? Find out in our | |
With that kind of track record, it’s no wonder Digital Barriers has been backed by blue-chip investors such as Black Rock, Herald, AXA and Artemis.
Its sales pitch will be aimed at governments, public services and companies, and the UK is its main focus. But overseas markets, in particular the Middle East, are also on the agenda.
The company's buy-and-build plan may be risky, since it relies on management making the right calls on how to use the company's cash, but maximising resources is how Mr Black built Detica.
Several deals have already been sealed, including last month’s £3.3m purchase of quoted COE Group. Unlike its previous two acquisitions (Security Applications in March and Overtis in mid-July), which were both systems integrators, COE supplies specialist surveillance hardware, such as cameras and video management software. It sells to international and domestic customers within the urban surveillance, energy and transport industries.
| ORD PRICE: | 165p | MARKET VALUE: | £41m | |
| TOUCH: | 158-165p | 12-MONTH HIGH: | 165p | LOW:100p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | na | NET CASH: | £10m* | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | nil | -0.19 | -0.76 | nil |
Normal market size: 2,500 Market makers: 3 *Estimated | ||||
The shares have enjoyed quite a run since floating, hence Digital Barriers' stock market value of £40m today. True, that’s quite a chunky valuation for a company with revenues of perhaps £8m, but investors need to consider the size of the opportunity and the quality of the management team.
According to market researcher Visiongain, the global homeland security market is estimated at $140bn per year, and should grow steadily through the next 10 years. Spending also looks fairly safe as few governments or even companies would be willing to run the risk of hacking away too much at security budgets.
