Investors have been warming to the merits of BATM Advanced Communications (BVC:40.3p), a provider of medical laboratory systems and network solutions, and a constituent of my 2017 Bargain Shares Portfolio. In fact, the share price has doubled on my 19.25p entry point in just 18 months, and is up by more than half since I last advised buying at 26.3p ('Profit from 5GM with BATM', 8 June 2018).
At the time I noted that BATM’s wholly owned subsidiary, Telco Systems, a high-end software development and design business within its networking and cyber division, had entered into an exciting joint development agreement (JDA) with a leading multi-national semiconductor and software design company to develop and market infrastructure solutions for virtual network functions (VNF), a technology that’s going to play a critical role in supporting the services 5G network operators will be able to offer. That’s because it decouples the network functions, such as firewalling, intrusion detection, domain name service and caching from proprietary hardware appliances so they can run in software, and is designed to deliver the networking components required to support a fully virtualised infrastructure – including virtual servers, storage and even other networks.
| 2017 Bargain shares portfolio performance | |||||
| Company name | TIDM | Opening offer price on 3.02.17 (p) | Latest bid price on 6.08.18 (p) | Dividends | Total return (%) |
| Kape Technologies | CROS | 47.9 | 129 | 0 | 169.3 |
| BATM Advanced Communications | BVC | 19.25 | 39.7 | 0 | 106.2 |
| Chariot Oil & Gas (see note one) | CHAR | 8.29 | 9.12 | 0 | 72.0 |
| Cenkos Securities (see note two) | CNKS | 88.425 | 106 | 9.5 | 30.6 |
| Manchester & London Investment Trust (see note three) | MNL | 291.65 | 377 | 3.0 | 28.4 |
| Bowleven (see note four) | BLVN | 28.9 | 38.15 | 0 | 24.4 |
| H&T | HAT | 289.75 | 315 | 15.8 | 14.2 |
| Avingtrans | AVG | 200 | 210 | 4.7 | 7.4 |
| Management Consulting Group (see note five) | MMC | 6.183 | 6 | 0 | -3.0 |
| Tiso Blackstar Group (see note six) | TBG | 55 | 19 | 0.54 | -64.5 |
| Average | 38.5 | ||||
| Deutsche Bank FTSE All-share tracker (XASX) | 409 | 425.3 | 32.82 | 12.0 | |
| Notes: | |||||
| 1. Simon Thompson advised selling two-thirds of the Chariot Oil & Gas holding at 17.5p on 3 April 2017 ('Bargain shares on a tear', 3 April 2017). Return reflects the profit booked on this sale. Simon subsequently advised using some of the proceeds from the share sale to participate in the one-for-8 open offer at 13p a share in March 2018 which is taken into account in the total return ('On the earnings beat', 5 Mar 2018). | |||||
| 2. Simon Thompson advised selling the Cenkos Securities holding at 106p on 3 April 2017 ('A profitable earnings beat', 3 Apr 2017). | |||||
| 3. Manchester and London Investment Trust paid total dividends of 3p a share on 2 May 2017. Simon Thompson then advised selling half of the holding at 366.25p on 26 June 2017 ('Top slicing and running profits', 26 June 2017), and selling the remaining half at 377p ('Bargain shares second chance', 17 August 2017). | |||||
| 4. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The total return reflects this share sale. | |||||
| 5. Simon Thompson advised to sell Management Consulting's shares at 6p in February 2018 (‘How the 2017 Bargain share portfolio fared’, 2 February 2018). | |||||
| 6. Tiso Blackstar has transferred its UK listing to the Johanesburg Stock Exchange. Price quoted is sterling equivalent bid price at current exchange rates. | |||||
| Source: London Stock Exchange share prices. | |||||
I can reveal that the semi-conductor designer is Arm. I can also reveal that BATM has entered into an agreement with Salt Lake City based FatPipe Networks to provide a hardware/software solution offering real-time Software-Defined Wide-Area Networks (SD-WAN) services for network function virtualisation. SD-WAN allows companies to build higher-performance WANs using lower-cost and commercially-available internet access, thus enabling them to replace more expensive private connection technologies and deploy more applications, too.
FatPipe is currently the only provider of SD-WAN (the latest solution that service providers and telecom operators are deploying for 5G services) that can operate on both Arm and Intel (x86) architectures. The news also adds weight to the potential for the JDA between Arm and BATM to deliver a significant multi-million dollar royalty stream from 2020 onwards. In the circumstances, it’s hardly surprising that BATM’s shares have re-rated and are now priced on a multiple of 24 times cash profit estimates of $8m (£6m) for the 2020 financial year to its enterprise value of £144m. However, those forecasts don’t factor in a potentially substantial royalty stream from the JDA, which is why I see further upside to my target range between 45p and 50p. Buy.
■ Limited Offer. Until 3 September, Simon Thompson's new book Successful Stock Picking Strategies and his second book Stock Picking for Profit can be purchased for £16.95 each with free postage and packaging (normally £2.95 per book) at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. Details of the content of both books can be viewed on www.ypdbooks.com.
