Pick of AIM by James Crux

Priced at a micro-cap £1.476 million, Qonnectis floated on AIM in February 2005 and its business is all about saving money and resources for utilities including Scottish Water and other major users of water and energy ranging from BAA to Schlumberger.

The only supplier of an end-to-end system enabling remote meter monitoring by energy managers from anywhere in the world, Qonnectis’ technology allows utilities to reduce costs, improve business operations by remotely monitoring energy and water consumption, detect leaks and spot billing irregularities.

‘We’re a utility information business and meters are made intelligent by adding our devices,’ explains chief executive Michael Tapia, founder of a ‘very profitable’ meter device communications business acquired by Severn Trent in 1997. Demand drivers, he insists, include the current lack of accurate field data for utilities as well as water leakage and environmental concerns. Leakage, in particular, is a huge issue for water utilities from both a financial and regulatory perspective.

An innovative approach
Yet more spice is added through Qonnectis’ ‘breakthrough’ utility product, developed alongside major partner Thames Water, which will offer domestic monitoring for the first time. Leakfrog is a small cost-effective electronic device that attaches to domestic water meters and detects ‘customer-side’ leakage. Thames Water has already taken devices for trials and large-scale roll-outs as part of Thames Water programmes (as well as with other water companies) could create substantial value for shareholders.

For the half to December, pre-tax losses widened from £415,393 to £483,169. However, sales gushed 141 per cent higher to £161,185, exceeding sales for the previous full year by 47 per cent and gross margins increased from 29 per cent at year-end to 66 per cent. For those willing to bear the risks associated with a tiny (still loss-making) company, Qonnectis could prove a long-term winner.

An intelligent time to invest
‘We have the potential to become one of the biggest software businesses on AIM,’ says Phillip Blundell, chief executive of Intelligent Environments, AIM-quoted since 1996 yet only now fulfilling early promise.

The company provides online software products for financial services groups and their customers, particularly in the credit card market, and has more recently begun to add savings and loans products to its software suite.

Its technological wares, Blundell insists, bring swift returns to clients through cost savings as well as new revenue generation and customer service improvements and, as well as renewed spending on IT from retail banks after years of cut-backs, the company is basking in increased public confidence in the security and convenience of online banking and applying for loans and credit cards over the web. A move away from upfront licences towards transactional licence fees has also played a key part in the group’s revived financial progression.

Calendar 2006 financials revealed near-40 per cent sales growth to £4.35 million and Intelligent Environment’s first-ever operating profit and operating cash inflow as a PLC. Pre-tax profits of £410,000 represented a £640,000 turnaround from 2005 and improved year-end cash balances of £870,000 proved further icing on the cake.

Heavyweight partners including the world’s biggest credit card issuer, First Data, and LogicaCMG and Bank of New York, should fuel growth while banking heavyweights HBOS and HSBC are just two of the names on the client base. Upturn in IT spending by retail banks continues and, significantly, a new partnership deal with Unisys was announced earlier this year, with projects with Barclaycard and Principality (Wales’ largest building society) having proven successes.

Though another minnow, this £15.35 million business is resolutely backed by astute investors such as Herald Investment Trust and Marlborough Asset Management, and could reward a punt at the present 9.38p.