Existing Digital Barriers’ shareholders need to have confidence that the management team can build a profitable business over the medium to long-term. Many will be wondering whether they have made a good investment having watched the share price fall from a peak of 213p in November 2010 to a low of 120.5p at the beginning of this month.
Today’s results for the six months to 30th September 2012 seem to have provided some comfort and have nudged the share price up by 2.8%. The good news is that revenues continue to increase at both the headline level – up 68% to £8.1m – and on a pro-forma basis – up 31%. In addition, an increase in the order book gives confidence that this trend will continue over the next few financial periods; orders have almost doubled compared to the same period last year on a like for like basis.
Also notable is a sharpening of the company’s strategy after an assessment of the international market’s appetite for its offerings. Building on all twelve of its acquisitions to date (see Digital Barriers enters 'defining' year), it is now focused on three core technologies, which the management team believes are disruptive, differentiated, scalable internationally and “leading edge”. The three technologies are TVI (Transmission technology for live video streaming), RDC (a remote detection & classification ground sensor) and ThruVision (passive stand-off body-scanning capability for concealed object detection). We spoke to MD, Colin Evans, this morning and he informs us that about 80% of current revenues stem from these three products as do all major opportunities.
Importantly, the company has now made considerable headway in the Asia Pacific market after two years of building its brand and relationships. Most of the growth in the last period, though, came from new customers piloting or testing solutions. The next phase should see those customers bite the bullet and sign up for a bigger contract. In addition, the North American journey is six months behind Asia, and in the Middle East they are six months behind that, so there is still huge potential for growth internationally. Currently international revenues make up 27% (H111 22%) of the total Digital Barriers’ business.
Getting to this point has required considerable investment in the products as well as in new offices (Singapore, Washington, and Dubai). The company will need to continue to invest to continue it remains one step ahead of any potential competition for its technologies, but it is now at a turning point. It has integrated all of the acquisitions and is in a position where it has the potential to grow without adding further businesses into the fold (though it will always be on the lookout for new synergistic high end technologies). That means that profitability is in sight. In the last six months, the operating loss was £7.1m (H111: loss of £4.5m). Evans states that the management team now has the luxury of considering breakeven in the next twelve to eighteen months. That will be music to the ears of shareholders that have had to display nerves of steel.