No Pain, No Gain: You're not off your trolley to invest in Gatekeeper

I have often expressed anxiety about the quality of some companies on the Alternative Investment Market (AIM). In particular, I have lambasted explorers and technology entrepreneurs, and ventured doubts about some of the overseas contingent that has rushed to set up shop in London's junior share market. But it is foolish to adopt a blanket mentality. Clearly, there are companies in all three areas that deserve attention. One could be little-known operationGatekeeper Systems.

As a Californian-based, high-tech business, it should be in my leave-alone category. It is not even a British-registered company. Indeed it is not, like most shares traded in London, a public limited company. It is a US incorporation, with a Delaware registration, and could, if it wished, avoid certain listing rules.

But it seems prepared to toe the governance line and, what's more, it makes money. It appears to be a well-run business with considerable potential. The shares look undervalued. I am sufficiently impressed to wonder whether they should be candidates for the No Pain, No Gain portfolio. I will make a decision in the next few months.

Gatekeeper's speciality is supermarket trolleys. Not any old trolley. And there is not a wonky wheel in sight. Its sophisticated models can only be taken a pre-set distance or cannot leave the premises if they have by-passed the check out.

If, for example, a shopper attempts to push a trolley beyond the supermarket car park, its wheels automatically lock; helping protect the environment by preventing trolleys being dumped. A similar locking device prevents a would-be thief escaping with its haul through the supermarket front door. So the company has two claims to fame and is the leader in its rather rarefied field.

The shares have stuck at 44p, capitalising the group at £19.4m, since the start of September. They were floated at 48p, raising £8.3m, nearly two years ago; their high point is 58p. The company's stockbroker, Teather & Greenwood, has a 55p target. Teather has only been on board for a few months. It has encouraged Michael Lawler, the chief executive, to undertake a modest investment roadshow and one of its analysts, Mark Paddon, has produced a detailed study of the group. He concludes pre-tax profits this year should be $3.5m (£1.83m), putting the shares on 15.9 times earnings. Next year's figure should be $4.8m. It has a cash pile of around $8.3m.

Like many smaller US companies, Gatekeeper decided AIM represented its best route to raise money and at the same time obtain a share presence. It was not the first US group, tempted by more lightly regulated junior markets, to arrive in London. But it would appear to be one of the best.

Even so, those with long memories cannot help but recall with dismay a trans-Atlantic creation called Mrs Fields, a high-profile cookie shop business that gained a place on the old Unlisted Securities Market, AIM's predecessor, in the mid 1980s at 140p a share.

The shares went on to reach a 266p peak, giving a £400m capitalisation. But then Mrs Fields ran into trading difficulties. Disaster followed disaster and eventually it faced the humiliation of one of its biscuits having a greater value than one of its shares. It retreated across the Atlantic leaving 1,700 shareholders trapped in an unquoted company.

Gatekeeper, created 10 years ago, is not another Mrs Fields. It faces stiff competition but would have a head start over any trolley newcomer. I suppose the worst-case scenario is some of its major supermarket customers creating their own in-house trolley systems.

But it has a wide field to tap. Progress has been slow but appears to be gathering pace. By the end of June, only some 2,200 US supermarkets had embraced Gatekeeper and around 400 installations completed in Europe, with Tesco (157) among its customers.

Systems are sold - not rented. At some stage, the group's operation could extend beyond retailing with railway stations, airports and even hospitals possible targets. But with the huge supermarket environment to aim at, Gatekeeper has, so long as the rollout continues, no immediate need to spread its wings.

Like many an aspiring company, dividends do not loom large in its thinking. "It's something we consider but we need cash in the business," says Lawler, who with his co-directors accounts for some 60 per cent of the capital.

cash@independent.co.uk

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