The Investment Column: Log on to i-mate as founder gears up for assault on US market

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The Independent Online

Our view: Buy

Share price: 167p (+4.5p)

Despite having achieved a near-fortyfold increase in profits over the past four years, Jim Morrison, the founder and chief executive of i-mate, believes the company's most exciting times lie ahead.

The Dubai-based group has developed a range of mobile phones with e-mail and internet access. Its most sophisticated handsets offer users all the functions of a standard personal computer in the palm of a hand, including the ability to play games, films and music. Mr Morrison, a former product developer from BT Cellnet, started i-mate in 2001 and focused on selling the group's products in the Middle East.

This was probably one of the best decisions he made at the helm of the company. It turned out to be a perfect part of the world for a start up to sell into. The region had been largely ignored by rivals and, more importantly, unlike in western Europe, distributors pay cash for products up front. This meant i-mate was able to secure much-needed cash flows, which helped guarantee its future.

Now, Mr Morrison is ready for an assault on the UK and US markets. He believes i-mate's portfolio of products along with the after-sale support services it offers are by far the most compelling in the marketplace. His new phones will be compatible with Microsoft's soon-to-be released Vista operating system and can also be used to access low-cost internet telephony services (voice over IP in technology industry parlance) such as those offered by Skype.

I-mate has had a few problems since its floatation in September 2005. Three months after its listing, Microsoft released new software which disappointed and this negatively impacted the group.

So did trouble it had with the Taiwanese company to which it had outsourced the manufacturing. These, however, have been been resolved and, importantly, the group now has three new suppliers.

The fall in interim pre-tax profits i-mate delivered yesterday - to $10m (£5m) down from $12.4m - came because of significant investment by the company in developing new devices and marketing them.

By the end of its financial year, pre-tax profits are expected to hit $32m on sales of $312m. In 2003, these figures stood at $600,000 and $17m respectively.

I-mate shares trade at just 12 times forward earnings. This is far too low a rating given the growth the company is enjoying.

Evolutec

Our view: Sell

Share price: 37p (-97p)

To say that Evolutec suffered a setback yesterday would be a gross understatement. Shares in the biotech group lost 73 per cent of the value after key trials of its hay fever treatment failed.

The company said Phase IIb trials of rEv131 had found no significant difference between patients taking it and those taking a placebo. Evolutec will give up trying to treat hay fever with rEv131, but hopes the formula can be used on people suffering from eye inflammation after cataract surgery.

City analysts are sceptical that it will have much luck, and this partly explains the collapse of the stock. The fact that the remainder of Evolutec's pipeline contains only one product which is in the early stages of development also weighed heavily on the company's shares.

REV576 is a protein which the biotech believes can help people suffering from auto-immune diseases. However, if the group turns out to be wrong, its shares are likely to fall much further. Given Evolutec's track record, investors would do well to exit the stock.

Griffin Mining

Our view: Hold

Share price: 99.75p (+11.5p)

A combination of takeover speculation and a bullish update from its zinc project in China pushed shares in Griffin Mining to an all-time high yesterday.

Although Griffin stock has soared by more than 1,300 per cent in the past five years, the company remains an attractive prospect and is said to have caught the eye of mining majors like BHP Billiton.

The group has a sizeable mine in China's Hebei province, close to Beijing, which has been in production since last year.

Yesterday, news came that it plans to expand the project significantly over the coming years. It wants to increase production from 200,000 tons per annum to 500,000 next year and to 750,000 in 2008. The expansion will allow the group to start producing gold, lead and silver concentrate. The upgrade is expected to cost about £3.5m and will be funded from its cash reserves, which stand at £17m.

The one negative for the company is the falling value of the US dollar. However, this is more than outweighed by the strength of the price of zinc, which has quadrupled in value over the past two years.

Griffin made earnings before interest, tax, depreciation and amortisation of $400,000 in 2005. This is forecast to rise $37m in the current year and to $59m in 2007. We first tipped the stock at 32.5p a little more than a year ago. Despite its rise, it is still worth holding.

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