Investment Column: Time to buy Kewill despite the bumpy ride

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The Independent Online


Our view: buy

Share price: 99p (unchanged)

Kewill provides companies with software services to help track the products they send to customers, with its operations largely split into three. The group provides software for import and export compliance, to help companies adhere to the ever-changing regulations involved in sending products overseas. It offers logistics services, which manages the process of finding the cheapest delivery available for a client in a given area, as well as tracking progress along the way. The third strand is so-called "reverse logistics", which provides software to manage the return of unwanted or faulty products. Keweill's clients include UPS, Air Canada, Littlewoods, Mothercare, J Sainsbury, Oracle and Tesco.

From a company that was stumbling around in the days after the dotcom bubble burst, Kewill has made itself more tightly focused under its chief executive, Paul Nichols. Its share price was hit during the credit crunch, tumbling almost by two-thirds to a low of 34.5p, but has since rebounded as investors have seen strength in the business model.

Kewill raised £7.2m in November and is to go spending to "plug in a few of the little gaps" in its business, a spokeswoman said, but the existing business looks pretty robust, with about 63 per cent of revenues recurring, up on the previous year. Yesterday's trading statement came in ahead of full-year results, saying that Kewill expected to meet its forecasts "despite the very challenging macro-economic environment and slower sales cycle". While some of Kewill's customers have been cautious about new spending, its sales pipeline has remained good. Its cash balance is £17m, up from £4m at 31 May last year. The bottom line is looking good and the shares should have further to go on a price of 14 times estimated full-year 2010 earnings. There should be more good news this year. We said buy at 72p last year. The shares are volatile but prospects look good. Keep buying.

GB Group

Our view: buy

Share price: 26.5p + 2p

GB Group checks up on you. Okay that sounds unfairly spooky. It doesn't trawl through your rubbish bins or follow you around, but it does help its clients to confirm your identity when you ring up to buy a product or service. It does this by checking what you tell its clients against its database, which is drawn mostly from external sources, both public and private. The client can then decide whether or not to trust what you say. It also helps companies to target customers by building on the data.

If GB did only the latter we would be very cautious. After all, market research (which is what, in our view, it all boils down to) is a significant business with some very big movers and shakers. However, the fact GB helps its clients to verify customers first makes the investment case altogether more appealing. It seems logical for companies to come knocking on GB's door for verification, and then to stick with it when looking at better targeting and working with customers who are telling the truth. Add to this the fact that GB offers a healthy dividend yield and trades on a multiple of just 7 times enterprise value to sales, and we cannot justify saying anything but "buy".

Gaming VC Holdings

Our view: Hold

Share price: 175p -17.5p

Last year we made Gaming VC a tentative buy at 187.5p. While this proved the right call for much of the year, yesterday's results statement threw the online gaming company into sharp reverse. Moving from Luxembourg to the Isle of Man might have enabled it to offer a special dividend, but the fact that its pre-tax profits fell to €13.8m (£12.1m) from €16.9m did not look good.

What is more, the regular payment will fall because of what is being spent on investment and developing Gaming VC's various businesses, as well as pushing them outside the areas in which they currently operate. Profits this year will be materially lower than last year, which, naturally will hit the divvy – the group pays 75 per cent of its cashflow but even the house broker says the 2010 payout might be under threat from acquisition costs. Existing shareholders will, of course, receive some compensation for this but, looking at Gaming VC as an investment prospect, bear in mind there may be short-term pain before longer-term gain.

On the plus side, there are at least no complications from its previous US businesses coming back to haunt it, as is the case with so many other online gaming groups. This leaves investors basically taking a bet on whether the management can successfully deliver on their promises. Gaming VC's core CasinoClub business, in Germany, looks resilient enough, with various bits and pieces (including a substantial operation in South America) attached to it. This is still a risky play, though, so hold for now.