SMALLER COMPANIES : Crystal-gazing at IOC's future

Trying to judge whether a small, hi-tech firm is fairly valued by the market is an uncertain business, writes Richard Phillips.

Normal rules go out of the window. Companies can trade on fancy multiples, such as 100 times sales, and still be a bargain. Other businesses may get the brush-off from investors, and have to prove themselves over a longer period of time, yet still come good in the end. And, of course, plenty come a cropper. When that happens, it is no use moaning. The difference between triumph and disaster can be no more than the width of a cigarette paper in the sector.

One credo investors must follow is to be very cautious. It helps, too, if you have some genuine interest in, and knowledge of, the sector in which a company hopes to make its fortune.

With these provisos borne in mind, AIM-listed Integrated Optical Components offers some distinctive attractions. Placed at 80p a share in March last year, it currently sits at 159.5p. Last week it announced interim results, with pre-tax profits almost doubled to pounds 411,000 from pounds 208,000. Sales advanced to pounds 3.25m from pounds 1.38m.

And at least IOC makes a profit; many of its peers have yet to earn shareholders a penny, and may not do so in many cases for years to come.

Against that, IOC is valued at the astronomical figure of pounds 39m, or 12 times sales - roughly the same multiple as at the flotation. So the market has done nothing to let the price move closer to more normal valuations. As to its price/earnings ratio, it is anyone's guess where earnings per share could come in next year. On earnings of 1.5p - down 12 per cent from the previous year - the shares trade on a historical ratio of 106 times. If earnings can grow, say, 20 per cent by next year, that leaves the shares on a forward multiple of 88 times. Heady stuff.

So what is all the excitement about? IOC was set up by its three founders after they left GEC in 1991. It was at GEC they lit on the commercial potential of lithium niobate, a crystal which can be used to make microchips.

The microchips IOC makes are used as modulator switches for transmitting digital signals down fibre-optic cables. Lithium niobate chips can send signals further and more clearly than the conventional manner, through switched laser signals.

Despite being a tiny company, IOC aims to sign up the world's biggest telecommunications companies to its products. So far it has three major telecoms firms on board, and there should be more to come.

The company has already encountered teething problems. A production problem lost it pounds 250,000 in sales. IOC says the matter has been dealt with. But you can be sure of further troubles ahead in a situation like this. Even so, the shares should prove to be an exciting item at the more speculative end of a portfolio.

Start your day with The Independent, sign up for daily news emails
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
Life and Style
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own