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
News
i100 In this video, the late actor Leonard Nimoy explains how he decided to use the gesture for his character
Arts and Entertainment
Secrets of JK Rowling's Harry Potter workings have been revealed in a new bibliography
arts + ents
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
news
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower