ShareSoc Company Seminar - November 2017

As regular readers will know I'm a big fan of ShareSoc and all of the amazing work that they do on behalf of individual shareholders. The website has recently been revamped and is now much more user-friendly. So even if you're not a member of the organisation I'd recommend checking out the site as it contains plenty of useful information for investors. Anyway ShareSoc also bring many interesting companies to the attention of private investors with their seminars and this month proved to be no exception:

Trinity Exploration

It's been a while since I've seen a small-cap O&G share so I was ready to hear what Bruce Dingwall, Executive Chairman, had to say. In a nutshell this is a company that owns a large number (~1086?) of onshore and offshore wells in Trinidad & Tobago and produces from around 130 of them. Apparently the hydrocarbon basin here is substantial, running from Venezuela, which is why Trinidad is the wealthiest Caribbean nature with plenty of O&G infrastructure in place. In charge of operations there's a high quality board, with plenty of relevant experience, who are aligned with shareholders (they own ~25% of shares or ~45% if you include friends and family). For example Bruce himself ran Venture Production which got taken out by Centrica in a hostile but profitable takeover.

In contrast Trinity Exploration has languished for the last five years as a consequence of the collapse in oil price combined with taking on debt at the wrong time. Things got so bad last year that its shares were suspended with some subsidiaries filing for bankruptcy protection shortly afterwards. Still the company is back on its feet now and profitable as a result of massive cost-cutting and rationalisation; the upshot being that they hope to become debt free this year from cash-flow and the $15m raised last year. So things are looking pretty positive with a well reactivation programme helping to bring output to >2600 bopd with 3000 bopd achievable in the near term.

However, as Bruce pointed out, work-overs aren't a long term solution and so Trinity Exploration has done some exploration in its off-shore blocks and is looking to drill wells along the Galeota Ridge. It seems that this is an under-explored geological feature with a lot of potential although the caveat is that additional funding will be needed (whereas the company can self-finance onshore exploration). This adds risk obviously but I have to say that Trinity Exploration appears, to this non-expert, to be a well-run, profitable business having survived its baptism of fire!


As Steve Flavell, co-CEO, entertainingly put it who among us hasn't gone through a conference call and despised the experience? Despite the common frustrations of this experience most people still fall back to the dial-in option and haven't found a better tool for the job - which is where LoopUp comes in. Their USP is that they provide friction-free software that provides the bare minimum of functionality but delivers this very effectively and in a way that addresses the most common needs. It seems simple but apparently most competitors (think Microsoft, Cisco etc.) like to lay on the features and this only really appeals to the tech-savvy early-adopter.

Revenues have risen consistently, and strongly, since 2013 with a jump of 44% between the 2016 and 2017 first half-years. Even better the group is debt-free following its IPO last year and looks to be essentially profitable - although the P/E is an eye-watering 75 or so! Driving this transition is a base of >2000 active customers with the vast majority of these clients billing on a PAYG model; so there's lots of recurring income and it's clear that LoopUp are adding value because otherwise people would just stop using their platform (and the churn rate is a lowly 5.5%).

A separate element which Steve spent some time on is the marketing model used by LoopUp. Apparently they employ an idea called pods where each pod is a small, self-regulating team that targets recurring revenue is a self-sufficient way. These teams are primarily staffed by new graduates who learn to operate in the LoopUp way - the result being that the loss-rate of new staff is rather high (where they don't make the grade) but then the surviving teams are rather innovative and driven. I don't know if this is truly a unique approach, and creating teams organically does appear to put a cap on growth as only 3-4 new pods make it every year, but I guess that it must be working for the company.

N4 Pharma

After a short break Nigel Theobold, CEO at N4 Pharma, began an entertaining presentation on the making of an improved Viagra. Apparently the standard formulation takes too long to kick in and doesn't last long enough (no joke!) and N4 Pharma have a patent-protected process to address both of those weaknesses. By reformulating an existing, approved drug the company entirely removes the problem that most pharma start-ups face which is that they're betting their future on a compound/technology that may not pass the lengthy and expensive clinical trials required. The company is about to try and pass the lower bar set for any drug repackaging with results due in 2018; a good outcome will prove the company USP as applied to other commercial medicines.

On a different front N4 Pharma have developed a novel vaccine delivery system using nano-particles. Apparently lipid nano-particles are the current market choice but they suffer from issues around toxicity, DNA loss, etc. In contrast the silica sphere approach of N4 Pharma is much more effective at trapping pDNA and releasing it within a target site while avoiding medical side-effects. It all sounds very exciting and the market opportunity is huge (
$11.9bn huge!) with most of this in the cancer treatment space. That said human trials aren't going to start until 2020, at best, so it'll take time to see a result here.

In general I try to avoid pharma companies, on the basis that I'm not able to judge their likely chance of success, but N4 Pharma are definitely at the attractive end of the spectrum. By this I mean that the management team are experienced, they're choosing multiple targets and much of the analysis is outsourced to consultants. There should be enough money in the bank to fund current development plans but if the Sudanifil trial results are great then a raise will be on the cards.


Back in July 2016 I saw David Hornsby, CEO, talk about Ideagen and it was a pleasure to see him again and find out how their plans developed over the past year. To recap Ideagen provide software in the GRC (Governance, Risk & Compliance) space so that customers can audit and prove their compliance to the regulatory authorities. Currently they have over 3000 customers in a variety of highly regulated industries: aviation, banking, healthcare, life sciences, defence, NHS trusts and the like. Their biggest customer is the Railway Safety Standards Board who use the software for real-time monitoring and reporting of 70,000 incidents annually. This 5-year contract is a "big deal" and has opened the door to Tier 1 airlines amongst other verticals.

So there's absolutely no doubt that Ideagen are delivering value to customers and I really should have bought some shares last year! However I had some concerns regarding a slackening in organic growth to the 10% level and how the transition to a SaaS charging model might pan out. As it happens this change is still being managed carefully and recurring revenues are up to the 63% level now - which makes the target of >75% of revenues being on the subscription model by 2020 feel very achievable. David was also quite explicit about some of the other KPIs that they have in mind such as maintaining 10% organic growth, 20-30% EPS growth, 30% EBITDA margins and 90% cash conversion. Historically the company has delivered at these levels and with further, targeted acquisitions it looks like Ideagen can maintain the trend.

Now because of the buy & build strategy that David's following the share count has marched inexorably upwards for many years (which makes the 6x increase in share price since flotation all the more impressive) but such dilution may start to tail off as cash-flow improves. In this vein I find it notable that the company has maintained a net-cash balance since flotation despite a string of acquisitions in the GRC domain. Unfortunately these additions do tend to distort certain metrics such as ROCE; at face-value this seems very low at maybe 2-4% but on an adjusted earnings basis the number is more healthy at around 15% (as pointed out by Leon Boros). So David is doing exactly what he said he would be doing a year ago and by the looks of it he'd like to keep driving Ideagen along for many years to come.

Disclaimer: the author does not hold any of the shares discussed in this article.

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