finnCap Tech Chat | Knocked Up

March 2020 was an initial shock and speedbump for most companies, in the same way. Since then, there have been benefits to lockdown in working practices and efficiencies, even as the disadvantages of the absence of human behaviour as social animals has been too painfully obvious. Taking a step back, and assuming life returns to “normal” from July, at the least we should be looking at company prospects one or two years ahead as good as, or better than, those expected in March 2020 – and hence share prices similarly, allowing for any dilution in the interim. That’s been mostly true – but as with any digital environment, our only human role is to find and manage exceptions.

By now you hopefully all know about our finnCap Tech 40 and Next 50 indices, and if not refer back to our COVID valuations quarterly (here) for some background. Taking those 90 stocks and looking at average performance February 1st 2020 to now, the median share price performance has been +20% (excluding the two where performance is >+1000%); and since 16th March 2020, the COVID nadir, a median of +72%. In the same way that we can see the companies cusping on £100m market cap are just about to blossom, we can see certain stocks now in two different lights – those which have not regained their share prices at 1st February 2020, pre full COVID awareness, and those which have not improved fully with the market re-rating. We can send you these lists: but here are a couple to watch out for; where recovery is obvious and yet the share price is below 1st Feb 2020:

Tungsten: New management, new attitude, and strong relationships. Fewer invoices have been flowing through their accounts payable and accounts receivable systems, but as business volume recovers so too will demand for Tungsten products. Playing to mid-customers, albeit not declined in share price, Proactis will benefit from the same return of decision making in the spend management environment, with momentum in sales already evident in their formerly weaker territories (France, Germany, US) and the opportunity in bePayd.

Tracsis: Events staffing and surveys may be having a couple of summers of disruption but will come back - gigs, horseracing, football and Formula 1 have paused, not died. All the while the core rail and transport software business is booming, and set to benefit from rail reforms which have been accelerated by the COVID effect, and shown international contract wins which have been absent since 2016. Clearly wrongly priced, with £21m of cash to deploy.

Quixant: The global casino industry is steadily reopening after lockdown and Quixant’s gaming business is similarly returning. When COVID first impacted last March the group floated several gloomy scenarios but the recent update shows it has weathered the storm impressively with its strong balance sheet and market leading reputation.

SRT Marine: COVID lockdowns put a halt to the company’s major project deployments, specifically the Philippines BFAR rollout, as well as its negotiations to secure at least three new major projects contracts in the Middle East. However this was a temporary hiatus and both the deployment and negotiations recommenced in the second half of the year. SRT retains its exciting opportunity to transition from AIS hardware supplier to global leader in Marine Domian Awareness.

Napster/MelodyVR: After the acquisition of Napster completed in December 2020, the combined Napster/MelodyVR is focused on creating a differentiated music platform through the combination of MelodyVR’s exclusive immersive content and Napster’s streaming platform. In the next 3 years, we expect Napster’s exclusive immersive content will become increasingly important to consumers, and that telecoms will push consumers towards immersive content as a use case for 5G. We expect this will fuel subscriber growth for Napster/MelodyVR, create platform economies of scale, and drive profits.

So it’s back to school for my formerly little boy as he becomes a surly oaf – his growth has been unstoppable, and all he’s really had is a year of different circumstances. He’s had a gap year from physically being at school but has progressed. The stocks above have had their paths disrupted, but at worst their prospects are unchanged, and at best their acceleration out of lockdown could be the stuff of legend. It’s time for investors to have the knocker-upper bang on their windows and wake them to these strong prospects. Please get in touch if you would like to meet them.

Happy Friday