Image Scan Holdings – a real ‘penny stock’ gamble

Image Scan investors are awaiting more positive news about the company’s progress and prospects. Mark Watson-Mitchell doesn’t think they’ll be waiting for long.

The best way to describe what this company does is to take on board its operating trade name – 3DX-RAY.

Its shares are a ‘penny stock’ punter’s dream.

At this incredibly early stage of its profitable development, it is an outright gamble –so unless you are prepared to lose all of your money then do not invest.

I could, of course, say that about every company whose shares are quoted on the UK markets.

However, I have to state that I have a sneaking feeling that this could prove to be a ‘little cracker’.

Novel tools

The Loughborough, Leicestershire-based Image Scan Holdings (LON:IGE) was set up way back in 1996. Its object was to develop novel tools and technologies centred around the acquisition of stereoscopic and multiple view X-ray images.

It has taken some time, but the £3.75m capitalised company now boasts of having advanced real-time X-ray screening systems, with applications in both the security and industrial inspection markets, offering ‘best in class’ X-ray images and a powerful range of processing tools to provide optimum clarity and resolution.

Not concealed

The group’s main trading subsidiary is 3DX-RAY. It supplies a range of portable, rapid deployment and static security solutions to the security sector worldwide including government and private security organisations.

3DX-RAY has applied the same high quality image acquisition technology to the non-destructive industrial inspection market where its equipment is used to examine products with concealed features and components.

The industrial range includes production in-line, batch and laboratory systems and has been installed in industrial plants globally.

Its business

The company’s principal activity is the design, manufacture, and supply of both portable and fixed X-ray security screening systems to governments, security organisations and law enforcement agencies. 

It markets and sells its products and services to a wide range of users – police, military, security services, bomb disposal teams, prisons, ports, airports, cargo handlers, freight forwarders, corporate HQs, mail rooms and stadia and events operators.

At some time or another we have all come into contact with such products and their uses are expanding globally.

World-wide sales potential

As yet, the company has barely scratched the surface, so its marketplace is wide open.

Some 81.1% of the group’s turnover, at £2.83m, is made up of original equipment sales, while after sales services total £0.56m and make up 18.9%.

On a global basis, sales in the 2020 year showed £1.91m (54.7%) were made to European, Middle Eastern and African buyers. Asian clients contributed £1.04m (29.9%), while those from the UK totalled £0.40m (11.6%) and the Americas took £0.13m (3.7%).

So, you can see that this really is very ‘early stage’ for the commercialisation of Image Scan’s global market.

So small that it has no professional holders

There are 136.35m shares in issue, of which Jupiter Asset Management is the only declared institutional holder with 7.00% of the equity.

Latest interim results

At the end of last month, the group announced its Covid-19 impacted interim results to end-March.

Revenue was down from £2.3m to just £0.87m, while the pre-tax loss was £0.20m (profit £0.18m). Its cash at bank was £1m (£1.1m).

During the interim period the company received orders worth £0.94m, against £1.15m previously.

Its period-end order book was £0.70m (£0.93m).

However, within a month its order book had been boosted, by a large Asian portable X-ray contract win, to £1.5m.

Concentrated sales push now on

Gradually, the company is breaking into the Canadian and American markets, as well as into Eastern Europe.

In its first half-year the company launched its Axis-CXi cabinet X-ray screening scanner, and it is very hopeful of positive sales in the near future.

To better support the sales activity in an environment where travel is difficult or impossible, the company is currently building a demonstration room at its facility. It will be fully equipped to support on-site visits, attendance at on-line trade exhibitions and person-to-person remote presentations and demonstrations. 

Elsewhere it is continuing to expand its on-line and social media presence as well as participation in counter-terrorism forums.

Broker estimates

Analysts Matthew Davis and John Cummins, at the group’s brokers WH Ireland, forecast that the current year to end-September 2021 will see sales of £3m and a £0.2m loss pre-tax, ending the year with some £1.2m in net cash.

For the coming year they suggest £3.7m of sales and a £0.1m pre-tax profit, worth 0.1p per share in earnings and end-year cash of £1.3m.

Big hopes for a little company

Both investors and the market are awaiting more positive news about the company’s progress and its prospects.

I do not think that they will have to wait too much longer.

The effect of winning one big order, like the supply of thirty portable X-ray systems to its Asian client, can be a great sales impetus.

Such new business can be incredibly exponential in its sales and profit impact. It could also be ‘self-feeding’ as global sales increase.

Share price performance

With its shares at just 2.75p each today, they are miles away from the 71.5p at which they traded twenty years ago. 

They fell back to the 6p level by August 2008 and since then have seen business in the 1.5p to 2.9p band, with a brief foray upwards to 12p in October 2017.

My View

Until more sales and profits come through the shares are a big gamble, but I do consider that ‘penny stock’ investors will be the winners in playing this stock.

I now set a 3.5p target price, but within a couple of years it could conceivably be several times that price.