KRM22 has recovery potential

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3 mins. to read
KRM22 has recovery potential

Now could well be a propitious time to take a view on another little tiddler that has high annual recurring revenues (ARR) in its target sights.

This really small cap enterprise is KRM22 (LON:KRM).

It was set up in March 2018 as a closed-end investment company, effectively as a ‘buy-and-build’ operation concentrating on the technology and software sector.

It was floated on AIM by brokers finnCap at the end of April that year. The new company raised a net £9.87m of new funds, when 10.25m new shares were placed at 100p each, valuing it at £12.32m.

The boss of the new company was, and still is, software and technology veteran Keith Todd. His previous involvements include ICL, FFastFill, Amino Technologies, and Easynet. He has gained some 42 years of experience in the sector.

Within weeks of the float its shares were up to 150p on exaggerated optimism of Todd doing some fast deals.

The idea was to take a good look at potential investee companies, with the view of helping them to grow and develop. The search was on for companies with market leading software, a revenue-generating customer base, with expert founders and staff.

These companies needed to be focussed upon products in four key risk domains – market risk, regulatory risk, infrastructure risk and operational risk.

Most importantly, the target companies must be scalable, be ‘value’ based as potential acquisitions and capable of showing capital appreciation.

Looking at those four ‘risk areas’ – regulatory takes in compliance, market covers trading and execution risk in optimising results, operational risks takes in all aspects of a business, while technology risks focus on information technology infrastructure and cyber security.

Within months of having listed, the company had made three acquisitions and investments in line with its investing policy. It has since then developed further its interests.

Today KRM22 boasts that it develops and sells risk management software to the financial services industry. Its solutions are tagged Diagnostics, Risk Cockpit, Ascent RegTech, Irisium and ProOpticus.

The hopes of investors within weeks of the float have not yet borne fruit. The shares fell back to the Placing price by early last year and just drifted back to around 50p by last September. They traded at around that price until two weeks ago.

On Friday of last week the company announced that it was in discussions about a fundraising. Then on Monday it stated that it had a firm offer for £1m fresh funds at 30p a share. That was higher than the then 25p market price.

Last night they closed at 25p.

The company should be announcing its 2019 December year end results next week. They are expected to show revenue up from £1.29m to £4.14m and a £3.9m pre-tax loss.

At the year end the company was running at a contracted annual recurring revenue of £4.31m.

For this current year finnCap are looking for a £5m revenue, then £6m next year. That could see a loss of just £0.9m this year and £0.8m next year.

Prior to the fundraising, which could be completed tomorrow, there were 20,998,029 shares in issue, while Keith Todd holds 11.2% and the vendors of ProOpticus hold 3.7%.

Holders in the equity include Canaccord Genuity (14%), Herald Investment Management (10.0%), Premier Miton Investors (7.4%), Cinnober Financial Technology (5.7%), Octopus Investments (5.4%), Livingbridge VC (4.8%) and Rathbone Brothers (3.4%).

It has some strong institutional holders more than capable of identifying its marketplace and its potential.

One the face of it the financial profile of KRM22 does not look too exciting.

However, I consider that at around the 30p level the upside is far greater than the downside.

Even so, my one-year target price is just 50p.

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