possible reason for aim weakness

A mate of mine in the UK sent me the report I have copied below. Bottom line is it ranks ITE an 'avoid'. He works in the financial sector over there, but I don't know what circulation the report has had or the reputation of the author.

My own view is the report's conclusion (ie avoid) is a huge miscall, and that ITE's success in winning customers of global presence and high likelihood of many more like contract wins (and dollars and profits) will see it massively re-rated when/if it announces a spate of additional contracts.

However, if the masses who rely on reports like this --rather than doing their own research (or who are foolish enough to not follow the good work of some of the posters here or previously on s/s) -- are taking notice of it, maybe it has contributed to ITE modest start on the AIM.


IT&E - Avoid

Background - IT&E, a software solutions and consultancy services provider to the global banking sector, listed on AIM on Tuesday. The company was established in June 1999. The shares were already traded on the Australian Stock Exchange. IT&E is headquartered in Sydney and has offices in Melbourne , London , New York and Chennai in India . The company has issued 12.6 million shares at 4.75p per share valuing the company at £10.05 million on admission. The gross proceeds of the placing were around £600,000. The company is listing to increase its profile in Europe and UK and hopes to enter the European market where the company is confident that it will achieve a strong customer base.

Operations – IT&E is run by a very skilled team of specialists who provide technology services and risk consulting to the financial services industry. The flagship products of the company are RazorTM, PTXM and Monarque(R). Razor is an enterprise risk management product that allows financial institutions to manage their credit and market risk management requirements. PTX is a multi-asset web-based transaction platform that enables financial institutions to perform on-line trading over counter securities across multiple asset classes. Monarque is an application of ‘modularized program
suites' that is designed for trading and processing of financial instruments and supports the trading and treasury management at major banks and broking houses. The client base of IT&E is strong and boasts blue chip companies such as Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corporation, Australia & New Zealand Banking Group, HSBC, Bear Stearns, Brown Brothers Harriman and the Australian Stock Exchange. Even though the company has increased its revenues by more than 50% in 2006 to A$15.35 million, it is a loss making. In the year to 30 June 2006, it reported pre-tax losses of A$622,000. As at 30 June 2005, it had cash at bank of A$4.24 million and a working capital position of A$5.2 million.

Business development - The company operates in a very competitive environment and has built a reputation for delivering cutting edge technological solutions to the financial services industry. It has a very strong client base including companies in fund management, banking and insurance. Its products appear to have world class potential and the company seems to be investing a lot of money in sales and distribution to sustain and increase its client base around the world. The strategy of the company is to increase its revenues and win quality contracts which should help it grow in the future. It has a long term horizon in realizing profits and works strategically towards that goal. The company seems to have a very strong sales and distribution network and is working towards increasing its market share in Asia Pacific, Europe and America . Finally, IT&e seems to be managed by a very experienced team that is developing its products and offering a good service to its clients.

Management - David Bell is the chairman of the company and assumed this role in October 2005. Prior to joining IT&E in his current role he was non-executive director at the company and across his career he has held managerial roles in a number of companies which specialize in the technology
and the financial markets sectors. James Maranis is the managing director of the company and has extensive experience spanning 19 years in the financial services and technology sector. He has specialized in the interaction of technological solutions with financial services companies and has worked with many domestic and foreign banks, including EDS Global Financial Services. Before becoming managing director, he worked as general manager of all e-commerce divisions where he showed a very good track record in increasing revenues and expanding the customer base of the business. Before joining IT&E he held managerial positions as Account Executive with EDS Australia, executive manager for Commonwealth Bank of Australia and manager at Citibank. Simon Yencken is the executive director of the company and was founder and CEO of NextSet. He has been a partner at Freehills, general counsel and company secretary of Reuters Group, managing director of Reuters Financial Enterprise Systems and CEO of TIBCO Finance Technology. Stephen Simpson and Ellis Bugg serve on the board as non-executive directors.

Conclusion – IT&E has a solid track record in delivering results, expanding its sales and winning new contracts. On the other hand, while it has done well in terms of product development and sales distribution, it is not yet profitable. Sooner or later, regardless of how well a company is doing, the
result of aggressive expansion should show at the bottom line. With as many contract wins and blue chip clients under its belt, one would have thought IT&E would have achieved profitability. However, the company is still reporting losses. This poses the question of the company's future. It its business model weak? While we accept there is an element of operational gearing, the numbers suggest that IT&E may take a few more years to improve its numbers. One wonders why the group chose to dual list and take on additional costs.

Avoid.