Ten opportunities 2 double in 2019: First two recommendations

Our veterans know the ground rules, we pick the companies you do the trading. Our guideline is that if our tip has not worked within 3 months unless it is specifically deemed to be longer-term, it may be best to sell and redeploy the funds.

These Opportunities 2 Double are different. We feel confident that our experience of recognising the financial and non-financial patterns in a company’s business cycle we have identified Ten great unrecognised opportunities.…..

If, however, there was no risk it would not be a market. So please get comfortable with the degree of financial risk, which we do explain.

Then consider if you agree that the blue-sky element of the business risk is sufficiently real and large for the company to double in price. We suggest selling half your shares if they double and will report any changes of mind. We are looking forward with some excitement in publishing the recommendations over the coming weeks.

This week we are publishing the first two.

TechFinancials (LSE:TECH)

4.9p (4.3p/5.5p)

Mkt Cap: £4.17m

Next results: Finals, June

TechFinancials (LSE: TECH) is moving its focus from a CFD trading technology business into blockchain technology. It has two blockchain projects. One is a diamond exchange platform and the other, more interesting, project is a blockchain-based sports ticketing business. The signing up of the first football, or other sports, club and outside investment should provide upward momentum for the share price.

TechFinancials is developing the ticketing venture with Footies Tech Ltd. The new company will licence the blockchain technology from TechFinancials, which will hold a 75% stake in the venture. TechFinancials will inject up to $500,000 into the company, as long as a client is signed up. Former Liverpool FC chief executive Ian Ayre will be chairman of the new company.

The idea is to use blockchain technology to enable the sports club to take control of the initial sale and any secondary ticket transactions. Because the ticketing is fully digital it will remove ticket touts and highly inflated prices from the equation. Tickets can be sold via the platform and the club will take a share of any profit over the ticket price. The club can also track attendance and make specific merchandise offers to fans.

A football club is likely to be the first to take up the platform, but it can be used for other sports clubs.

Assuming the first club is signed up in the first quarter then the roll-out should be after May but ahead of the new football season. There will be a set up fee, an annual service fee and a fee for each transaction.

The venture will need to raise further funds and it is likely to seek VCT investment. Depending on the pricing of any share issue, that could provide an uplift in the valuation of TechFinancials stake.

TechFinancials record is poor, although there is cash in the bank, and this investment is speculative. However, the potential for the ticketing technology is enormous and as long as the project shows that it is making progress then this will spark interest from investors and push up the TechFinancials share price.

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Hardide (LSE: HDD)

1.3p (1.25p/1.35p)

Mkt Cap: £22.3m

Next results: Interims, May

Hardide (LSE: HDD) is a very different company to TechFinancials because it already has a growing business, even if it has been loss-making. Hardide has developed coatings technology that can uniformly cover difficult shapes – inside and out – using chemical vapour deposition. Wear resistance is 250 times greater than steel.

Revenues have historically been dominated by the oil and gas sector, but aerospace should become an increasingly important client sector over the next few years.

A slump in demand from oil and gas customers hampered progress at Hardide, which has facilities in the UK and US, in recent years. The US generated 61% of revenues last year, so Hardide is not dependent on the UK economy. There is also increased value added on some contracts where Hardide is responsible for the manufacture, not just coating, of a part.

Aerospace companies have been testing the coatings on parts for aircraft and helicopters, but this has been a long, drawn out process. Airbus has agreed technical details for a range of components and it is a case of coming to a commercial agreement.

Leonardo Helicopters is getting to the point of part approval on a transmission system. There are other firms assessing the effectiveness of the coatings. The UK and US facilities have gained aerospace accreditation, so they are ready for orders.

The third US reactor was commissioned before the end of 2018 and a new pre-treatment line will be installed this year. There are capacity and space restrictions in the UK, so further investment on the current or a different site will be required.

Hardide is on course to move into profit in 2019-20 as oil and gas demand continues to recover and other sectors should grow revenues. There was net cash of £3.2m at the end of September 2018, but this will decline as further capital investments are made. One concern is that Hardide will require more cash in order to invest in further additions to capacity.

There is a good chance that the first aerospace orders will come through this year and this will significantly increase the potential for Hardide. Timing is difficult to predict so some patients may be needed.

 

By  Andrew Hore & Jon Levinson 

Andrew has been writing about small companies for 25 years, following the fortunes of many companies, both successful and unsuccessful. He worked at the Investors Chronicle for 12 years, ending up as smaller companies editor. He then went on to write AIM Bulletin and he is currently editor of AIM Journal and AimMicro.com. He is a former AIM journalist of the year and was on the shortlist for the journalist of the year at the Small Cap Awards.

Jon has been an analyst, a journalist, a fund manager and is currently a corporate broker. He will strictly never write on corporate clients. His MBA dissertation was on filling the Smaller Companies Equity Gap. When writing the Penny Share Focus he learned that not all that glitters is gold.

 

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