Recession-proof Investments Can Be Found In The Aim Market

Along with ‘e-banking’ that was going to change the face of banking and ‘e-tailing’ the face of shopping, ‘e-learning’ was going to change the face of learning. And, to be fair, it has.

The trouble is, e-learning has not made much money for shareholders. I still bear the scars from an unprofitable entanglement with iTrain, now called ILT Solutions.

Meanwhile, another company in this area, Intellego, is yet to make a profit since its AIM flotation four years ago – although it is getting close.

It is forecast to break even this year, before reaching the dizzy heights of a £400,000 profit in 2009/10. Such a profit would represent two-fifths of Intellego’s £1m market capitalization. This is fascinating, but the shares have a shocking bid/offer spread of 0.5p-1p.

That means that if you bought up to the ‘Normal Market Size’ of 3,000 shares, it would cost you £30 – but they would immediately have a sale value of only £15. A 50% paper loss straight away – even before dealing expenses.

Taking steps in the right direction

But still, things can change. Intellego seems to be going the right way about increasing the size of the company and getting to a point where investors could take it seriously.

When it came to AIM in 2004, Intellego was just a distributor of other companies’ software. This was low margin and, as chairman Angus Forrest explained to me, if Intellego was to boost its profitability it needed to be selling products that it had devised itself.

E-learning is about training while sitting at your computer (or even at a cash till). It’s much cheaper and more efficient than trying to gather together all staff into one room for a session conducted by a professional trainer. Furthermore, such is the non-stop barrage of rules and regulations, that professional compliance training is, to a large extent, a recession-proof necessity.

That, anyway, is the theory.

Intellego’s recent interim statement was reassuring. Underlying sales growth was 20% and Forrest said that, while customers were taking longer to make their mind up, Intellego is yet to see any business cancelled or otherwise lost as a result of the economic climate.

But Intellego’s sales growth has more to do with the successful acquisitions that it has made in the past than with the economy. At the end of 2006 it bought the Newcastle-based e-learning provider eMedit. At the time, it was a ‘financial disaster’ but it did bring the skills necessary for the production of e-learning courses and a customer base focussed on the highly-regulated pharmaceutical industry.

Last year Intellego bought retail-focused Copia. Clients include B&Q and HMV. This year Intellego snapped up Professional Development Partnership, which works with the financial services industry and, from the receiver, Zenosis, which had a library of pharma compliance products.

The acquisitions have paid for themselves quickly – the result of some overhead reduction, but above all by boosting sales. Small private companies can lack the credibility necessary to secure large contracts, but with Intellego’s backing they have been able do so.

Copia, for example, has doubled its annual turnover, won important business with Boots, 3 Mobile and Spec Savers while Intellego supplied Home Information Training Packs to seven of the top ten providers, including the market leader Rightmove, with whom it has also signed a three-year deal to supply compliance and best practice e-learning courses to estate agents.

Confident of a swing into profit

These additional sales require little extra investment, and this is one reason why Forrest is optimistic that Intellego can achieve a significant swing from loss to profit.

Pearson, RBS, Bradford & Bingley and Lafarge have all placed repeat business with Intellego this year, while it also has opportunities for cross-selling particularly to customers in the pharmaceuticals industry.

So, for Forrest that maiden profit is now in sight, and he told me that he is confident that Intellego can achieve £400,000 profit ‘unless there is a complete meltdown.’ Training budgets have always been one of the first things to be cut in previous recessions. Will it be different this time? The next twelve months will provide the answer.

Regards,

Tom Bulford

P.S Did you get the email Ben sent you on Saturday? It contained a link to my latest report – my 3 “Bounceback Belters” for 2009.

Why ‘P Day’ could benefit your portfolio

BY BEN TRAYNOR

In 1975 Patti Smith recorded the album Horses. At the end of side one is the track Free Money. And so it is that I’ve started referring to the day all the world’s major interest rates hit zero (i.e. when money is effectively free) as ‘P Day’, after Patti Smith (gives it some mystique, you see).

P Day, if we see it, will not be pleasant. It will render monetary policy completely dead as a means of stimulating the economy. You can’t cut rates below zero. But, as you’ll see in a sec, there could be an upside…

The only option left will be to print as much money as possible. Since we’ll be in the liquidity trap – when people simply hoard cash rather than circulate it - it’s gonna take a lot of printing to make any difference.

Think of a rocket trying to break free of the earth’s gravitational pull. That’s the kind of printing we’re gonna need. Policies will either make no difference at all…or they’ll make a huge (inflationary) difference.

So where’s the upside in that? Well, zero base rates suggest a very low risk-free rate of return. That means than any risky investment you make – say, in stocks – won’t need to deliver so much return in order to be worthwhile. With some of the dividends on offer now, you could comfortably beat the near-zero you’d receive for holding gilts or a bank account.

Then, when inflation bursts back on the scene, you’ll already be positioned to ride that wave and keep your head above water.

I’ll have more on this in future FSDs. Stay tuned.

As you know, the stock market is said to “look ahead.” Sometimes it doesn’t bother to look very far ahead. And sometimes it seems completely. Instead, it goes along at full speed without noticing that the bridge has been washed away! And when it finally puts on the brakes, it’s too late.

At least now, the stock market’s eyes are open. But what godawful thing does it see?

The Daily Reckoning – Horrible times ahead

BY BILL BONNER

We’ve come to Zurich to attend a special conference on the future of the world. Nassim Taleb, author of ‘The Black Swan,’ is giving the keynote address.

We’ll let you know tomorrow what we find out.

You can read the Daily Reckoning in full here

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

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Recession-proof Investments Can Be Found In The Aim Market

Looking for Recession - proof Investments