The McHattie GroupSTOCKMARKET INTELLIGENCE

St Brandon’s House29 Great George Street

Bristol BS1 5QT

Tel: 0117 407 0225E-mail: techinvest@mchattie.co.uk

Web: www.techinvest.co.uk

• Authorised and regulated by the Financial Conduct Authority. FCA No: 137733. VAT Reg No: 567306625 •

Dear Investor,

Thank you for downloading this sample copy of Techinvest.

Truly this is an amazing time for technology companies. All five of the world’s largest publicly traded companies are tech stocks - Apple, Alphabet, Microsoft, Amazon, and Facebook. There is a whole host of other remarkable companies that are lesser-known, yet which can also offer fantastic opportunities for well-informed investors.

We write about technology stocks every month for our subscribers, sharing the opinions and advice we have gathered from our own in-house research and from the resources we have carefully gathered over many years. The editorial team has been producing Techinvest since 1984, advising clients on exactly which shares to buy and sell as new technology unfolds.

Subscribe Now to receive:

• Twelve monthly issues of the newsletter, packed full of advice, information, research, and all of the latest news you need to feel confident in your portfolio decisions

How much does access to all of this advice and insight cost? An annual subscription is £299 - a sum you could recoup with just one or two successful investments. We all know that technology stocks can provide tremendous rewards if you are able to pick the right ones.

That subscription fee is for a whole year - that’s 12 monthly issues of the newsletter, plus any occasional bonuses we might provide. What’s more, if you pay by standing order, this will FIX your annual subscription fee and protect you against future price rises. If you pay by standing order we guarantee not to raise the price for your subscription – EVER. This is our loyalty bonus for subscribers.

All you need to do is complete the subscription form on the next page.

Simply complete the form and return it to us, and we’ll send your first newsletter by return.

With my best wishes for your technology holdings.

Andrew McHattie Publisher

Issued by The McHattie Group, St Brandon’s House, 29 Great George Street, Bristol, BS1 5QT. Telephone 0117 407 0225. E-mail techinvest@mchattie.co.uk. Website www.techinvest.co.uk. Authorised and regulated by The Financial Conduct Authority. Techinvest gives general advice and comment only. The price and value of investments and the income, if any, from them can fall as well as rise. Past performance is not necessarily any guide to future performance. Some investments may not be suitable for certain investors. If you have any doubts, please seek advice from a professional financial adviser. The McHattie Group offers restricted advice on certain types of investments only.

TECHINVEST

TECHINVEST NEWSLETTER SUBSCRIPTION COUPON

Please return to: The McHattie Group, St Brandon’s House, 29 Great George Street, Bristol, BS1 5QT

I would like to subscribe to Techinvest.

Mr/Mrs/Miss/Dr ..........................................................................................................................

Address ................................................................................................................................................

....................................................................................................................................................................

....................................................................................................................................................................

....................................................................................................................................................................

Postcode ............................................................................................................................................

E-mail ...................................................................................................................................................

Bank: please quote ref. no:

For Office Use Only

Standing Order Payment

To (your bank) ....................................................................................................................................... plc

Full Bank Address .....................................................................................................................................

.................................................................................................................................................................................

Current account no .................................................................................................................................

Sort code ........................................................................................................................................................

ANNUAL INSTRUCTION: Please pay to National Westminster Bank (50-41-10), 1 Abbey Road, London, NW10 7RA, for the credit of TECHINVEST account number 47495367 the sum of £299.00 on receipt of this order and the same sum on the same date each YEAR until countermanded by me.

Date ...................................................................................................................................................................

Signature .............................................................................................................................................................................

May 2018

Stockmarket Newsletter

A • G U I D E • T O • T E C H N O L O G Y • G R O W T H • S H A R E S

MARKET COMMENT

TECHINVEST IN THIS ISSUE

FTSE 100 7518.85 FTSE Small Cap 5143.98 (excl Inv Cos) FTSE techMARK Focus 4570.35

(formerly techMARK 100)

Figures are as of the close of business on Tuesday May 1st.

New Buy

After falling sharply in late March, equities staged a strong recovery during the month. Since the last issue of Techinvest the FTSE techMARK Focus index has risen by 7.0%.

As we went to press for the April issue, London-listed tech stocks were hitting a twenty-month low and the benchmark FTSE techMARK Focus index had just breached the key support level at 4200. The rebound since then has been impressive, with the index pushing upwards to challenge the next resistance level at 4600. In last month’s market comment we wrote “a decisive breach of the support level at 4200 over the next few weeks would look bearish, but equally if that level can be defended successfully it would be a solid indicator that investor confidence in tech remains in good shape.” We certainly think the vigour seen in the bounce back from the 4200 level is a positive sign of the enduring allure of tech at a time when few other sectors of the economy are delivering consistent growth. Demand for tech stocks has also been boosted in recent weeks by a significant increase in corporate activity, with CityFibre being the latest from our list of recommended stocks to attract a bid. This follows on the heels of offers for Fidessa, Laird, Escher, Stadium, and Lombard Risk Management since the start of the year. We anticipate a spate of further takeovers in the coming months as the pursuit of consolidation opportunities in the tech sector hots up, supported by record levels of cash sitting on corporate balance sheets and the low cost of debt. The recent earnings season has also presented an upbeat picture of the health of UK tech, with most of the companies we follow delivering solid results and issuing encouraging outlook statements.

Whether the momentum behind tech shown in April can be sustained over the summer months is debatable, however. Other sectors of the economy are not performing as well and confidence in equities across the board is fragile. Weak UK economic data in recent weeks is not helping sentiment. We would need to see the FTSE techMARK Focus index move decisively through the resistance level at 4600 before being confident that a further leg of the bull market is unfolding. More takeover activity could possibly propel the index forward to new all-time highs in the near term, though we think there would also need to be support from a more broadly-based equity rally for that to happen. Overall, we feel that range bound trading for the FTSE techMARK Focus index between around 4200 and 4600 is the most likely scenario for the next few months.

Of course, equity markets don’t have to be firing on all cylinders in order to generate decent returns.

Tech stock prices in general have been flat since the start of the year, yet there have still been some outstanding gains recorded by individual stocks. The review of our UK New Year Tips in this month’s issue reveals a number of picks that have risen very strongly in just a few short months. Kape Technologies, for example, is up by 70% since the start of the year, while Scisys and Laird have both advanced by over 40% in the same period. StatPro’s circa 20% appreciation is also looking good against the backdrop of a flat equity market. Takeover targets such as Escher, Lombard Risk and CityFibre have attracted bids at a healthy premium, with the near doubling of CityFibre’s share price on announcing a recommended offer being a good example of the significant gains to be made in the latest round of market consolidation in tech. Unlocked embedded value is a common feature with many of the tech stocks that make it onto the radar of the corporate raiders. CityFibre, for example, has invested a lot of time and money in establishing a high-speed internet infrastructure that can now be built out and commercialised to potentially generate strong licence revenues for many years to come. Similarly, Lombard Risk’s proprietary technology was the product of many years of sustained R&D investment and high skill input from some of the best software developers around. These companies are being snapped up by other corporates who believe they can do a better job of commercialising the considerable skills and resource invested in bringing successful products to market. The likes of IQE, StatPro, SDL, Pennant, and DotDigital are in a similar position in terms of offering deep embedded value based on rich IP and best-in-class product development; it would be no surprise to see some of these stocks attracting takeover interest in due course.

In addition to high profile takeover candidates, significant gains can also be made in the current market by investing in selected value situations. Even though we are now into the tenth year of the bull market, there are still some fantastic bargains to be found among overlooked smaller tech stocks. The gains for Kape Technologies this year are a case in point: the shares looked excellent value on a number of metrics when we made our recommendation to buy in January. Even after the recent share price appreciation the stock still trades on a lowly cash adjusted prospective P/E of 14 for the current year. Likewise, recent results from Parity confirmed the excellent progress made in reorganising and strengthening the business over the last couple of years and the shares are deservedly now being re-rated. Yet we were able to recommend Parity as a New Buy in January on an historic P/E of 12.95 and with a prospective P/E for the current year of just 7.17. Not all lowly rated, overlooked stocks will prove to be winners, but we believe careful selection can deliver some excellent returns for investors.

Gooch & Housego Buoyant demand

Tracsis Excellent first half

IQE Further progress

GAN Revenue building

Iomart Positive trading

Elecosoft Impressive results

Castleton Technology Strong cash flow

Ideagen US acquisitionCyanConnode

Expanding order book Kape Technologies

Revenue soarsParity

Excellent resultsScisys

Major contractPlaytech

Italian acquisitionD4t4

Robust trading Proactis

Mixed resultsFirst Derivatives Positive updateTribal Group

Strong deal flowKainos

Trading in lineAPC

Bookings increaseIMImobile

Revenue climbsCityFibre

Recommended offerIdox

Confident outlookULS Technology Beats expectations

Sanderson On target

Alfa Financial Software Quality player

GB GroupAhead of expectations

EDITOR Andrew McHattie

PRINCIPALCONTRIBUTOR Michael Kirby

CONTRIBUTORS Conor McCarthy Darren Freemantle

SUBSCRIPTIONS Sarah McHattie

- Page 2 - May 2018

UPDATES

New subscribers should note that these Updates provide comment and reviews of previous Techinvest New Buy ratings until they are no longer worth holding in our view. This is a service to regular readers and as such the notes are written in the context of the original tip.

A rating such as “Hold” means that someone who bought at or close to the tip price is advised that the shares are worth holding, even though they could still be a worthwhile buy. Sometimes a previous tip is again rated a buy. This normally arises where for no apparent reason the price is below the original tip or where subsequent good news justifies a further purchase at a higher price. Except where noted shares are on the London Official List.

We need to include a couple of administrative notes this month. The first is that we have changed our telephone number for all enquiries, switching to a more modern system that should allow us to direct calls more efficiently and flexibly, within the usual constraints of a small company. The new number is 0117 407 0225 and will appear in our risk warning in every newsletter. Second, you will almost certainly be aware that the EU’s General Data Protection Regulation (GDPR) will be enforced from 25th May 2018, in response to which we have a very simple data and privacy policy, again included in our risk warning from this month onwards and also on our website www.techinvest.co.uk.

Gooch & Housego 1382.5p (GHH; AIM)

Market conditions have remained positive for Gooch & Housego since the start of the current fiscal year. Trading for the six months to March 31 was in line with management’s expectations, the company announced. Demand for critical components used in microelectronic manufacturing has remained at an exceptional level. By contrast, sales of high reliability fibre couplers have been at a lower level since the start of the year, though Gooch & Housego expects demand to come back in the second half. The order book is at a record level for the half year, standing at £84.7m, an increase of 27.1% compared with the same time in 2017. Excluding the impact of foreign exchange this represents an increase of 36.4%. Interim results are scheduled for release on June 5th. The record order book provides a solid underpinning for the business for the rest of 2018 and into the next financial year. Gooch & Housego is a quality operator, making sensible strategic moves and benefiting from an experienced and highly effective management team. We rate the shares a strong hold.

Tracsis 601p (TRCS; AIM)

The company has reported a strong set of results for the six months to January 31, with both divisions performing well and all key financial metrics ahead of the same period last time. Revenue increased 16% to £18.1m and adjusted EBITDA was up 21% to £4.3m. Operating profit margin for the period was 13.7%, up from 11.7%, statutory pre-tax profit climbed 33% to £2.4m, and the business remained debt free with good cash flow and cash conversion. The Rail Technology & Services division achieved sales of £9.2m, up 17% on the prior first half, and revenues for the Traffic and Data Services division improved by 15% to £8.8m. Cash balances at period end amounted to £18.5m (equal to 65.93p per share).

During the first half On-Trac secured a number of bespoke software development projects and work commenced on delivery of a major contract for the TRACS Enterprise software with a major UK TOC. The Traffic & Data Services division traded well following a series of operational improvements made in 2017 and a major multi-year contract with a global engineering company was renewed. Further progress for the company’s Remote Condition Monitoring technology in the US was reported and the strategic investment into Vivacity Labs is said to be showing promising results and expected to provide support in the second half for the company’s video analytics work. As we reported last month, post period end Tracsis has announced the acquisitions of Travel Compensation Services and Delay Repay Sniper, bringing exposure to the growing market for delays claims processing. After a strong first half, the company is confident of delivering full year results in line with market expectations. It is hard to criticise anything in these results from a rejuvenated Tracsis. The business is recovering strongly from a minor setback in the first half of 2017 and good financial and operational progress is evident across all parts of the group. We tipped the shares at 442.5p in October last year. Gain to date is 35.8%. Strong hold.

IQE 103p (IQE; AIM)

IQE has reported continued revenue diversification with strong growth in high margin product lines for the year to December 31. Revenue was up 16.4% to £154.5m, with revenue from Wafers increasing by 21.1% to £152.6m. Licensing revenue, as expected, was down 71.9% to £1.9m, reflecting that 2016 included a significant portion of up front license fees. Adjusted operating profit climbed 19.2% to £26.4m and adjusted pre-tax profit was £24.3m compared to £20.6m a year earlier. Cash generated from operations was up 32.6% to £29.7m. Net funds of £45.6m (2016: net debt of £39.5m), reflects new equity raised of £95.0m in November to fund ongoing capacity expansion in 2018.

These record financial results for the company reflect the adoption of IQE’s VCSEL technology in mass market consumer applications in the second half of 2017. Photonics sales were up 109% to £47.6m for the full year, with second half sales up more than 160% over the corresponding period last time. IQE expects photonics revenue to grow between 35% and 60% in 2018. Capital investment increased to £34.8m (2016: £19.1m) to address near term and foreseeable growth opportunities. A new ‘Mega Foundry’ in Newport, South Wales is in progress with plans to house up to 100 tools,

creating a facility which IQE believes will have unparalleled capacity and economies of scale in the industry. The first five tools are now in-situ and on track for production in the second half as expected, and a further five tools are scheduled for installation and commission by the end of the third quarter. IQE also reported excellent progress with technology development including demonstration of key enabling technology for high performance wireless filters, cREO for integration of CS materials technologies on silicon, and Quasi Photonic Crystals and Nano-Imprint Lithography for a wide range of optical technologies including DFB lasers, integrated 3D sensing solutions and silicon photonics applications. Separately, IQE confirmed that it has exercised its exclusive option to acquire and own the cREO technology and IP portfolio for a consideration of US$5.0m. As these results show, the operational gearing of the business supports strong profit and cash generation. This was one of the main factors behind our recommendation to buy the shares at 38.25p in the January 2017 issue. We also like IQE’s expanding portfolio of intellectual property, including over 180 patents, which is enabling the company to differentiate itself in the marketplace. The strong IP also supports the business model by not only enabling IQE to be global leader in the supply of advanced semiconductor wafers, but also increasingly able to provide comprehensive advanced materials solutions that enable chip designers to develop chips that push the boundaries of performance, allowing higher levels of integration and reducing the barriers of cost. With such an extensive range of high quality IP, much of it now proven, there is every chance that IQE is on the radar of other key players in the semiconductor market, as consolidation in the sector intensifies. Given the excellent long-term potential of the business, however, we are hoping predators stay away. Buy.

GAN 36.5p (GAN; AIM)

The supplier of internet gaming software has reported a robust set of results for the year to December 31. Gross income of £41.1m represented an increase of 30% on 2016. Net revenue was up 17% to £9.1m and the company made an EBITDA profit of £0.5m against a loss of £0.9m last time. Loss before tax was £4.2m (2016: £5.2m). Cash and cash equivalents at year-end was £2.7m (3.8p per share).

Good operational progress was also reported, with the launch of Simulated Gaming for five new US casino clients during the period. Two casino clients for real money Regulated Gaming were signed in New Jersey and Europe. GAN also expects to benefit from Pennsylvania becoming the fourth US state to regulate internet gaming. Post year-end, preparations are underway for GAN to launch Parx Casino in Pennsylvania for internet gaming with the Pennsylvanian Internet gaming market anticipated to commence in the second half of 2018. A strategic relationship has also been established with SBTECH for delivery of internet sports betting to selected existing and new US clients, conditional on the US Supreme Court repealing in full or part the long-standing Federal US ban on sports betting outside the State of Nevada. GAN’s US Patent for linking US casino patrons’ rewards account to their internet gaming account held within an internet gaming system (marketed as the iBridge Framework) withstood an ex parte challenge in 2017 and was re-confirmed as valid by the US Patent Office in the second half of 2017. The patent has now been licensed three

- Page 3 - May 2018

times for real money internet gaming in the States of Pennsylvania and New Jersey as well as thirteen times for Simulated Gaming in the US nationwide. Following a lengthy investment cycle to position GAN as a leader in the internet gaming solutions market, the company is now starting to report financial progress, delivering the first full year of positive EBITDA since 2013. The regulatory environment in the US also appears to be turning in GAN’s favour, with the States of Michigan and New York considering legislative action in 2018 to regulate internet gaming. So far GAN has been judged mainly on the operational progress made in winning customers for both Simulated and Regulated Gaming. However, we are moving towards a point where the financial opportunities for the business will be easier to assess. More will be known about recurring revenues by the end of the current year and the timescale towards full profitability should also become clearer. Hold.

Iomart 394.25p (IOM; AIM)

In a pre-close trading statement for the year to March 31, the company reported that it expects to deliver another strong set of results, with good growth in both revenue and profit. Revenue growth is expected to be approximately 9%, while adjusted EBITDA climbs to approximately £39.8m compared to £36.6m in the prior year. Pre-tax profit of approximately £23.9m (2017: £22.4m) is anticipated. The Cloud Services segment has continued to win a substantial amount of new business, benefiting from the growing adoption of cloud services by organisations that need a strong partner with the necessary infrastructure, skills and experience to provide the scalability and flexibility they require. Cloud Services also benefited from the full year contribution of Cristie Data which was acquired in August 2016 and from the contribution of Dediserve, Simple Servers and Sonassi since their acquisition in 2017. These acquisitions not only bring additional long-term customers into the group but also have expanded the geographical reach and increased expertise within high growth areas of the market, such as ecommerce retailing. Easyspace, the segment that provides a range of services to small and micro businesses, has performed well, in line with expectations, having continued the organic revenue growth re-established in the prior year. Given the sustainable nature of the market opportunity, a broadening product offering and a growing reputation within the cloud industry, Iomart looks well positioned for continued growth. The company’s ability to provide consultancy and services across the whole cloud spectrum is a key competitive advantage and we anticipate that the business will win a substantial amount of new business in this area in the current year, as the trend for buyers to seek external cloud specialists for guidance and ongoing management continues. Buy.

Elecosoft 64.5p (ELCO; AIM)

The company has delivered a strong set of results for the year to December 31. Revenue was up 12% to £20.0m of which 49% was from recurring maintenance and support revenue. Revenue growth was driven by direct sales up 13% to £18.8m and growth through resellers up 8% to £1.2m, reflecting Elecosoft’s strategy to accelerate revenue growth with partners. Adjusted operating profit increased by 26% to £2.8m and pre-tax profit was ahead by 50% to £2.3m. Elecosoft maintained a healthy level of product investment, with software

development spend up 6% to £2.7m, representing 14% of revenue. Free cash flow climbed 117% to £2.6m and 102% of adjusted operating profit was converted into cashflow. Net borrowings were eliminated and the company has £1.0m net cash at year-end.

Operational highlights during the year included the release of Powerproject SaaS to the UK market. Powerproject now ranks third in sales of project scheduling software to the US construction industry, with 15% of the top ENR 400 US construction contractors now using the product. Over 90% of the top 100 construction contractors in the UK and 35 out of the top 50 in Sweden also use Powerproject. New customers have been secured for Staircon in Australia and Powerproject in Sweden. Icon has been successfully integrated following acquisition in October 2016 and cross-selling opportunities have been successfully pursued, including the adoption of Elecosoft’s Bidcon estimation software by IconSystem customer McCarthy & Stone. Good progress was also made with Interiormarket and Marketingmanager, the company’s visualisation marketing programs sold to flooring and tiling companies and DIY stores in Germany, and increasingly also worldwide. Elecosoft is now well-established as a leading provider of software for the construction industry worldwide. The business offers ample scope for organic growth through expansion into new territories and cross-selling of the expanding product portfolio. With a strong balance sheet, the company is also well placed to make bolt-on acquisitions in a segment that is ripe for consolidation. Strong hold.

Castleton Technology 88p (CTP; AIM)

In a trading update for the year ended March 31, the company said it anticipated continued double-digit organic growth in both revenues and profits. Revenue is expected to be not less than £23.1m and adjusted EBITDA not less than £5.0m. Cash generation in the period was strong, resulting in operating cash conversion of approximately 100% of adjusted EBITDA, facilitating a continued reduction in the company’s net debt. Castleton has also achieved a number of key operational milestones, notably the delivery of its integrated product suite on two milestone contracts, significant multi-year contract wins and the acquisition of Kinetic Information Systems, enhancing the company’s existing operations in Australia’s expanding community housing sector. Full year results are scheduled for release in June. The market opportunity for Castleton remains large and given the company’s now established position as a ‘one stop shop’ serving the social housing sector, the growth prospects for the foreseeable future look very promising. We made the shares a New Buy at 67.5p in the February issue. Gain to-date is 30.4%. Continue to buy.

Ideagen 115p (IDEA; AIM)

Ideagen has made its first US acquisition, Medforce Technologies, for a net cash consideration of US$8.7m. The acquisition will be financed partly from the company’s cash reserves and partly from existing debt facilities. Based in New York State, Medforce is a profitable and cash generative healthcare software company having developed the ‘Center’ suite of enterprise information management, workflow and compliance software. The software is used by over 300 US-based healthcare customers, including a number of

Fortune 500 companies, to support business process productivity and legal compliance. For the year ended December 31, Medforce achieved revenue of US$4.7m of which 82% was recurring, and EBITDA and profit after tax of US$1.0m before non-recurring costs of US$0.4m. The acquisition is expected to be earnings enhancing in Ideagen’s current financial year that began May 1. Over 50% of all new logo wins and 70% of all new SaaS wins for Ideagen in the first half of fiscal 2018 were generated in the US. Expanding the geographic footprint in the US through the Medforce deal makes obvious sense, therefore, particularly as the acquired business has valuable IP and strong recurring revenues. The acquisition will provide infrastructure and a platform for further growth in the US market as Ideagen continues to execute its global growth plan. Strong hold.

CyanConnode 11.5p (CYAN; AIM)

CyanConnode issued a broadly positive Q1 update during the month. Since the start of the year, the company has seen increasing demand for its products across multiple territories, so that revenues in the first half of 2018 are expected to be higher than for the full year in 2017. Moreover, management anticipates that revenues and cash receipts will materially accelerate throughout each quarter of the current year. At the end of the quarter, CyanConnode said it had a global order book of US$100.0m and a large identifiable global pipeline, with new orders expected in the near term. At the same time, the company has taken positive steps to manage and reduce the cost base, with significant reductions being made in the last six months. The cost base from July 2018 is expected to be around £0.64m per month, which is significantly lower than in 2017.

Following the appointment of Anil Daulani as Managing Director of CyanConnode India in September 2017, both the sales and delivery teams have been significantly strengthened. The relationships with existing meter and system integration partners have been consolidated and new eco-system partners added. As a result, the sales pipeline in India has expanded and includes multiple large commercial opportunities where orders are expected to be placed in the first half of the current year, resulting in cash and revenues during 2018. The UK Smart Metering Implementation continues to progress with over 11 million smart meters now installed in homes across the country, according to new figures published by the government. During 2018, the company expects to benefit from the roll-out of the UK Smart Metering Implementation Programme. Licences for the contract were supplied by Connode and paid for prior to its acquisition by the enlarged group in 2016, and these have been built into the roll out. A significant overseas customer who delayed the deployment of a large contract at the end of the last financial year has reconfirmed that they will take delivery of the hardware, but CyanConnode added that currently it has little visibility on timing of the first delivery. The delayed deployment in late 2017 was a setback for the company, though the bigger picture remains positive. Demand for smart meters in most parts of the world continues to grow and the company is expanding into new territories and broadening its customer base. While timing of large orders is hard to predict, the strength of the current order book and sales pipeline illustrates the scale of the opportunity in the smart meter segment. Continue to buy.

May 2018 - Page 4 -

Kape Technologies 111.5p (KAPE; AIM)

Shares in Kape have soared in recent weeks, partly in anticipation of strong results for the year ended December 31. Kape is the new name for Crossrider, a specialist in cybersecurity products for the consumer market. Revenue for the year increased by 17.4% to US$66.4m and adjusted EBITDA by 28.9% to US$8.3m. The increase was driven by strong demand in the core App Distribution and Media segments where combined revenue was 47.6% higher at US$21.7m. The increase in core activities was offset by the winding down of the Web Apps and License business that was completed in September 2017. Kape remains a highly cash generative business, with cash generated from operations after adjusting for one-off non-recurring items of US$7.6m. This represents adjusted cash conversion of 92%. The balance sheet remains strong with year-end cash of US$69.5m (equivalent to 38p per share) and no debt. Reflecting the strength in the business currently, Kape announced a special dividend of 4.93 cents (3.55p) per share, at a total cost of US$7.0m.

Since October 2016, Kape has focused on acquiring and developing cybersecurity software solutions for consumers, whilst utilising its proprietary digital distribution technology to grow its user base across the company’s product suite. Integration of CyberGhost, acquired in March 2017, is now complete and the business is fully unified with Kape’s user acquisition platform. CyberGhost performed ahead of management expectations, contributing a net profit of US$1.5m in the period, with a significant growth in paying users of 21% to 887,000. Good progress was also made in transitioning Kape’s business towards a pure SaaS model with enhanced earnings visibility. The company expects to generate US$8.0m of recurring income from existing customers in the current financial year. Kape is also focused on developing new products, reflected in the launch during the period of a Mac version of the company’s Reimage PC repair software, thereby extending the product’s potential customer base. Kape’s management has been successful in demonstrating the ability to both drive organic growth initiatives whilst maximising benefits from strategic acquisitions. This was part of the thinking behind recommending the shares as one of our 2018 New Year Tips. We also like the strength of the balance sheet which provides sufficient firepower to make further significant acquisitions without any pressing need to issue new shares or incur debt. The share price is up 70% since our recommendation in the January issue. We feel that the increase represents a justifiable re-rating of the shares in light of the strong results and operational progress that has been made in the business. Given the remarkable growth in the global cybersecurity market (increasing over 35 times since 2004, and worth US$120.0bn in 2017), we also believe that the medium-term outlook for Kape looks very strong. On a cash adjusted prospective P/E of 14 for the current year, the shares continue to offer good value. Buy.

Parity 13.45p (PTY; AIM)

Parity has delivered a strong bottom line performance for the year to December 31, providing further confirmation of the success of the new management team in shifting the business mix towards higher margin activities over the last two years. Strong momentum in Consultancy Services

drove double digit profit growth on revenues, on a continuing basis, down 9% on the previous year at £83.82m. Consultancy Services revenue was up by 78.7% to £9.54m, while revenue from Parity Professionals was down by 7.9% to £80.04m. Group operating profit before non-recurring costs was up 16.4% to £2.06m, with an improved operating margin of 2.5% compared to 1.9% a year earlier. Pre-tax profit increased by 73% to £1.66m and basic earnings per share climbed to 2.15p against 0.87p last time. Cash conversion was 128% of EBITDA, contributing to a further significant reduction in net debt to £1.6m from £4.4m at the end of fiscal 2016.

Parity believes it has established a clear point of differentiation from competitors due to the synergy between its consulting and professional services divisions. The integrated business model is becoming more balanced and management said that the flexibility that this offers clients through access to a broad range of services has mitigated a challenging backdrop as the company’s market was impacted by UK tax reforms. The double-digit margin Consultancy Services division, which provides clients with data management solutions, grew profits by close to 30% and lifted its share of EBITDA to a third, while building a strong order book. Key relationships held by Parity for many years such as the Education and Skills Funding Agency, British American Tobacco and the Ministry of Defence, continued to widen and deepen, and the company has announced post-close extensions on these contracts. New clients have also been secured such as Primark, the high street retailer, and management said that the combination of good relationship management and increasing traction from new relationships underpins the outlook for 2018.

Separately. Parity has announced the sale of Inition to Digital Communication for a total consideration of £0.2m in cash. Inition is a wholly owned subsidiary which delivers virtual and augmented reality technology experiences. In the year ended 31 December 2017, Inition made a pre-tax loss of £1.0m on turnover of £2.3m. All employees of Inition will transfer with the business. Parity reports that Inition has been sold due to its lack of scale and synergy with the group’s strategy. Following the disposal, the company will benefit from the reduction in the cash cost of funding Inition’s operating losses, which totaled £0.71m in 2017, and the net cash proceeds which will reduce indebtedness. Management reported that the sale of Inition is a further important step to simplify and align the company’s operations around the core staffing and higher margin consultancy businesses. These strong results reflect the affirmative steps taken to focus Parity’s business on higher value services and realign its two divisions to support mutual collaboration. Broker WH Ireland has an 18.5p fair value metric for the shares and is forecasting a prospective P/E for the current year of just 8 on adjusted earnings per share of 1.7p. As the story continues to gather momentum and with an expression of confidence from management in the outlook for the current year, we feel that the upward re-rating of the shares has further to run. Buy.

Scisys 165p (SYS; AIM)

Scisys has been awarded a contract by Airbus Defence and Space (Airbus) for developing the global navigation EGNOS V3 ground segment. EGNOS is Europe’s regional satellite-based augmentation system that is used to improve

the performance of global navigation satellite systems, such as GPS and Galileo. The main focus of EGNOS V3 is to further develop the services provided by EGNOS and to ensure continuity of these navigation services. Scisys’ Space division in Germany will supply command & control technology, as well as maintenance & support facilities for EGNOS V3, using the company’s leading egmc technology for the monitoring, control and configuration of the complex EGNOS infrastructure. The anticipated contract value is €3.9m, with the development stage expected to continue until the third quarter of 2020, with a subsequent maintenance phase for up to 5 years. This strategic win underlines Scisys Space’s position as experts in the area of satellite navigation and is an important step in the further development and advancement of the EGNOS ground segment. The company has been delivering some very positive news flow recently and the share price has responded accordingly, up circa 40% since the start of the calendar year. Buy.

Playtech 802.7p (PTEC; Travel & Leisure)

The company says it is to create the first vertically integrated gaming operator through the proposed acquisition of Snaitech for €846.0m. Snaitech is one of the leading operators in the Italian gaming and betting market with a wide range of fully regulated gaming and betting products, including gaming machines, sports and horse race betting and online sports betting and skill and casino games. The business generated revenue and EBITDA of €890.0m and €136.0m respectively in 2017. Playtech plans to fund the acquisition through a mix of cash and new debt totaling approximately €1.0bn. Snaitech’s experienced management team will remain with Playtech post acquisition. Adding Snaitech will significantly enhance Playtech’s revenue mix towards regulated markets, with 78% of the enlarged group’s 2017 pro-forma revenues from this segment. It will also establish a strong presence in Italy, a fragmented market which is relatively underdeveloped online despite the country having one of the highest levels of gaming activity in Europe. Annual cost synergies of around €10.0m are expected from the combination of the two businesses. Playtech’s share price took a hit last November after marginally missing forecasts for fiscal 2016, but we feel that the outlook for the business remains positive given the ongoing consolidation in the gaming sector and the increasing move towards regulation in jurisdictions around the world. Strong hold.

D4t4 Solutions 134p (D4T4; AIM)

The company has announced that it expects to report a very strong trading performance for the second half of the year to March 31 following the signing of a number of high quality contracts in the fourth quarter. As a consequence, revenue is anticipated to be around £20.0m with adjusted profit slightly ahead of management expectations. The net cash position is strong at £3.9m (10.27p per share). Bookings are at a record level, which underpins confidence for the financial performance in the current year. Contracts signed in the fourth quarter of 2018 included a major multi-year deal for the company’s Private Cloud Data Analytics solution with a global US headquartered financial institution. A new contract for the Celebrus data collection software was signed with a Taiwanese bank and several extension contracts for the software were concluded with various clients across a number of countries.

- Page 5 - May 2018

Looks like D4t4 enters the new financial year in robust shape with demand for Celebrus gaining traction. The positive update saw the company’s share price make gains after a period of depressed trading in the run up to the announcement. Strong hold.

Proactis 109p (PHD; AIM)

The share price took a knock during the month on the back of results for the six months to January 31. Deal activity was buoyant with 35 new names added. There was also a favourable revenue shift toward multi-year SaaS deals, with 31 new names added. Initial contract value signed was £4.5m, up from £1.8m a year earlier. Revenue was up 124% to £26.4m, boosted by the acquisitions of Perfect Commerce and Millstream Associates. Millstream contributed £2.6m of revenue and delivered adjusted EBITDA of £1.4m. Perfect contributed £13.4m of revenue and approximately £3.7m of adjusted EBITDA. Group adjusted EBITDA climbed 180% to £8.4m at a margin of 32%, up from 25% last time. Adjusted earnings per share increased 20% to 5.4p. Annualised contracted revenue climbed to £45.5m from £22.6m a year earlier. The order book was £47.8m compared to £28.0m at the start of the period.

The disappointing news was that reported revenue has been slower to build than expected, principally due to a strengthening sterling and, latterly, a loss of a number of customers which the board said it does not expect to continue. Underlying revenue growth for the group (excluding the benefit of acquisitions and currency translation related factors) was 3% compared to 12% in the first half of 2017. Although there were a lot of positives in these results, such as the strong deal flow and increase in SaaS contracts, underlying revenue growth was weaker than expected and the stronger pound is clearly not helping the business at this stage. Cost synergies from the integration of Perfect Commerce will help the bottom line in the current year and beyond and the strength of the order book will underpin revenue performance, but management will need to ensure that the loss of customers towards the end of the period is a one-off. That said, the medium-term growth outlook for the business remains very attractive, with the acquisition of Perfect Commerce creating the scale required to compete effectively in both the US and European procurement software markets. Strong hold.

First Derivatives 3805p (FDP; AIM)

First Derivatives has continued to trade strongly in the second half of the financial year ended February 28. As a result, the board now expects to report a financial performance slightly ahead of the current consensus forecast of £180.2m of revenue and £32.9m of adjusted EBITDA. The company has also completed its analysis of the impact of the US Tax Cuts and Jobs Act, which has resulted in a reduction in the US Federal corporate income tax rate from 35% to 21%. The US tax reform is expected to benefit First Derivatives through an ongoing reduction in the company’s effective tax rate of 4-6%. First Derivatives has been a tremendous performer since we recommended the shares at 90p in September 2005.The update suggests a positive outturn for the fiscal 2018, but we will know more when the full year results are released later in the summer. Strong hold.

Tribal Group 81.6p (TRB; AIM)

Positive trading continues at Tribal, with the announcement that the company’s Student Information Systems (SIS) operation has won several new clients in the first quarter of 2018. Clients for SIS in the higher education sector now include University of Portsmouth, Canterbury University and Glasgow Caledonian University. A major expansion of services at an unnamed Canadian university has also been announced. In further education, Tribal has been selected as the vendor of choice for a new learner management system across all colleges in Northern Ireland. This is a five-year contract with options to extend up to a further four years. The company will also provide SIS at Greater Brighton Metropolitan College, Highbury College, Tower Hamlet Council and Oldham Council. Moreover, Tribal’s Work Based Learning training system has secured several new customers in the UK, including Harriet Ellis Training Solutions, the Home Group, Access Skills, and University Academy Holbeach. Several new schools in Australia have also been added as clients. We made Tribal a New Buy at 80.3p in the March issue. News of these significant contract wins adds to the investment case. Continue to buy.

Kainos Group 387p (KNOS; AIM)

The company has issued a brief trading update for the year ended March 31. Trading in the period has continued in line with market expectations, with growth in Digital Services particularly strong. Further momentum has been seen across government and healthcare clients and the international client base has also continued to expand, supported by the company’s broadened European footprint and growing reputation in the commercial sector following sales investment. A very strong sales performance has generated a comparable increase in contracted backlog. Digital Platforms has performed in line with expectations, mainly driven by the Kainos Smart platform, where further new clients have been acquired. Kainos has a robust balance sheet with no debt and strong cash generation. The company also has a growing level of recurring revenue and a solid pipeline. Consensus broker forecast for the current year is earnings per share of 12.3p, rising to 13.9p for 2020. That puts the shares on a prospective P/E of 27.8 for a little under two years out. That rating is not overdemanding given the strong growth being generated by the business. Strong hold.

APC Technology 7.375p (APC; AIM)

Results for the six months to February 28 showed revenue increase by 3.6% to £8.6m. Operating profit before exceptional items was up 45% to £0.55m and total profit for the period increased to £0.4m from £0.1m a year earlier. Gross margin was maintained at 34.2%, while administrative expenses reduced by 3.5% from the same period last year. First half bookings increased to £9.0m (H1 2017: £8.25m), representing a positive book-to-bill ratio. Working capital (excluding net debt) moved from a deficit of £0.5m to a surplus of £0.6m at period end. Net debt at February 28 was £4.0m.

First half operational highlights included the acquisition of First Byte Micro for £1.2m, to enhance the APC Locator offering. Following the sale of an investment in Open Energy Market

for £0.31m in January 2018, APC’s business is now focused on specialist electronic components, products and systems design-in distribution. The company is seeking further growth through the signing of new complementary product lines and by targeted bolt-on acquisitions. These results represent a significant increase in profitability for APC and highlight the benefits of a focused strategy of driving high margin, design-in distribution sales through a reduced fixed cost base. Continue to hold.

IMImobile 277p (IMO; AIM)

The company has issued a trading update ahead of its preliminary results for the year ended March 31. There has been strong trading momentum and organic growth over the period with turnover up by over 45%, which is ahead of market expectations. Profit growth was over 17%, with strong cash conversion of 85%. Good progress in product innovation was also reported. The company recently announced the addition of RCS Business Messaging capability which will bring rich media messaging to Android devices. As a result, clients can now launch RCS messaging solutions alongside other digital communication channels that are available through IMImobile’s cloud products. A Consent Management solution was also introduced to help clients comply with the new General Data Protection Regulation (GDPR) with the first implementation of the solution delivered recently. The company continues to invest in AI and automation capabilities with several current implementations for the IMIbot.ai product for companies in the utilities and retail sector. IMImobile has successfully built high quality software products that are well positioned to help its clients meet the challenges of digital transformation. Cash generation is strong and revenues are building rapidly, with further growth expected from all divisions and geographies in the current year. Continue to buy.

CityFibre 79.9p (CITY; AIM)

CityFibre has announced a recommended cash offer for the company from a consortium formed by Antin and West Street Infrastructure Partners. The offer price of 81p per share represents a premium of 93% to the closing price of 42p on the last business day prior to the announcement. CityFibre came to market at 55p per share in July 2017. CityFibre also released results for the year to December 31. Turnover increased 126%, to £34.8m, of which £15.4m was attributable to the consolidation of Entanet’s results for the five-month post acquisition period. Gross profit increased 48.4% to £20.1m, with Entanet contributing £3.8m. Gross profit was up £2.8m (21%), excluding the contribution from Entanet. Adjusted EBITDA climbed to £4.5m from £2.5m in the prior year. Net loss after tax increased to £16.6m from £12.6m last time. Acquisition activity in the tech sector has been heating up recently and CityFibre is the latest small cap stock to attract interest from a larger scale operator with deep pockets. We made the shares a New Buy at 64.75p in February 2014. Although we viewed the stock as speculative given the amount of investment required to roll out an ambitious high speed fibre network, we were impressed by the quality of the management team and the excellent operational progress made in delivering the underlying infrastructure. The level of the current bid appears fair at this point in the development of the business. Await developments.

4

May 2018 - Page 6 -

Idox 34.65p (IDOX; AIM)

Idox has issued an AGM statement indicating that while first half performance will be weak, management is confident that strong order intake and restructuring benefits will deliver an improved second half and a full year outcome in line with expectations. There have been strong performances from PSS (order intake up 35%) and Content (continuing double-digit growth), and Health is now performing in line with expectations following the refocusing of the business on a reduced cost base. Digital has a difficult start to the year, but rapid action has been taken to overhaul this business. First half trading to date has taken place during an unsettling period of major reorganisation of the business, so it is a relief to hear that Idox expects a better second half. Despite the short-term difficulties, we remain confident about the medium-term outlook for the business. Idox has strong market positions, healthy profit margins, high levels of recurring/repeat revenue and good cash generation. These factors should ultimately see the share price head north again. Hold.

ULS Technology 146.75p (ULS; AIM)

The company has released a positive trading update for the twelve months to March 31. Results for the period are ahead of market expectations, with revenue increasing by approximately 38% to £30.7m and adjusted pre-tax profit ahead by around 25% to £5.5m. The company continues to generate strong cash flow from its operating activities and the board intends to maintain its policy of paying a progressive dividend for this financial year. Despite the relatively flat residential property market, ULS reports that it has continued to grow market share through both expanding its relationships with new business partners and deriving more business from existing partners. The company has also increased the number of lenders it works with, winning a number of new contracts. Conveyancing Alliance (CAL), which was acquired in December 2016, continued to perform well, ensuring that ULS further strengthened its reach within both Estate Agents and smaller mortgage intermediaries. CAL has traded above its initial expectations over the year and planned synergies have been realised. Full year results are scheduled for release on June 27. Once again, ULS has delivered excellent results in what has continued to be a challenging residential property market, with fewer properties for sale and increased affordability pressures combining to ensure that the overall volume of housing transactions has remained at a relatively flat level. Success in difficult markets is a testament to the quality of ULS’ platforms and the appeal of the company’s diversified product offering. Continue to hold.

Sanderson 95p (SND; AIM)

Sanderson has issued an update indicating that first half trading is slightly ahead of management’s expectations. Revenue for the six months to March 31 was up over 30% to £14.5m, boosted by a strong contribution from recent acquisition, Anisa. While organic revenues were only marginally ahead, this was against a comparative period that benefited from some large orders in Enterprise. More efficient and lower cost delivery of solutions helped drive 10% organic growth in operating profit. Digital Retail was again the stand-out performer, with revenues growing by over 20%,

profits almost doubling and the order book up over 50%. Manufacturing delivered an improved profit performance, while Wholesale, Distribution & Logistics remained very profitable. A positive outlook is supported by good sales order intake in the half and strong sales prospects for the second half. After a moderate 2017, this pre-close trading update for the first half of the current year is looking much improved. Sanderson has a target of £30.0m revenue by the end of the year and that is now looking achievable. The update was well received, helping push the shares to an all-time high. Strong hold.

The 2018 New Year Tips have made a solid start, with the usual mix of some strong gainers and a few underperformers so far. The average gain across the twelve tips is 11.74% compared to a decline of 2.73% in the benchmark FTSE techMARK Focus index. The top six performers to-date have delivered a return of 36.25%, but it would have taken some foresight to have identified those stocks as the best of the bunch back in January. Kape Technologies, formerly Crossrider, has been the strongest performer so far, with the shares up 68.7% on our Buy recommendation. The company is targeting the consumer cyber security segment and full year results released in April suggest that revenue is building nicely and recent acquisitions have performed well.

Trading momentum is also positive at Scisys, with the share price up by 41.13% since the start of the year. The company announced another major contract during the month, following on from news of strong results for the year ended December 31. The upward re-rating of the stock looks fully justified in our view, and we feel that it has further to run. Parity is another stock from our list where news flow has been positive since the start of the year, including the announcement of several significant contract wins and renewals. Although the shares have already risen 31.2% this year, we feel that there is scope for further gains. Stockbroker WH Ireland agrees and has a price target of 18.5p for the stock. StatPro continues to benefit from strong sales of its new cloud-based software suite, StatPro Revolution. The acquisition of Delta from UBS last year also seems to be working out well. The shares are up 19.65% since the start of 2018 and the rise looks more than justified by the prospects for StatPro Revolution.

The 40.8% gain in Laird’s share price reflects the company recommending a takeover offer at 200p per share. Although we think that the offer undervalues the recovery potential in

NEW YEAR TIPS REVIEW

Laird’s business, the takeover looks a done deal. IMImobile released a trading update during the month, indicating that turnover for the year ended March 31 would be above market expectations. Good progress in product development was also reported. The shares continue to look attractive on a prospective P/E of 20 for the current year, based on consensus broker forecast. Eckoh’s share price is slightly down on our recommendation, though news flow from the company remains positive.

DotDigital recently reported results in line with expectations for the six months to December 31 and this appears to have arrested the weakness in the share price that was evident earlier in the year. The company is making good financial and operational progress but holding back the share price in the short term might be concerns about the impact of the new GDPR rules on the digital marketing segment that is supported by DotDigital’s email platform. As the year progresses, we should know more about the effects of GDPR, though it should be noted that DotDigital has launched additional features to support customer GDPR compliance and the new regulations may therefore also create additional revenue creating opportunities for the business.

Shares in CentralNic are currently suspended following the announcement of a potential combination of the company with South African competitor, KeyDrive. If the transaction proceeds, it will constitute a reverse takeover by CentralNic and that is why dealing in the shares is suspended. The proposed deal makes a lot of strategic sense and would leave CentralNic in a very strong position in the domain names market. If the deal goes through we would expect it to be positive for CentralNic’s share price.

From the twelve recommendations for 2018 there are two real laggards, IQE and Proactis. IQE was the star performer from our 2017 New Year Tips, but the stock has edged lower in recent weeks on the back of profit taking. Results for the year ended December 31, which were released at the end of March, confirmed strong demand for IQE’s VCSEL technology in mass market consumer applications, together with a healthy increase in cash generated from operations. Investors currently seem split about the stock, with buyers picking up stock on down days to absorb much of the current selling pressure. Given the strong demand for IQE’s VCSEL technology and the quality of the IP across the product portfolio, we see IQE as another potential takeover target in a corporate activity market that is particularly buoyant at present. The Proactis tip was progressing well until the release of interim results from the company in mid-April. There was plenty of good news in the results, particularly on deal flow and progress in integrating the transformational acquisition of Perfect Commerce. However, organic revenue growth was lower than expected and news of the loss of some customers spooked the market. We feel that the magnitude of the share price decline was an overreaction by cautious market makers. Nevertheless, management will need to rebuild confidence in the business in the second half if the shares are to recover meaningfully in the near term. We feel that the medium-term outlook for Proactis remains very attractive now that the company has the scale to compete effectively in both the European and the US procurement software markets.

The North American New Year tips have also made a good start to the year and we plan to report on these next month.

4

- Page 7 - May 2018

TECHMARKET MISCELLANY

ALFA FINANCIAL SOFTWARE

FACT FILE

Website: www.alfasystems.comTelephone: 020 7588 1800Stockbroker: NumisFTSE Class: Software & Computer ServicesEPIC Symbol: ALFAShares in Issue: 300.0mPrice: 351.75pMarket Capitalisation: £1055.25mYear-end: December 31Adjusted earnings per share: 2017 11.65p 2018 11.9p (consensus broker forecast) 2019 14.1p (consensus broker forecast)Price Earnings Ratio: 2017 30.19 2018 29.56 2019 24.95

Alfa Financial Software has been on our radar since the stock came to market last June at an offer price of 325p per share. We were impressed by the strength of the underlying business and felt that the shares were fairly valued at the offer price. The stock quickly raced to a premium, however, ending the first day of trading at 412p. There was no stopping the shares after that and by the end of the year the price had risen to a high of 548p. By early June the valuation was starting to look stretched with the share price around 450p and when 550p was touched in late December the situation was definitely looking toppy. Sure enough, the bubble burst in March with the release of maiden full year results as a listed company accompanied by a warning about the adverse impact of the weaker dollar on growth in 2018. The share price subsequently plummeted by around 25%.

Overall, the results for fiscal 2017 were quite positive with revenue up 20% (9% at constant currency) and a healthy increase in billings for the year. But the shares had simply been flying too high and that left no room for any hiccup in company performance. With the share price now back close to last June’s offer price, and the fundamentals of the business looking just as strong as they did when coming to market, we think now would be a good time to acquire a stake in Alfa’s well-established, high quality business. With a leading position in the fast-growing market for asset finance software, the company offers both a secure revenue stream from its installed client base and multiple opportunities for expansion through product development and new customer wins. Trading on a prospective P/E of 24.95 for a little over eighteen months out, the valuation is no better than average for the sector. What makes the stock attractive at this level, however, is the scale of the underlying business and Alfa’s reputation for being one of the most innovative and highly regarded software providers in the asset finance software segment. For patient investors, backing quality at the right price is a proven way to steadily build wealth.

Mission-critical softwareAsset finance software is a huge, complex and growing market which is expected to increase by circa 40% to over US$1.46bn by 2020, according to research by PwC Market Study. Within this segment, Alfa Financial is the developer of Alfa Systems, a mission-critical software platform purpose-built for automotive and

equipment finance providers globally. Founded in 1990, the company supports some of the world’s largest and most influential asset finance companies. Clients include Bank of America, Barclays, Mercedes-Benz Financial Services and Nordea. Alfa has over 300 employees, with offices across Europe, Asia-Pacific and the United States. The senior management team has more than 120 years of combined experience in the asset finance software industry, with deep expertise in sales, technology, product development and implementation. Unsurprisingly, Alfa has achieved excellent top-line growth since inception, with 24% revenue CAGR over the last five years, as well as consistently high adjusted EBIT margins, with adjusted EBIT margins being greater than 40% over the last three years.

Key to the business case for each implementation of Alfa Systems is the ability to replace multiple client systems on a single platform. Alfa’s senior management believe that the asset finance software market is underserved currently. There is a lack of modern systems purpose built for asset finance, with many asset finance companies currently relying on legacy systems or non-specialist ERP systems. By contrast, Alfa Systems offers a suite of solutions that covers the entire asset finance life cycle in one product. Alfa believes that the flexible and comprehensive nature of its offering is the best-in-class in the asset finance software market and management is committed to a robust R&D schedule to keep the company at the forefront of innovation. Alfa Systems supports both retail and corporate business for automotive, equipment, wholesale and dealer finance on a multijurisdictional basis, including leases/loans, originations and servicing. The current competition simply struggles to match the scale of this offering.

Strong resultsResults for the year ended December 31 showed revenue up 20% to £87.8m, with billings increasing to £76.8m from £74.0m in 2016. Operating profit came in at £33.8m, double the previous year’s £16.6m. The company said revenue growth was driven by completing larger projects in the Software Implementation segment, with customers then moving into Ongoing Services & Development (ODS). A strong dollar in the first half of 2017 also boosted revenue. However, as the dollar has since weakened, Alfa said it expects to report low double-digit growth in 2018, with new customer projects achieving run rate in the second half of the year. Software Implementation revenue fell 7% to £44.8m, as customers progressed into ODS as planned. This segment’s revenue more than doubled to £21.2m from £8.7m, while the Maintenance segment’s revenue rose 31% to £21.8m. Revenue growth across all geographies was solid, with the UK up 19% to £30.7m, the US 16% to £42.2m, and the Rest of the World rising by 37% to £14.9m. Net cash at period end amounted to £31.3m (10.4p per share).

In many ways, Alfa is in a sweet spot at present. Quality of earnings is improving due to growing ODS and Maintenance revenues, while recent product extensions in the areas of cloud and digital are increasing the scope to win new customers. The sales opportunity pipeline looks strong and the balance sheet is robust. With the ability to offer an end-to-end solution, Alfa has a strong competitive advantage in the asset finance software market, which we believe can be built on to attract further clients and take its offering into new dimensions. We see the shares as a solid investment for the medium to longer term. Take advantage of the recent price fall to buy around the 350p-360p level.

Smaller tech stocks made strong gains during the month, with several big rises from Techinvest’s list of current New Buys. Topping the leader board was CityFibre, with the share price up 92.3% after the company recommended a takeover offer at 81p per share. We made CityFibre a New Buy at 64.75p in February 2016. Kape Technologies, the new name for Crossrider, gained 45.75% on the back of excellent full year results. The shares have performed very well since the start of the year and are one of our 2018 New Year Tips. Internet gaming specialist GAN reported strong results during the month and duly saw its share price rise by 37.74%. Sanderson was another from our New Buy list to make strong gains, up 27.52% in April, as an update from the company late in the month reported strong trading. Scisys has made pleasing progress since we recommended the shares at 120p in the November 2017 issue. The stock added 26.44% in April, ending the month at 165p.

Other New Buy stocks to record double digit gains since the last issue of Techinvest include: Keywords Studios, XLMedia, Castleton, Tracsis, Kainos, Parity, Instem, Idox, Elecosoft, D4t4, Filtronic, and Playtech. That is quite a list and it underscores just what a good month it was for investors in small cap tech stocks. As usual, there were some disappointments. Outside our list of New Buys, Immupharma lost over 80% of its value after reporting a disappointing study report for lead product Lupuzor. Shares in Proactis dipped after reporting a lower rate of organic growth than had been expected for the six months to January 31. Despite reporting positive results at the end of March, IQE was weaker during the month on the back of profit taking after last year’s strong run in the shares.

GB Group (GBG; 486.25p), the identity data intelligence specialist, has said that it expects both revenue and profit to be ahead of market expectation for the year ended March 31. Revenue growth was up 37% to circa £119.7m, of which 17% was organic. Adjusted operating profit increased by 53% to £26.0m. The net cash balance at year end was £13.4m (8.75p per share). GB is a well-run business that is benefiting from exposure to some strong secular trends in the identity data domain. The shares remain highly rated, though that seems fully justified given the consistency and strength of the results delivered over the last few years.

MARKET MOVERS

All enquiries to Techinvest, The McHattie Group, St Brandon’s House, 29 Great George Street, Bristol, BS1 5QT, UK. Telephone 0117 9200 070; email techinvest@mchattie.co.uk.

The next issue of Techinvest will be published on

Saturday 2nd June 2018.

Techinvest Trader Portfolio 1Starting Capital (1.3.85): £20,000Termination Value (31.3.93): £462,874Gain (8 years and 1 month): 2214%

Techinvest Trader Portfolio 2Starting Capital (1.1.93): £50,000Termination Value (30.4.96): £276,691Gain (40 months): 453.3%

Techinvest Trader Portfolio 3Starting Capital (1.4.96): £50,000Termination Value (27.3.00): £570,402Gain (4 years): 1040.8%

The Trader Portfolio is an unaudited paper fund which is run to illustrate the dynamics of managing an active technology sector portfolio. No new share goes into the portfolio until after it has been rated as a New Buy in an issue of Techinvest. After that, the fund can act just like any subscriber, using its judgement to buy, hold or sell in accordance with subsequent price movements and news flow within the sector.All transactions take full account of prevailing bid-offer spreads. Commission is now charged at a flat rate of £12.50 on deals of any size, to reflect current online dealing rates. No credit is taken for dividends paid by companies nor for interest on cash balances. Current holdings are valued using mid-market prices.

Performance Data 1 12 since month months 1/1/00

TraderPortfolio 9.14% 20.11% 658.8%FTSE 100 6.90% 3.71% 8.5%FTSE techMARK Focus 6.95% -1.29% 23.6%

TECHINVEST TRADER PORTFOLIO 4

Warning: the price and value of all shares may go down as well as up, and you may not get back the full amount invested. You should not buy equity securities with money you cannot afford to lose. Technology companies may exhibit greater than average volatility, meaning your investment may be subject to sudden and large falls in value and you may get back nothing at all. Changes in rates of exchange may have an adverse effect on the value or price of the investment in sterling terms. As with other investments, transactions in technology securities may also have tax consequences and on these you should consult your tax adviser. We have taken all reasonable care to ensure that all statements of fact and opinion contained in this publication are fair and accurate in all material respects. Investors should seek appropriate professional advice if any points are unclear. This newsletter is intended to give general advice only, and the investments mentioned are not necessarily suitable for any individual. It is possible that the officers of the McHattie Group and their associates may have a beneficial holding in any of the securities mentioned in this guide. Andrew McHattie is responsible for the preparation of the research recommendations contained within. Data and privacy policy: as you have subscribed to this newsletter, we will retain your data for the purpose of sending you the product for which you have paid, and we will retain those details indefinitely in order to offer you renewals, offers from our business, and any other products we think may be of interest to you. We will not sell or otherwise distribute your data to third parties. We take all reasonable precautions to ensure the security of personal data stored on our system, which is only accessible to staff of The McHattie Group. You should contact us if you wish your details to be removed from our database. Published by The McHattie Group, St Brandon’s House, 29 Great George Street, Bristol, BS1 5QT. Tel: 0117 407 0225. E-Mail: techinvest@mchattie.co.uk. Web Site: http://www.tipsheets.co.uk. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photographic, or otherwise without the prior permission of the copyright holder. ©2018. The McHattie Group offers restricted advice on certain types of investment only. Authorised and regulated by the Financial Conduct Authority.

May 2018 - Page 8 -

The Portfolio had its best month for some time, rising by 9.14%. Share prices bounced back vigorously from the sell-off in late March and the FTSE techMARK Focus index climbed 7% in April. The scale of the rebound suggests the appetite for equities remains strong, stirring

hopes that there could yet be another leg to the long running bull market that has been in place since 2008. An upsurge in takeover activity is helping sentiment, with recent mega deals including an approach for Shire Pharmaceuticals and Sainsbury’s proposed tie up with Asda. In the tech sector, CityFibre became the latest stock to announce a recommended takeover offer at 81p per share, which is a healthy 93% premium to the share price prior to the news breaking. That represents a useful short-term gain for the Portfolio, which has a combined holding of 32,000 shares in CityFibre at an average purchase price of 55.7p.

A lot of the stocks in the Trader Portfolio issued results or trading updates during the month. In most cases, the news was very good and the share prices were duly marked up. Pre-tax profit was ahead by 50% to £2.3m at Elecosoft, the construction sector software specialist. The Portfolio’s holding in Elecosoft is now up by 139% since the stock was added in October 2015. Internet gaming operator GAN cut losses and reported a 30% increase in gross income to £41.1m for the year ended December 31, with the share price marked up strongly in response. D4t4 announced that it expects to report a very strong trading performance for the second half of the year to March 31 following the signing of a number of high quality contracts in the fourth quarter. The share price has been volatile in recent weeks, but the latest trading update seems to have steadied nerves and the stock gained 18.1% during the month. First Derivatives issued a reassuring update on current trading, which largely accounts for the 6% rise in the share price in April. Kainos, Iomart, and Sanderson were other Portfolio constituents to report strong trading since the last issue of Techinvest. The only Portfolio member to disappoint during the month was Proactis, where the share price was knocked back on news that organic growth was lower than expected for the six months to January 31. We continue to like the medium-term prospects for the business and there was positive news about deal flow from the company to help offset the negatives in the results statement.

There was one realisation to report this month. The takeover offer for Stadium at 120p per share has been declared unconditional, so the Portfolio’s holding in the stock is deemed sold for a profit of 43.48%. That represents a satisfactory return given that the shares were added to the Portfolio only around eighteen months ago. We will hold on to the sale proceeds for the time being and there are no new purchases to report this month. We are keeping our powder dry for now and will look to find a use for the Portfolio’s cash holding over the traditionally quieter summer months when share prices can drift lower without any underlying trigger.