When it comes to identifying recovery plays, you can never be wholly confident that you have got it right, let alone timing on your entry point.
However, with that in mind, I rather hope that when a company with a viable business is sitting on a combination of a freehold property and net cash that at least equate to the market cap, then downside should be limited.
Reducing that negative can provide plenty of opportunity for the upside, particularly with GETECH, where its rather impressive software presently appears to be valued at next to nothing.
The company is very familiar to me as I have followed it for a number of years, where at one point I exited part of my holding and took a loss, before returning to add and make a decent profit after a sudden surge in the share price.
Not surprisingly, the company has endured a rough time on the trading front of late where historically it has served the oil and gas exploration sectors by providing geospatial services that amongst other things help identify and locate potential assets.
Over the years it has had a mixed track record, largely dictated by the direction of the oil price and the health of the energy markets which invariably dictates end spend.
In its best years such as 2015, GTC has seen pre-tax profits achieved of £2m on £8m of revenue which in turn delivered EPS of some 5.5p and a share price close to 60p.
Of course, that was a while back now and with the oil industry having endured a tough period, so too has GTC with an already difficult backdrop more recently compounded by the pandemic.
With that in mind, it is quite understandable that the shares have been out of favour and largely off the radar with little reason to provide much cheer.
But, the current market cap of just £5m at 12.10p per share looks very much on the cheap and discounted side, not least for the reasons outlined in the opener.
In relation to the mentioned property the company acquired the freehold property back in 2006 for circa £2.4m and that is now surplus to requirements, although GTC is not a forced seller, rather, the board has previously stated that it would only accept an offer that reflects what it sees as a realistic value.
As investors looking for recovery though, we aren’t buying into a situation purely on the back of a surplus property, rather its an added ingredient that underpins the prospects which we hope to see improve.
In the case of GTC things do not appear to be as bad as the share price currently suggests and within the mix there is now some very welcome and building recurring revenue along with an increased focus on diversifying away from its historical markets.
That move away hasn’t been a knee jerk reaction on more recent sentiment transitioning away from fossil fuels, being more that the company has been implementing this for a few years now and appears to be making progress.
An example of its technology in action can be seen from earlier this year when Kent County Council commissioned the GTC’s Exprodat arm to produce a series of map-based data visualisations to show exactly how climate change will affect the county over coming decades allowing to implement plans for the future.
Expanding on the above, GTC is now extremely well placed to transfer its technology developed over decades for the oil and gas markets for use in the renewable energy sectors which encompasses solar and the growing hydrogen markets. Location, performance and distribution of assets are just some of the areas the company is now involved in and targeting across the aforementioned.
Oil and Gas certainly remains a key part of the business though and the reduction in fossil fuels is likely to be conducted over a lengthy period, rather than overnight.
Within that context, GTC’s offering where they already work for and with major blue chip names could actually become more important assisting is identifying potential assets in areas that work more harmoniously within a changing world.
Its suite of software products and services already provide for the likes of people tracking across the industry alongside enabling the monitoring of emissions, all important factors in creating a more efficient operation.
Mining now also features on the company’s radar, where as ever new minerals are sought that also tie in with renewable or ground breaking technology this could provide future upside for GTC.
In its Interim report from October of this year the company stated that it was already in discussions with new partner companies across various areas including the renewal energy field.
Regarding the first six months numbers for full year 2020 the company not surprisingly saw a dip in revenue to £2.1m although it had an order book that stood at £2.9m as of 30th Juneand cash on the balance sheet of £2.8m.
Like other businesses there has been a strict control on costs and the nature of its business enabled a positive transition to remote working.
There is as yet not surprisingly no guidance in the market for the full year, but the company should most likely update shareholders next month with a Trading Update, which should provide for a little more flesh on the bones.
With such a small market cap GTC could well attract the eye of a larger predator as the business really is valued at next to nothing at these levels as mentioned at the outset.
As far as major shareholders go, the respected BGF and Miton have large holdings which can be interpreted as another positive going forward.
Clearly not everyone’s cup of tea, but one that could recover very quickly on the hint of positive news or any sizeable contract wins.