OCCASIONALLY new companies come to my attention which look interesting, or not.
It has to be said the majority fall into the latter category, but following a conversation with the business editor of the Echo my attention was recently drawn to a company called Blur Group, which after some study is gradually becoming clearer.
Blur Group is a software and computer services firm, which has based its research and development business in Exeter. It is aimed at helping businesses to buy, sell, manage and pay for professional services.
The company has seen rapid growth since it was first launched in 2010, with the number of projects growing from 135 in 2010 to 776 in 2012, and this number is expected to grow to more than 2,000 in the current year. By 2020, predictions are in excess of 33,000.
The whole business is dependent on margins charged on the value of a project, which during 2011 rose from $6,000 to a high of $12,700. The average size is volatile because of a very large contract which distorts current values. Most of the business comes from the USA (55 per cent) with 35 per cent coming from the UK and nine per cent from the rest of the world.
Revenue is forecast to grow to over $25m in 2014 from an estimated $8.6m during the current year. The company recently undertook a fund raising effort and has some $15m available to it to fund further development.
The management have a revenue target of $250m by 2020 with a 15 per cent margin. This translates into a share price of 250p. The problem is that investors are already discounting this scenario, with the shares currently at 290p per share.
There can be little doubt that companies like this, set up in the new technological age with low costs and the ability to scale up quickly, can offer fantastic shareholder returns. However, these types of shares are particularly volatile and there can often be long periods of no news so investors need to be able accept the very high risk that attaches to the shares.
There is no prospect of a dividend for many years while the company is in its growth phase, but for those investors willing to take the risk the returns could be spectacular.