One very strange company to watch
Tom Bulford Jul 26, 2012
Let me start today's issue with a joke. It's about a lawyer who died and went to heaven, where to his surprise he found St Peter waiting at the gates.
"I didn't know that you greeted all of your new arrivals", said the lawyer.
"I don't", replied St Peter. "But you are a special case. You see, we have never had anybody before who has lived to such a remarkable age."
"But I haven't", said the lawyer, "I am only 72".
"Not according to your timesheets", said St Peter. "My staff have added up all of the hours you have billed for. And they make you out to be at least 350."
OK, it's an old joke. These days lawyers have to record their hours a little more carefully. In fact, providing legal software packages has provided a very nice business opportunity for penny shares companies such as Tikit Group (TIK).
Today, I want to talk about another company that is prospering in legal software. In fact, this is a pretty strange outfit. Not only does it make a decent profit from legal IT, it's also involved in two promising new opportunities in alternative energy. And bizarrely, it all seems to be working for them...
How Bradley Wiggins could boost this quirky company
I'm talking about AIM-listed Ultima Networks (UTN). This quirky company is quite a success story. Ultima recorded a £483,000 profit last year, it has cash in the bank, and at 0.95p the shares trade at little more than their underlying tangible asset value.
The driving force behind this company is Professor Humayan Mughal.
Professor Mughal is quite an entrepreneur. He built Pakistan's first commercial solar panel manufacturing plant in 2005, runs the private Akhter Group that sells IT equipment to the UK public sector, and is also chairman and chief executive of Ultima.
Investors like to pigeonhole a company into one sector or another, but Ultima defies such simplicity. It is involved in three different activities which could hardly be more different, and one of those could just get a boost from Bradley Wiggins fever – as Professor Mughal explained to me when we had lunch recently.
Ultima Networks sells electric bicycles under the Infineum Electric brand. Battery packs are placed behind the saddle and drive a 250-watt motor that is in the front wheel hub.
Although you pedal the bike, this motor kicks in enabling you to cruise along at 15mph without too much effort. As one who lives in a cycling city, Oxford, I like the idea. Professor Mughal reckons that it could appeal to the swelling ranks of senior citizens who no doubt fancy an active lifestyle so long as it does not require too much effort.
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Why are these bikes so appealing?
The secret is in the batteries. These are made of lithium polymer, rather than the traditional lead acid, and consequently weigh just 2kg. Each one can provide sufficient power for a 25-mile ride, at which point they must be charged up for between four and six hours. But you can have more than one battery.
By stacking these slim units upon each other, you can have, say, four batteries to give you a 100-mile range. Ultima is already selling these bikes in Germany and the Netherlands, and you can buy them online in the UK. Compared with a normal pedal bike, though, they are not cheap. You can expect to pay about £1,200. Extra batteries, which last for about 1,000 charging cycles, cost £250. Lycra shorts are, of course, optional….
From Oxford to Mexico
Now get ready for another strange jump in this story. Because as well as electric bicycles and legal software, Ultima is also involved in green energy.
Ultima installs solar panels on schools and industrial roofs, and has plans for installations in southern Italy, Mexico, Pakistan and Morocco. Professor Mughal explained that in Mexico electricity is illegally syphoned from the grid, denying it to schools. Solar electricity supply gets around this problem. It also enables schools to make some money by selling power back into the grid at weekends.
Professor Mughal thinks this is a viable business for the UK, despite the government changing the rules at the end of last year. But for many homeowners, he has a better idea.
Those who rely heavily on heating oil have been hit hard by rocketing prices, and Professor Mughal ran through the numbers for an alternative. This is called 'ground source heat'. Ground source heat pumps use pipes which are buried in the garden to extract heat from the ground. This can then be used to heat radiators, underfloor or warm-air heating systems and hot water. The ground stays at a fairly constant temperature under the surface, so the heat pump can be used even in the middle of winter. Ultima has bought two mobile drilling rigs and is targeting 100 installations next year.
What an odd mix of ventures. And stranger still that it seems to be profitable. But before you get too excited, I must add that Ultima is only valued in total at £2.65m and the trading volumes are slim. But to me, Professor Humayan Mughal appears to be a man worth keeping an eye on…
• This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.
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