Gamble of the week: tech firm on the rise

By Paul Hill Jul 31, 2009

Paul Hill

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Israel-based Orpak is a leading supplier of integrated technology for petrol stations, connecting the retailer's pumps with its tills and back-office systems. The key piece of kit is its proprietary wireless vehicle identification software (VIS), which enables drivers to refuel without the need for cash, credit cards or vouchers.

This is particularly attractive to large fleet owners since most of their forecourts are unmanned. The VIS also automatically regulates fuel delivery by putting sensors in both pumps and cars, preventing drivers from filling other vehicles or even jerry cans on the sly. All told, Orpak's addressable market is worth $1bn or so a year globally.

The firm focuses on the rapidly expanding regions of eastern Europe, Turkey, India and Asia. Its applications have so far been deployed in 10,960 sites and 2.4 million vehicles across 30 countries. Blue-chip customers include oil majors BP, Shell and Total, as well as New York's JFK airport, computer giant IBM and mobile phone group Motorola.

Orpak Systems (Aim: ORPK)

House broker Libertas expects 2009 sales and underlying operating profit (Ebit) of $74m and $9.5m respectively, rising to $84.5 and $11.4m in 2010. I would value the stock on an eight times Ebit multiple. After adjusting for the hefty cash pile of $26.9m (or 48p a share), this delivers fair value of $103m (or 180p a share). What's more, the chief executive reassuringly commented in May that "demand remains strong".

So what could go wrong? Well, Orpak is a small fish in a large pond, and could be squeezed by its bigger rivals. It is also exposed to the usual foreign currency, geopolitical and liquidity (31.5% free float) issues that are associated with an international stock listed on Aim.

All the same it is profitable, has a cast-iron balance-sheet and offers cutting-edge products that save customers truck loads of cash. Interims are due out in early August.

Recommendation: speculative BUY at 129p (market capitalisation of £42m)

• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments

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