My 2007 top stock pick is IIR (Independent International Investment Research plc)

Website: www.iirgroup.com
Share price: 20p
Capitalisation: 5.2 m
Year end: 28 Feb 2007

Overview

Independent International Investment Research (IIR) provides research on
global companies and currencies, for broker-dealers, investment banks, money managers and private clients.
The equity research business comprises wholly owned subsidiary Independent Financial Markets Research Ltd. (IFMR). The India-based (Chennai and Mumbai) equity research team now covers 300 companies, of primarily non-US with American Depositary Receipt programs.IFMR, established in 2002, has benefited from the 2003 Global ResearchAnalyst Settlement (GRAS) in the US, which required broker-dealers to provide independent research to retail clients.

Supplementing the equity research business, Pronet Analytics.com Limited
(Regulated and Authorised by the FSA in the UK and registered as an
Investment Advisor with the SEC in the US) offers investment advice and trading strategies to clients such as Standard Chartered and Citigroup. The ability to combine currency forecasts with the Group's fundamental equity research also offers an attractive product differentiator and has helped improve the performance of recommendations for US$-based investors in overseas stocks.


Insinger initiated coverage in September 2006 after the company finally turned a corner and became profitable with the new business model starting to bear fruit. The report provides a detailed background of the company & the new business model [far better than I could hope to write myself].

http://www.iirgroup.com/iir/docs/Insinger_research_note_Sep_2006.pdf

The forecasts were very conservative as you would expect at such an early stage of the companies turn around in fortunes, these forecasts have since been easily surpassed & a trading update was issued on the 20th Dec ;

http://www.iirgroup.com/iir/docs/Trading_update_11_December_2006_v1.7.pdf

Followed closely by an upgrade in forecast from Insinger showing a substantial increase of 261% in EPS forecasts ;

http://www.iirgroup.com/iir/docs/06-12-2-IIR.pdf

At the time this meant the company was trading on an 83% discount to research-oriented peers and as such has risen to today's price of 20p per share [was 13.5p when picked]. This is still very cheap and only puts IIR on a PE of 8 despite their exceptional growth - versus an industry average of 20 25.

Whilst the company does not have a history of earnings performance it is worth bearing in mind that the Insinger forecast only includes CONTRACTED business and does not take into account conversion of the strong existing pipeline or any new pipeline as the year progresses [see comments in trading statement + confirmed by CEO] Additionally any potential revenues from new product developments & other medium term growth drivers [see Insinger initial coverage & last finals] are excluded.

Furthermore the company is looking to break into new areas where independent research is beginning to take hold, in particular SE Asia & the UK. Market commentary is very positive for growth of the indies into these areas. A very useful source of industry specific information is;

http://integrresearch.blogdrive.com

To assist their major expansion plans they are currently strengthening the management team and looking to increase the research analyst heads in their Indian subsidiary from the current 60 to 200 staff during the .

As well as organic growth, earnings accretive acquisitions in the research space will be considered - Any acquisition would be paper based,

The current CFO for example is PT and cannot give any more time so a replacement is being sought, [any of you looking for an interesting role?] Details of which I attach as it gives an insight into where the company is heading in 2007;

http://jobs.efinancialcareers.co.uk/job-4000000000223293.htm

To conclude

+ Current PE is 8 versus industry average of 20 25.

+ Current EPS forecast is ultra conservative as based on contracted business alone, excluding the pipeline and likely additional business wins + growth into new areas.

+ Management & research team being strengthened to take advantage of the pipeline of deals.

+ Mr Smith CEO is planning a number of investor relations exercises [Insinger coverage was the start of this] early this year which is hoped will see the company more appropriately valued by the market.

+ Has very little debt, the company has been supported financially by Mr Smith & his trust over the last 2 years.

+ Significant taxable losses to utilise

+ Potentially a bonus of a multi million settlement from Google for Gmail trademark claim - talks are discussing after previous offer by Google was rejected.

- Liquidity is poor but will hopefully be addressed in some way as part of the investor relations drive and paper being issued for earnings accretive acquisitions.

http://www.iirgroup.com/products/GER/researchuniverse

Research coverage is now 337. Some rumours about Google news on other BB's but im not convinced they are true so im not gonna repeat them.

Nice to see SP moving up at last!

Research coverage is now 338. Slowed over recent weeks due to time spent on stock updates etc. Should see a speed up when reporting season is over!

cheers jdubb ,still awaiting agm news etc etc,would have thought their was plenty of news to come as it has been so quiet of late.

Hope you had a good hol. Looked in on 3i BB but cant say they are a very informed bunch, excluding yourself of course!

great time jdubb,yes 3i can be a bit rubbish at times, what seems a long time ago now,when i spoke to the company before the last results,they said that they would be far busyer in turbulant market times ,so i would think that iff they like the turbulance,they should be makeing hay at the moment.good to see the dollar slipping a little,noticed one or two companies putting profit warnings out due to their earnings being in dollars,glad that we have factored in earnings at 2.05 .

well someone has sold 12500 shares at 20p,a low price for what is not a large holding,have to say begining to wonder what is going on,the company seems a little too quiet,still cant get a date for the agm they have promised to many times now to email me or call me with the date so i can attend,just getting a tad nervous.

Calm down!

yes i know ,

agm 17 october,at this rate we could be at the years low?

to be held at the great eastren hotel liverpool street.thought they would have put an rns out.

Cheers Cop! Hopefully some news before that!

yes jdubb,i know you think im being a little pesamistic but it just seems to quiet for me surely they should have had something to report to us by now ,just dont like to see it when a share drips away almost daily without any comment from the company.

copshaw, I am assuming given the venue that news will be released well in advance to justify the location & ensure it attracts a number of the city types in the surrounding area.

Someone on afn did say they expect an update in mid Sept after speaking with the company + the annual report is due any time soon which I think will give us an idea of option prices & AGM resolutions etc

Very quiet here today! Whilst the results may not look anything to get exited about the signs are that this company is in the first throes of growing into a force to be reckoned with in their field. Would you agree?

Highlights from accounts:-

1. Despite an adverse currency impact, Group turnover 1,062,000, up 16% year-on-year (2006: 914,000)
2. Full year maiden operating profit of 2,000 and maiden positive earnings before interest, tax, depreciation and amor tisation (EBITDA) of 37,000 (before non-cash provision for options) (2006: operating loss of 194,000 and negative EBITDA of 104,000)
3. Investment research coverage rises to 300 companies, and substantial new order pipeline to expand stock coverage to approximately 400 by December 2007
4. Outstanding performance ranking by Investars, now part-owned by Goldman Sachs, maintained and improved through the year
5. Group begins to benefit from its newly established research subsidiary in India, bringing superior talent, closer control and lower costs
6. Appointment of three senior executives to underpin the Groups growth and strategy
7. First dedicated sales appointment in New York
8. Appointment of initial two members of an Advisory Board to assist in product, acquisition and corporate finance strategy
9. First institutional business wins in Peoples Republic of China
10. Group acquires stake in a start-up company in a new, diversified, business space
11. Market expectations of 2008 revenues are expected to be achieved based on current and committed business only, before consideration of business from new clients, the contributions of revenues from new products, or earnings-accretive acquisitions

Yes - very much so, Kim. Worth holidng a few. I do however read elsewhere of speculation that a fundraising may be in the offing to finance further growth. This would make sense. The market just loves a small company in need of funds and I dare say that this is why the sp is being screwed to the floor by the two market makers. The market will want to buy the shares, but pay the minimum for them. Once any fundraising is out of the way I would hope that liquidity will improve and we'll see the sp rise to something like a reasonable level by which I mean 40+p. Just my own incoherant thoughts and ramblings, but this is why I continue to hold.

More from the accounts:-
S A Smith Group Chairman and Chief ExecutiveOfficer said

"Outlook With the benefit of an expanding research inventory, an enhanced senior management team, three additional research distribution arrangements, a number of new pipeline products and additional revenue models, all adding to a strong product performance, a well controlled cost base and a healthy growth in demand for independent research driven by regulatory changes around the world, the Group looks forward to further growth in the coming year."

As to the question of possible fund raising there are resolutions to be proposed at the AGM which include:-

"Special Resolution 6. THAT the authorised share capital of the Company be increased to 1,000,000 by the creation of an additional 50 million ordinary shares of 1p each."

So yes, maybe they are looking to raise some cash at a future date.

Update is expected in Mid Sept which fits well with the AGM date, as it is supposed to be well attended hence the venue [no one turned up last year @ the company offices].

We are sat on a PE of approx 8 for this year versus sector average of >20, 6 months of the year has passed + the company already flagged it will achieve Insinger forecasts on existing business. The list of opportunites now the company has reached some scale is v.significant.

Not only the growth expected from new products but also new sales channels\partners - as you will know the margins on reselling existing coverage are huge & if they break through into China the only additional cost to commission will be translation & rebasing for Fx - the regulatory changes back in May\June have opened the door for us imo.

Also the likely KPO acquisition in India - the growth expectatiosn for this sector are of the order of CAGR >30% from memory.

And the list goes on..............fortunately we have a class management team [some of which are leading figures in the research space] to implement & manage the growth, a quick check of their CV's clearly indicate that the company is about to take a very exciting step change imo.

My understanding is that Acquisitions are most likely going to be paper based, I asked the question when I met Mr S & L and they would look to acquire earnings accretive private boutiques at low multiples [5 or so] by issuing paper based on a PE of IIR at approx 15 - this may have changed since.

The previous owners taking the shares could crystalize their value [at public company multiples] after a tie in period, earnings of the acquired business would improve due to utilising our Indian research subsidary & sales channels - typically our analysts are x10 cheaper than a wall street analyst, hence the ESOP to try & avoid churn in a very competitive market.

All imo.

CAN THIS GO BUST

WILL IIR BEAT MARKET FORECAST IF SO WHYYYY?