from w-w-bb:

19.01.2007 - Total Rocketscience

The third and final company making up our Risk / Reward trilogy on shares for 2007 has so many investment negatives that most observers might not even give it more than a cursory glance. Although quoted on the London AIM market, it is based on the other side of the World, has reported revenues and cash flow of diddly squat and, more importantly, operates in an area of expertise so deep in boffinland that you need to be at least a 5 star techie to venture anywhere near it.

What originally persuaded us to give it a second look was the fact that legendary Stockmarket investor, Jim Slater, was pouring money into it via several successive rounds of financing. As we all know, Mr. Slater is a qualified accountant and hugely experienced corporate financier but clearly he is more at home in leafy Surrey than in the technologically rarified atmosphere of Southern California. However, he must have gleaned enough about what the company actually did to get extremely excited about it. In fact, by last Autumn, he had grown to like it so much that, to paraphrase the immortal Victor Kiam, he bought the remaining 51 % of the company that his vehicle, Original Investments, didn't already own.

The company in question was VIALOGY and, ever since it was fully reversed into Original just before Christmas, Slater's loyal band of followers have seen their highly speculative penny punt move on to the calculated risk category and been duly rewarded with a 50% shareprice improvement. We first latched on to this situation last April when we wrote a piece entitled The Cisco Kid ( see news archive ). To recap briefly, the company was set up by some brainboxes who had earlier worked together on supercomputing projects for NASA. Led by Dr. Sandip Gulati, the team appeared to have perfected software to detect and enhance extremely weak signals previously obscured by background noise. This may not seem particularly earthshattering to the layman but, apparently, the applications for this technology are not only revolutionary but almost limitless which suggests that an exponential rise in licensing income could well lie ahead.

Big news clearly travels fast on the Eastern seaboard because global behemoths Cisco and Boeing have already enlisted Vialogy to work on 2 major government inspired projects and these are just the ones that the company have been allowed to talk about publicly. As we reported in April, Cisco has contracted Vialogy to help with its IPICS programme which seeks to make sure that all emergency services and government agencies can communicate with each other quickly via computers and phones. The need to address this obvious requirement was highlighted by 9 / 11 when communications between different departments with different systems proved chaotic.

For its part, Boeing has recently confirmed that Vialogy has delivered a tenfold improvement in the accuracy and efficiency of the types of gyroscopes it uses in spacecraft and missile navigational systems. It is also known that both Cisco and Boeing see a major role for the technology in such areas as border controls and missile defence systems. Elsewhere a much smaller Texan company, Evolution Petroleum, is applying the technology to improving seismic evaluation of oil and gas deposits.

This initial clutch of applications is almost certainly just the tip of a very large iceberg that is going to float into view over the next few years and all that is required is a little patience. At todays price of 5.5p, Vialogy is valued at a mere 22m. To justify this valuation, the company would have to be earning say 2 million pretax. With cash reserves of 3 million and its heavyweight partners funding the projects it is involved in, Vialogy should be able to get through to breakeven without further recourse to shareholders. We would expect this stage to be reached sometime over the next 12 months. Thereafter, profits could / should escalate very dramatically as new applications and licensing income start to snowball.

On a two year view, shareholders could be rewarded extremely handsomely indeed. Vialogy is in so many ways akin to last weeks selection, CORAC. Both are now moving from the development stage to commercialization with the scales tipping away from blue sky risk towards the reality of cash flow. Both have mindblowing upside potential yet both have current shareprice action that makes drying paint look positively orgasmic. Although this presents an opportunity for latecomers, it is a frustrating byproduct of both companies involvement with highly sensitive technology and powerful, publicity shy partners. Moreover, the present lack of any meaningful numbers together with the sheer scale of future potential makes any serious stockbroker research well nigh impossible. All this will resolve itself in due course but, as they say in the Grolsch advert, all good things come to those who wait.

Actually, looking at the graph I guess it could continue down to 4.5 or thereabouts. But it's not a very pleasant loss, having bought in at 9p! Ouch!

indeed not, but that is not the point .... in answer to your previous Q, i don't know, but see no reason for it to recover as the markets in general look to be pretty dire

we only need news of the promised contracts which are supposed to be in the pipeline to shoot up again but for the moment the herd has moved on--I'm holding on here in hope!!

It's still in the pie in the sky category!

Level 2 up this morning, 3 to 1 on top line, and max possible to Buy is 50,000 vs Sell 100,000. Think I'll sit tight for now but will review later.

glad i took my own rather belated advice and got out a couple of weeks back ...... though VIY may well make good, my guess is that you can better use your money (what may now be left of it) elsewhere for the next 2/3/4/5 years

The Board also disclosed that a pilot project has been initiated with a large
broadband supplier to demonstrate ViaLogy's capability to assist in the
provision of managed services in the areas of 'remote monitoring', 'physical
security and access control', and 'asset tracking'. An update on this project
will be provided in due course. If this is good news the sp will jump back up .

and as i think that news is a few days old and a pilot project is barely more than something experimental, you may still have 2/3/4/5 years of waiting

I sold half of what I had left this morning, before it turned into a sea of red. Will probably forget about the rest for now, unless I can find a very compelling alternative. I got swept along by the enthusiasm of the AGM - perhaps it's best not to become too involved? I would have probably taken a more short-term view if I'd not met the people - I still feel sure that they can turn it around in the end.

However, as you say, Cynic: one could be putting the money to better use elsewhere in the meantime - but then there are no guarantees anywhere.

i can guarantee to lose it all for you .... i'll even underwrite that!

Thanks Cynic - that's one guarantee I don't need!

Incidentally, with the money from the VIY sale (at said loss, alas), I set an auto trade to buy SLN today at 86p and, as it's turned out, it's gone through and it's turned a profit! So I'm on the way to recovery thank the stars. Lesson learned: get the heck out if things look bad; forget sentiment! (And you'll no doubt ask why I didn't sell all my VIY shares and put them into SLN, I know...)

Well done Toya , will have to see it out myself and face mr Y 3p , without news and a weak market looks on the cards .

Hi Fliper - I sold the rest of VIY this morning (sadly). Should, of course, have sold immediately after the AGM and would have more or less broken even. As it is, horrid loss! Will just have to make sure I'm more careful next time. I still like the company but I think we'll have to get back in some way down the line. Good luck with Mr Y - he'll be rubbing his hands in glee!

i dont rejoice in other peoples missfortunes.

Oh good - glad to hear it Yukio. But you were right: it has nose-dived.

But this morning Level 2 is Blue again - isn't that just typical?!

Have you sold them all Toya ?

Hi Fliper - dammit yes! Bought back into VYKE first thing; will have to switch funds when it turns a profit again - hopefully next week!

Its not only this share thats lost ground , most have been hit hard . You went to the AGM and got a feel for how the company will move foward . I think its a good one to be getting into at 5.5p and holding for a year .

Yep - I'm going to get back in at around that price. No worries long term for VIY.