Buy Research Now at 520p

A tip from Rebecca Turner, editor of Small Cap Shares Newsletter

Research Now was tipped last month in the Small Cap Shares newsletter at 477.5p and is already up by 9% at 520p. The company runs a rapidly expanding online market research business. Sales last year trebled on the back of strong demand and organic growth on an international level. With the sector set to expand by 25% per annum and some bold advantages over the competition, the group is set to deliver solid growth which is not yet in the price. BUY.

Research Now owns one of the largest proprietary, research-only online access panels in Europe . It currently has over a million active panel members across Europe and Australia . It also provides online fieldwork including data collection and processing to research agencies and direct to corporate clients.

It is different to other online fieldwork companies in three ways: it has considerable geographic coverage in Europe , strong relationships with its clients, and a heavy focus on quality and execution. This puts it at the forefront of the growing market research sector as it shifts online.

Since going public on AIM in August 2005, the group has delivered on its promises. It has expanded its panel and increased its profits organically. Revenues have grown at a compound annual rate of 140% and we expect this to settle at around 20% for the next three years in keeping with the growth of the online market research industry.

The online market research sector has some fundamental attractions. The sector is forecast to grow at a rate of 20-25% per annum in the near term. This will be driven by the migration of traditional data collection methods to the internet; greater media fragmentation; globalisation; and increased outsourcing of market research. What is more, new research is much cheaper and faster to produce, as well as being more accurate, which will increase take-up.

There are, however, some drawbacks to the proposition. Being a new growth market, data provision has attracted a lot of competitors. Internet penetration has grown in recent years, allowing established and fledgling players alike to build up internet access panels.

However, given this strong demand, the aggressive growth in panel network and geographical reach, and the translation of that success into real profitability, we see Research Now on a steady path to growth over the next few years. The current year ending 31st October 2007 should see revenues advancing to 16.3 million pounds, generating pre-tax profits of 1.9 million pounds and earnings growing by 14% to 14.7p. Profitability will ramp up in 2008 as revenues continue to grow and margins advance. We are looking for revenues of 21.8 million pounds, creating profits of 4 million pounds and earnings of 21.6p. Furthermore in 2009, we believe earnings could hit 29p, which puts the stock on a multiple of just under 18 times.

Our valuation is built on certain assumptions: that demand for online market research will continue to grow; that Research Now will continue to exploit the growth; and that a competitive offering is maintained. This is a quality company (which is visible in the short term rating) with many clients like Cello and Chime dependent on its data, generating repeat business and forming consistent organic growth. A 2009 rating of 18 is cheap for the rapid earnings growth on the cards, making this a long term BUY.

Reduce recommendation from Growth Company
http://www.growthcompany.co.uk/recommendations/1055702/research-now.thtml

Good news last night. An approach at 'not less than 430p/share'.