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

well 15%down on good news ,will wait and see what the rest of the day brings.

any thoughts about today folks?

copshaw, the price fell on good news as you eluded to earlier. You would need an A4 pad to note all the opportunities the company are currently working on & poised to announce.

A disappointing reaction obviously, whether you are ST or LT you want the price to rise, never mind its fair to say that for me the company has far more upside than I had imagined [and I don't mean due to the fall today :o]

thanks scotty ,in for the longterm.

Copshaw - the other factor I feel may well have been the lack of news on google (as opposed to your take that news is imminent). This will soon be forgotten with so many of the fundamentals in our favour imo.

joe are you a holder of iir,and how long have you been in,spoke to s.smith about goggle yesterday ,just said to watch for an rns,i do beleive it will be a while before we here anything.

New website is live ;

http://www.iirgroup.com/

Lots of new info in there.

Brooker research note
http://www.iirgroup.com/news/article/33

I agree Joe. The word on Google dispute was very low key compared to previous comments and wonder if they are not so confident on their position afterall bearing in mind Google's recent assertion that IIR's application was flawed? I think this may have flushed out a few holding out for a quick gain on settlement. Nevertheless the prospects for IIR remain strong imo.

FYI - I went to the show yesterday & spent quite some time talking with Mr Smith & Mr Ledsham. Not wanting to post all the info again you can look on ADVFN under the poster james 2 [don't ask] for a brain dump of the Q & A plus other info.

can you just c&P here?

A bit lengthy, alot was from memory so please dyor ;

james 2 - 13 Jun'07 - 19:32 - 2949 of 2988 edit


On entering the show was put off abit by the number of pinstipe & crinkled suits, I had expected mostly odd looking PI's. A number of young city types with 10" quiffs also in attendence.

An expensive 1/2 cup of coffee[even with CFE in attendence !] & 1/2 hour of Jim Slater ramping his holdings [sorry system] then popped over to the IIR stand, carefully bypassing a number of greasers on other stands on route.

In attendencce was ;

Shane Smith CEO
David Ledsham CFO
Vinh Cam COO & a rather attractive young lady.

Thought I would start initially with the young lady [you wouldn't have blamed me] but after mentioning I was an existing holder soon found myself exchanging greetings with Mr S & Mr L neither of which I have met before - not sure how long we spoke for but long enough for Mr S to get backache & me shoulder ache as for some reason didn't put my laptop case down !

I didn't speak with Vinh Cam which after leaving the show I regret.

To start with scrapheaps Q on purchase of primary shares as well as liquidity.

Both appreciated the problems with liquidity & investor confidence given the wild swings in price [previous 2 days being an example discussed], this will be addressed over time for the reasons stated before but recognising to make a market need buyers & sellers it cannot be solved with a simple issue of shares to insti etc as they would more likely hold adding no benefit to liquidity.

To answear scrapheaps question directly a guide to the minimum quantity the Co would likely consider would be 25k subject obviously to discussing with the nomad. Whilst the co is cashflow positive, they are still constrained in the speed they can grow so certainly would be advantage - PI's are more likely to sell with increases in SP aiding liquidity.

EDIT to add they are it would seem about to reach a pivotal point for the company.

james 2 - 13 Jun'07 - 19:46 - 2950 of 2988 edit


Another recent subject under discussion was ESOP & exercise price.

We discussed today at length the quality of research the Indian Subsidary provides, turnover in staff levels & impact Satish has made.

The ESOP has been well received & labour churn is well below the industry average maintaining the quality of research & key analysts. This is though as much to do [I believe] with Satish relocating from Wall street to Mumbai & his skill in teaching in the research space - the anaylsts are very keen to learn from him & see his move as a great +.

An Indian analyst is approx $25k a year versus $250k equivalent on wall street, unlike a number of local research competitors IIR allow the analysts to produce the full research report - which is edited etc in London - this allows them more freedom to learn & they are very keen & going flat out at the moment.

So all this being the case I declined to ask what the exercise price was for the ESOP as even if it is zero, then good luck to them we are getting alot more back in return imo.

james 2 - 13 Jun'07 - 19:52 - 2951 of 2988 edit


Stocks can be added at approx 10 - 35 a month depending on if it is reporting season - where the analysts spend more time issuing company updates etc.

On the target to increase to 400 by December - based on the above this would be the very latest but could potentially reach 400 stocks under coverage maybe 3 months earlier. The increase is driven by firm orders.



james 2 - 13 Jun'07 - 20:03 - 2953 of 2988 edit


Product development - we can see a fair few new products coming soon listed on the website - My impression was that there were others.

Couldn't discuss any in great detail but I believe a few are close to being launched & my impression was they would be more significant then I\we think - this is my take though.

Will come back with some more info later but one very thought provoking thing to consider is - I asked if a date for the AGM had been set - this will follow shortly as wanted to exhibit today then move toward the AGM. Bearing in mind that last year the Directors were left twiddling their thumbs at the AGM with a no show from shareholders - so why have this years AGM away from the offices - surely not just for the benefit of me & the other 1 or 2 PI's that are likely to attend ?

Mr Ledsham reads the BB on occasion & was fairly complimentary of the discussion & way posters conducted debate etc [he is well aware of how some BB dscend into Chaos as we all are].


james 2 - 13 Jun'07 - 21:48 - 2958 of 2988 edit


On acquisitions, I was concerned that given the perceived [IMO] undervaluation of IIR that by issuing paper for acquision of private boutiques at low PE's, would on balance not be as advantagous as it first appears - as we are effectively on a low PE ourselves so cancelling out the benefit.

There are approx 500 privatley owned boutiques in the US. As a consolidator in the research space, my understanding is we would be looking at earnings accretive acquisitions on a PE of approx 5, but issuing paper based on a PE of 15.

Not a new concept obviously, but to understand the full impact before considering use of our low cost base [remember the US analysts are upto 10 times more expensive] they have modelled as an example 5 acquisitions on this basis.

For example ;

Say acquire a company adding 250k of earnings on x 5 multiple using IIR paper at x15, per the finals the appeal to the vendors would mean they were able to crystalize the value of their boutique [after an initial lock in period] at a higher multiple so a win : win situation.

IIR effectively pay 1.25m in paper for 250k of earnings, which on a PE of 15 to a listed company is potentially worth 3.75m on our valuation before considering the cost savings \ additional sales channels. Do this 5 times.....

Probably obvious to some but worth thinking about as I know some have commented on dilution etc. Hopefully I have explained ok above.

No over excitement on our part regarding the Insinger forecast, I discussed with SPEC the other day mentioning that the increased coverage to 400 stocks wasn't in the forecast - however it is - thats whats driving the 27% growth. What isn't taken into consideration are any additional revenues from the enlarged slaes team - as you know given the operational gearing this is much more lucrative than my earlier [incorrect] example of revenue/earnings from simply increasing coverage to 400.

They [Mr S & Mr L] were also frustrated at how conservative the Insinger forecast is, especially as our own published research constantly means we make certain forward assumptions etc - often going against the concensus of wall street - which has proved fruitful [No 1 on Investars]. However they respect Paul Bethell & whilst he currently only includes concrete revenue\earnings he clearly points to the potential upside - your comment on nomads fits well imo.

I didn't ask about the FX rate so apologies - understand I didn't take notes what I am posting other than 3 statistics is straight from my head - my brain actually grew to the size of a peanut today - an improvement on the pea sized mush before hand :o)

Some editing & spelling corrections will follow tomorrow to make all the above readable !

Cheers Scotty!!

Always a pleasure.

I got the distinct impression we will see something by the AGM but we wil have to wait & see [new products & acquisition both mentioned in the finals].

Given no attendees last year I am assuming there is a reason they are holding the AGM away from the office, maybe putting 1 & 1 together to make 3 so we will have to as ever wait & see :o)

Some movement at last! although word on another board is that there is still abig seller about wanting mid 30's for his stock- so SP may stand still for awhile before next updates.

well drop continues,how low will it go,would like to buy some more but i do think it may go lower,no intrest in the stock at the moment,thought we might have had a bit of coverage after the growth company roadshow,still no date for the agm .

just had a call back from them agm before end of august but will no the exact date within two weeks.

Cheers Cop. Hang on in there!!

Thanks copshaw, earlier than I expected so I just took a few for my collection ;o)

well scotty missed the bottom but added a few more as well,onwards and upwards

I never thought it would fallback this low but you live & learn I suppose. I am hoping for big things form the AGM as I have suggested before - if they carry on the plan to hold the AGM away from the office at another London location we are laughing imo.

Coverage is now upto 318.