tipped this week by T1ps with one year forecasted price of 20p

Just got this from UK Analyst. It's a free service to all who register. No breach of copyright as this is freely available. Enjoy.

Buy Lombard Risk Management at 11.25p
Suggests Tom Winnifrith of t1ps.com
My latest tip is not a mining stock. Hooray, I hear you all say. It is instead a loss-making technology company. Boo hiss. But the stock in question, Lombard Risk Management (LRM) is no blue-sky fledgling. It is now entering its 16th year and has been selling its risk and asset valuation services to most of the world's largest banks for over a decade - more than half of the top 100 global banks have brought products from Lombard. After a rather sticky patch around the millennium - caused by under-investment in new product - the company is now seeing sales race ahead once again, with hedge funds providing a growing new market. High fixed costs will be almost covered in the year to March 31st 2005 but thereafter incremental sales flow largely through to the bottom line and profits should ramp up rapidly. Cash raised from a September 2004 AIM listing means Lombard has a strong balance sheet and at 11.25p the shares are a "buy" at up to 12.5p. My 14 month target price of 20p would leave the stock still only trading on a forward PE of 11.8 - hardly demanding. The shares are a "buy."

The value of investments can go down as well as up. Investing in equities can lose you part or all of your capital although the potential returns are theoretically unlimited. Smaller company shares can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares.

The Business
Lombard provides both software products to its clients and also ongoing support contracts as well as data feeds. It has two product lines which are already profitable (ValuSpread and Oberon Software) and a new technology platform known as Firmament from which it has developed other distinct "integrated" trading and risk management software services. That embraces Firmament Credit Trading (already built) which provides trading and management functions for credit derivative traders and there "middle offices". Firmament Equity Trading (already built) providing similar functions for equities. Firmament Fixed Income (in development) ditto for fixed interest assets and Firmament modules that that handle such things as the overseeing and management of collateral arrangements and the netting of deals.

Of its two established and profitable products, Oberon was developed prior to 1999 as a trading system for fixed income and foreign exchange instruments. ValuSpread was developed in 1999, allowing traders to share market pricing information for esoteric things like derivative market "credit default swaps" and "recovery rates". ValueSpread data is now licensed to banks so that they can uses its pricing information on a daily basis (an enhancement on a previous weekly service). ValueSpread data thus provides Lombard with recurring revenue. Indeed it is the high percentage of recurring revenues within this business model which is one of the great attractions of Lombard. About the only time this high degree of visibility is interrupted is when two of its clients merge and scrap one of its contracts. It has to be admitted that in the global banking word this is not an uncommon occurrence these days.

Historics
The couple of years prior to flotation did not cover Lombard in glory. Meeting chairman and CEO Jonathan Wisbey for a coffee before Christmas I sensed an admission that the company had not invested aggressively enough in R&D in the late nineties or in marketing. Both of those issues have now been addressed with new staff hired on the marketing front (from larger players in the sector without Lombard's specialist niches) and money pumped into the development of Firmament, expenses which are all written off against the P&L. But those sluggish sales and higher costs meant that in the financial years to March 31st 2003 and 2004 turnover was static at 4.5 million pounds while losses came in at 3.1 million pounds and 1.2 million pounds respectively.

Profits Forecasts
But this year will be better with R&D spend marginally down and sales up to 5 million pounds. Lombard reported its interims on November 30th (two months after the float and a week or so before my coffee in Shoreditch with Wisbey). Sales were marginally down at 2.29 million but the IPO was a real distraction. The company seems very relaxed about full year estimates and that should see pre-tax losses narrow to just 500,000 pounds.

In this industry there is a pretty long lead time between tendering for new business and actually booking the first revenues both upfront for installing new platforms and then on an ongoing basis for support and data supply. Hence Lombard already has a fairly good idea of where its sales should be in the year starting in April and seems relaxed with the idea that they could reach 6.6 million with 9 million pounds possible in the year to March 2007 as Firmament really starts to kick in. On that basis one would be looking for pre-tax profits to hit 400,000 pounds next year and to come in at around 2 million pounds in 2007. That equates to earnings per share of 0.6p next year and 2p the year after.

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Cash & Cashflow
Post IPO, Putnam Lovell, a well-regarded Canadian investment bank liked the product so much that it invested 1.1 million pounds of fresh cash in Lombard to give it a stake of around 10%. That leaves Lombard with net cash of 1.4 million pounds at present and I expect that the second half will be pretty much cash neutral with the company set to generate a modest amount in 2006 but in 2007 its cash balances should grow significantly. If it wanted to, Lombard could even consider a dividend at that stage although if the shares remain on the present absurd rating, a buy-back is far more likely.

Risks
This is a company which right now is making a very small loss each month although - I believe that it is cash neutral. If Wisbey's additional investment in marketing does not deliver the ramp up in sales projected then a market capitalisation of 12 million pounds might not appear quite such a bargain after all. But given the current trends in sales and the potential of Firmament I find it hard not to see Lombard actually breaking into the black next year.

Clearly merger mania among the big banks is a risk. But it is one that Lombard has grown used to. One step backward and two steps forward is not an unusual pattern. The speed at which hedge funds appear and then disappear is also not new but is actually good news. Each new fund does, after all, need systems installed even if it is not around to honour the final months of its annual support contract.

The final risk is Wisbey himself. He seemed a solid man to me and utterly committed to the business. He remains by far and away its largest shareholder. He is chairman, CEO and oversees a financial controller as well. Lombard does have a heavy hitting COO but I personally would be delighted if Wisbey were to sacrifice 120,000 pounds of annual profits to take on a very strong finance director. I suspect that the City would also welcome the move and the re-rating which would follow from such an appointment would easily compensate for the lost profits.

Conclusion
In the long run, Lombard will be bought out by a larger rival looking to tap into its core specialities. That is the five year exit plan which Wisbey may pooh-pooh but which all investors at this stage must view as the end-game. But this is not a play on industry consolidation as much as a fundamentally cheap stock. If one looks at the gross margins on product (up to 95%) this is a company which now has its fixed costs covered and has products which appear to be well regarded and thus a rapidly growing top line. There are no balance sheet concerns.

In just over a year, investors will have seen Lombard make the move into profitability and will then be looking forward to a year (to March 31st 2007) when earnings should hit 2p. For an operationally geared company delivering such strong organic sales growth a forward PE of 11 is far from demanding and thus my 20p target price may well be over-cautious. At 11.25p, the stock is a "buy" at up to 12.5p with a 20p target price.

Share price: 10.5 - 12p

Stockmarket: AIM

Symbol: LRM

Mkt cap: 12 million pounds

Tom has published performance statistics for t1ps.com over the weekend and the numbers suggest that the average gain on the tips (102 published on the site) is 39.72%. The site, also has a thrice weekly diary of Evil Knievil, the UK's most notorious bear raider. It costs just 73 pounds a year to access this site. To make sure that you don't miss out click here.

still goiong today expect similar rise tommorrow 20p was the target

Could bounce of todays lows

Nice move today, could still go much higher.

Has anyone any thoughts re this one. The recent news re the sale of ValuSpread sounds good. But the sp is doing nothing.

a sleeping giant with a giant hangover - when will it awaken - no news and no progress

Hey I found this interview with Lombard and wanted to share it with you guys.

Its worth a click:

http://www.brrmedia.co.uk/event/98075/john-wisbey-ceo-and-paul-tuson-cfo

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