Strontium in the News

Stocks on the Turn

by Andrew Hore, first published June 2007

Strontium managing director David Barker and chairman Michael Metcalfe - who was involved with Man during its flotation in 1994 and throughout its subsequent growth - make an impressive team for what is, even in AIM terms, a tiny company. Barker plans to build up a group of professional services businesses in tandem with the Strontium Alliance, designed to enable professional services companies to join together to gain from customer referrals and networking opportunities, as well as take advantage of the expertise of Strontium’s companies.

Referral schemes haven’t always proved successful in the past, but Barker believes the structure of the alliance will help to make it fairer. If a member wants to win business with another member’s client, they have to go through that member. If business is won with the customer, an introductory fee of ten per cent of gross revenues is paid to the alliance. Strontium keeps half of this and passes the rest onto the referrer.

Initial membership is free but Barker is keen to make sure the right kind of businesses - owner-managed professional services companies with a turnover of up to £2 million - with compatible cultures become members. The alliance currently has 22 members (including Strontium’s own companies) with members involved in IT, recruitment, consulting, property services and research. It is just starting to build momentum and is yet to generate much in terms of revenues for Strontium.

Acquisition opportunities

Following its admission to AIM in February 2006, Strontium made two acquisitions. Then, in April this year, it bought MiAD, which organises management training for doctors and has joined the group’s executive coaching and development, research services and multilingual staff recruitment operations. In the longer term, the alliance may provide acquisition opportunities.

Subsidiary Collectpoint, which managed a network of drop-off and pick-up locations for parcels, lost its sole customer, Lynx Express, and has since been sold. Barker insists that Collectpoint, which lost £5,600 in the six months to December, was never a core part of the group.

Strontium lost £44,000 on turnover of £464,000 at the interim stage. However, as this figure included a goodwill charge of £15,000, Collectpoint losses and aborted acquisition costs of £16,000, the underlying loss was actually less than £10,000.

Although there are no forecasts in the market, Barker appears confident that Strontium won’t make losses for much longer. MiAD is profitable and the performance of the other businesses is improving. On top of this the alliance is yet to make a significant contribution.

Tightly held

Investors should be aware that Strontium is very tightly held, with Barker, Metcalfe and Colin Brumpton owning 77 per cent of the company between them. Strontium raised £380,000 before it came to market and Barker’s argument is that because he didn’t need any more cash, there was no reason to issue more shares at float. The downside is the poor liquidity.

Strontium has raised £625,000 since flotation and shares have been issued as part payment for acquisitions. Although the vendors of acquired companies are not locked in, it seems unlikely they would sell in the short term. This leaves very little underlying free float. The illiquid nature of the company can be seen by the fact that Strontium almost reached 50p within a few days of its flotation. The price has fallen back to 27.5p, valuing the company at £2.5 million.

Although difficult for investors to become involved at this stage, it is well worth following the company’s progress. As the business grows it is likely to issue shares to finance acquisitions, the core businesses should become profitable and there could be significant upside if the alliance takes off.

This article first appeared in Growth Company Investor, June 2007 www.growthcompany.co.uk