In the ever-evolving landscape of the UK penny stock market, a potential gem has emerged that may appeal to patient investors — Skillcast (LSE: SKL). This company presents an intriguing opportunity, particularly given its business model and financials that closely mirror those of Ideagen, a company that saw remarkable success after a period of obscurity.
Rewind to a decade ago, when savvy investors were able to purchase Ideagen shares for less than 50p each. The company, specializing in the Governance, Risk, and Compliance (GRC) sector, offered essential software tools that enabled businesses to navigate regulatory challenges. By the end of 2022, Ideagen’s value soared to an impressive £1.1 billion, thanks in large part to a methodical ‘buy-and-build’ strategy that significantly increased its market capitalisation.
Comparing then to now, Skillcast stands at a similar juncture. Trading at approximately 61p per share and boasting a market cap of around £55 million, the company generated around £13.3 million in revenue in its most recent financial year. Like Ideagen before it, Skillcast operates within the compliance and e-learning space, focusing on providing corporate clients with essential tools for managing regulatory training and risks.
The financials reveal even more promising similarities. Skillcast has successfully transitioned to a subscription-based revenue model, with over 80% of its sales stemming from recurring subscriptions—a 23% year-on-year growth in this area. This figure surpasses Ideagen’s achievement of 53% in recurring revenue during its earlier stages, indicating Skillcast’s robust revenue structure.
Another encouraging sign for Skillcast is that it has recently entered the realm of EBITDA profitability, signaling an end to cash-burn typical of startup phases—an achievement that Ideagen also reached several years back.
However, there exists a critical distinction: Ideagen pursued an aggressive expansion strategy characterized by acquisitions, which yielded a staggering 60% growth in 2015. In contrast, Skillcast has relied primarily on organic growth, achieving a more tempered 18% growth rate. Despite this, Skillcast possesses £11 million in cash with no debt, affording it the financial flexibility to pivot towards an acquisition-focused strategy if the management chooses to do so.
Investors should note that as a micro-cap stock with low liquidity, Skillcast carries a significant volatility risk. A minor misstep in execution could lead to considerable challenges ahead.
In conclusion, while Skillcast shares undeniable similarities with Ideagen, replicating such success is far from guaranteed. For Skillcast to achieve similar returns, it may need to reconsider its current growth approach amidst an economic climate that differs greatly from what it was a decade ago. Nevertheless, at a share price of only 61p, there is considerable potential, making it a risk worth evaluating for discerning investors.
