Concurrent Technologies is a growing player in the design, manufacture and sale of computer hardware for the ‘embedded’ computer market, an appetising $5 billion slice of a $100 billion market.

Established in the UK in 1985 and introduced to AIM back in October 1996, this small company actually has a global reach, with sales and marketing channels in North America, the EU, the Far East and Australasia. Equally impressive is the fact that Concurrent has been profitable – and paying dividends – for many years.

Unfortunately its record is not without blemish, with a few missed forecasts some years back blotting its reputation. But, in its current guise it is a venture that sports good margins, a robust balance sheet and sufficient prospects to make the shares worthy of investor attention.

Strategy
Concurrent is focused on the design, build and supply of high-end embedded computer products, predominantly for the defence and telecommunications sectors – together these represented over 80 per cent of last year’s sales by value – though it also sells into the transportation and industrial markets.

Products the company builds are then integrated into a variety of applications requiring high levels of processing power, superior levels of reliability and high temperature resistance. Applications range from fighter planes to MRI scanners and cellular base stations.

Concurrent’s core product range includes single and dual processor computer boards using Intel and Freescale Central Processing Units, known as CPUs, for the CompactPCI, VME and Multibus 2 architectures. Boards are produced for use in standard operating conditions as well as rougher, more rugged, environments.

A key component of the group’s strategy is to supply products into customers over lengthy life cycles. ‘It takes a long-time to get these products designed-in,’ explains chief executive Glen Fawcett, ‘but once they are, we are in with the client for a long time. Indeed, some products we supply for between eight years and 15 years and our profitability on old products actually goes up.’

Admittedly, it hasn’t all been plain sailing, with Concurrent suffering a sales and profits blip in 2004. But revenues and returns rebounded in dramatic style in 2005.

Says Fawcett, ‘we went down with the telecoms market, which did hurt our profitability, but last year [2005] our market conditions really improved.’ The proof in this wasn’t just writ large in the figures but also in the fact that Concurrent launched new products designed to meet the high-end computing requirements of customers, many of them based on the latest single-processor technology from Intel.

Fawcett’s strategy is to continue to design complex boards, rather than low-tech, high-volume products, whilst boosting the group’s sales and marketing firepower in the Far East and the US (the group’s biggest and most exciting market). The main focus of the company’s marketing push will be, as ever, the defence and communications sectors.

Management
Lancashire native Glen Fawcett, who graduated from the University of Leeds with a degree in electronic engineering, has spent 20 years of his career working for Concurrent Technologies, firstly as technical director, but for the majority of that time as managing director.

Before he began his stint at Concurrent, the soft-spoken Fawcett was a design and project manager for System Computers for a six-year spell, having previously been employed as a missile engineer with what is now BAE Systems. Although Fawcett is well versed in the technical side of the business, he combines those skills with strong commercial instincts and spends much of his working life furthering the Concurrent cause in overseas markets.

Trained solicitor Michael Collins is the group’s chairman. He joined solicitor firm Alsop Wilkinson back in 1967, eventually becoming a partner in 1972. Between 1988 and 1990, Collins worked for Royal Trust Bank, eventually becoming director of investment banking. Between 1990 and 1993, he was managing director of J Alsford Limited, before re-joining Alsop Wilkinson in 1993 as a partner in the banking unit. He was appointed as a Concurrent director in 1987.

On the commercial front, Fawcett is able to call on the assistance of sales director Jane Annear, who joined the company in 1985, having previously worked for Burmah Oil Trading and Raychem Limited in a variety of different roles in finance, manufacturing, sales and marketing.

Prospects
Annual numbers for 2005, released in March, revealed marked increases in turnover and profits as the group’s key defence and telecommunications markets remained in rude health. The top line burgeoned 51 per cent to almost £10.7 million and pre-tax profits (adding back exceptional items and goodwill) surged 577 per cent higher to £1.45 million, ahead of City forecasts. In line with the company’s good track record in rewarding investors, shareholders were treated to a doubled final dividend of 0.5p.

Gross margins sparked up from 43 per cent to 46 per cent on the back of a greater proportion of ‘ruggedised’ and ‘extended temperature range’ boards, as well as a contribution from the strengthened US dollar. Fawcett said that both the group’s main product alliances, with Thales Computers and Intel, continued to progress well.

Last year, Concurrent reported a 170-strong client list. However, because these clients operate in highly sensitive markets, they are averse to having their names published, which remains a frustration for management and the wider city.

‘We never list client names,’ says Fawcett, ‘but our biggest customer is a telecommunications player. Not a Nokia or an Eriksson, but you will have heard of them and they are more than just a mobile player,’ he teases. ‘And we have a fantastic captive customer base, with most of our clients having at least $100 million turnover.’
Fawcett expects Concurrent to continue to flourish on the back of a trend towards outsourcing within its main markets, which is generating record levels of enquiries.

‘Defence in the US was big for us last year on the back of what I call the George Bush effect,’ he adds. ‘The US is the number one market in terms of revenue and I expect that to remain.’

As well as good trading conditions in defence, ‘telecommunications is coming back for us after a two-year dip, and we have a nice balance between the defence and telecommunications sectors,’ Fawcett says. ‘We have four different product lines and we try to not be dependent on one product. Our big push this year is to do even more on sales. We have set up in China and enhanced our sales channels elsewhere.’

Of course, prospects are also underpinned by global demand for single board computers, particularly those powered by Intel CPUs, which continues to grow.

Valuation
For 2006, on the back of recent bullish trading updates from the company, Bell Lawrie analyst Gregor Paterson ratcheted up his pre-tax profit forecast to £1.9 million from sales of almost £14.3 million. These figures should translate into earnings of 2.1p, giving the 30.25p shares a forward rating of 14.4 times.

Although that multiple isn’t especially cheap, we think Concurrent could command a higher market price tag than its current £22 million, considering that the company closed out 2005 with £4 million of cash and zero borrowings. Strip out the cash and one could argue its market cap is just £18 million, leaving Concurrent on a ‘true’ p/e ratio of less than ten. Buy.