Gamble of the week: Software for robots

Walk into the BMW factory at Cowley and you'll see hundreds of robots bashing out thousands of Minis, every single week. Every car on the production line is slightly different: one might have dark chrome alloy wheels, while another might sport blush leather seats. So the robots need to be able to recognise each vehicle as a unique object with its own distinct properties.

Ubisense's real-time location software, which uses ultra-wide- band radio, provides these robots with the eyes and ears to do just that. It's like having an indoor radar system in the assembly plant that tracks each car in 3D. This results in greater efficiency, fewer errors, and big savings for BMW.

While this market is in its infancy, it is growing fast. Datatech estimates that the sector could be worth $500m by 2018. Ubisense is signing up new clients across numerous industries: this month it won major deals from two of the world's largest car makers, to add to a roster of clients that includes Airbus, Caterpillar, and Hyundai.

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This was reflected in its first-half results: underlying turnover jumped by 12.8% to £12m. The company did suffer temporary delays on a handful of deals in North America. Yet in some cases the delays were a result of longer negotiations due to a widening in the scope of contracts. And since June, most of these orders have come in anyway.

Ubisense (Aim: UBI)

House broker Canaccord Genuity predicts 2012 turnover and earnings before interest, tax, depreciation and amortisation (EBITDA)of £27.5m and £1.5m respectively, rising to £37.4m and £4.5m by 2014. I rate the stock on a 2.5 times sales multiple. Adjusting for net cash of £3.3m, that gives an estimated worth of more than 300p a share.

Of course, nothing is risk-free. Contracts tend to be lumpy and there are a number of new rivals ranging from start-ups to Nasdaq-listed entities trying to muscle in on the action. While protected by patents, Ubisense could be affected by rivals developing more effective technology in future. Finally, the firm is exposed to the cyclical nature of its end markets and to currency fluctuations. But if all goes to plan, the shares could easily triple in the mid- to long term.

Rating: SPECULATIVE BUY at 218p