Gamble of the week: specialist software developer

With a market capitalisation of only £20m and no debt, this hi-tech company looks good value for the more adventurous investor.

Gamble of the week: Proactis (AIM:PHD)

What's in a ticker? Usually not much, but in Proactis's case, "PHD", with its connotations of world-class university research, aptly describes the firm's advanced yet user-friendly spend-control software. Even though purchasing software has been around for many years, most is just too complex to be adopted outside specialist buying departments. But if companies hope to reap the benefits of bulk buying and streamline their procurement processes while retaining financial control, then they have to devolve responsibility for purchasing throughout the organisation. That means the relevant IT systems need to be both easy to use and have a wide range of functions.

This is where Proactis steps in. The group joined Aim through a share placing at 43p in June 2006. Its "eProcurement" system is simplicity itself, allowing firms to cut, control and monitor all internal and external spending, apart from payroll functions. These applications have been adopted by more than 200 organisations across an array of sectors, including financial services, charities and the government. For the year ending July 2007, Proactis won more than 40 new clients, including names such as Virgin Active, Wolseley, the United Nations and The Tote.

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And in a huge endorsement of the company, in August Microsoft signed a global technical and marketing agreement with Proactis to deliver "off-the-shelf" integration with its own rapidly growing Enterprise Resource Planning system. Microsoft is aggressively promoting its business software and with a huge level of marketing muscle behind it, this must be a massive opportunity for Proactis.

Furthermore, as the credit crunch and higher energy costs continue to bite into profits, companies are becoming increasingly interested in new ways of cutting costs. Proactis might just be in the right place at the right time to see a deluge of new orders.

So what about the numbers? Well, next month Proactis should report 2007 sales of around £5.9m for the 12 months to July. Earnings per share, however, will be held back due to investments in its exciting North America launch and non-recurring costs arising from acquisitions. Next year, the company should move firmly into the black with turnover rising by over 40%. With a market capitalisation of only £20m and no debt, this hi-tech company looks good value for the more adventurous investor.

Key risks include being a small company operating in a dynamic industry, together with the usual dangers associated with contract slippage and foreign exchange.

Recommendation: speculative BUY at 65p (market capitalisation £17.2m)

Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments