One small cap stock that's on to something big

If our political leaders are to be believed, the UK's economic revival will be based upon our scientific expertise and its value in export markets. But where are the companies that are going to lead the charge?

Last month I met a man who has been in the business of making money from science for the last 25 years. Phil Atkin has watched successive governments downplay the efforts of his kind while applauding the relentless rise of the financial sector.

Finally we have woken up to the realisation that the latter does not produce any real wealth at all. And this means Atkin's time may finally have come especially after a special announcement made last week

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Atkin is now chief executive of Scientific Digital Imaging (SDI) (LSE: SDI). Last week the company announced that it "has continued to enjoy robust market conditions the trend of increasing sales of higher-value instruments continues it now seems likely that profits for the full year will exceed market expectations".

In simpler terms, SDI is continuing with the progress it has made since making its stock market bow at the back end of 2008. This is just the sort of news that I look for from a penny share company. Here's why I think SDI are on to something big

A penny share company that could help save UK plc

At SDI's modest headquarters on the outskirts of Cambridge, Atkin told me about the founding of a business called Synoptics.

Back in the eighties, Atkin was a pioneer in electron microscopy. Atkin and his founding partners developed software that made it easier to see microscopic images. Then they sold it to makers of the hardware.

But, realising that they had developed "a solution looking for a problem" they decided to start making the hardware devices themselves. Today these are sold under three brands: Syngene, Synbiosis, and Syncroscopy.

Syncroscopy has cracked a problem well known to keen photographers. This is how to take a close-up shot of an insect or a flower and have more than just a small part of it in focus.

The answer is to take multiple digital images and then use intelligent software that can decipher those parts that are in focus and piece them together into one image.

SDI's software was selected by camera maker Leica as the best of its kind and is now sold as an optional module by the famous German manufacturer.

Synbiosis provides a range of instruments for measuring the results of microbiological tests used in the food, water and pharmaceutical industries. (In other words, said Atkin, citing a typical example, 'should we throw away the prawns?')

Today samples are viewed through microscopes and the number of bacteria are counted manually. But Synbiosis can automatically capture and analyse digital images. It can also and this is increasingly important as rules and regulations demand strict record-keeping automatically save the evidence.

But the biggest division is Syngene, Almost all research in biological sciences involves an understanding of the underlying molecular processes involving DNA, RNA and proteins.

These are studied using gel electrophoresis, a process for separating molecules by forcing them to migrate through a gel under the influence of an electric field.

Syngene's instruments are used by molecular biologists to accurately capture and record this process.

Why SDI is set for rapid growth

So these are sophisticated devices, selling for several hundreds, or thousands, of pounds. And Atkin is confident that they are at least as good as any competitor products.

This is born out by sales around the world, making SDI a likely beneficiary of the falling pound.

Now though, Atkin has stepped into the public company arena. And he is determined to accelerate SDI's growth through acquisition. Its first move has taken it into the design and manufacture of high sensitivity cameras.

Digital imagery is one essential component of SDI's devices. What Atkin realised was that astronomers are very good at developing cameras. So in 2008 SDI bought two advanced camera makers. These are now contributing to SDI's growth.

SDI is certainly one to keep an eye on. Chairman Harry Tee was the driving force behind Roxboro, which made plenty of money for investors in the 1990s. He is also chairman of another fast growing company, Dialight (LSE: DIA).

Better than our politicians he understands what is required to build a science-based business.

This article was written by Tom Bulford, and is taken from his free twice-weekly email the Penny Sleuth .