“‘I used to punch the air when we won a £10,000 order,” Wayne Money told me. “Now I only punch the air if we win a £250,000 order.”
It certainly sounds like Wayne’s company Eruma (AIM:ERU) is making some real headway. This is a company that I have covered before both in Red Hot Penny Shares and Penny Sleuth (16 June 2011). But this success hasn’t happened overnight.
Eruma was valued at £3.4m when it came onto the AIM in 2005. Seven years later, it is valued at just £2m. Its 2007 acquisition of Illuminex has, until recently, been a disappointment and it has taken time to convince customers of its security blinds.
But Money reckons that Eruma is now turning the corner. “I am very upbeat at the moment,” he told me over lunch. And he has good cause to be.
Eruma has finally caught the attention of the security world
For me, Eruma has always had one great attraction – its product. Eruma’s security blinds are remarkably simple and yet very clever. At a glance they look like vertical louvre blinds but they are in fact made of metal and if somebody was to let off a bomb in the vicinity, they instantly snap shut, forming a protective barrier and preventing shards of window glass from flying into the building.
While you might not worry about bombs going off outside your home, those responsible for embassies and banks, especially in volatile areas such as the Middle East, are acutely aware of these risks and are prepared to pay the c.£2,000 cost per window to ensure protection.
This is a product that is technically smart and appears to have no current competition, and earlier this year Money went onstage at the Counter Terrorism and Specialist Security Awards dinner to take the top prize in the Building and Facilities Protection category. This is nice recognition from those in the business but, more important, Eruma’s security blinds are finding recognition in the market.
After the period of gestation that applies to any new product, sales are now beginning to accelerate. The word is spreading, and instead of having to cold call customers, ignorant of security blinds and wary of their merits, enthusiastic buyers are now ringing Eruma.
Eruma is on course for its first annual profit
Eruma’s most recent contract award was with a multi-national oil company in Baghdad. And given that Eruma has a global market and that terrorism is not likely to go away, I will be surprised if we do not hear of more contracts before long. But, while this side of the business is really starting to take off,there is further good news – the lighting business is also gathering pace.
Last year security, including Eruma’s barriers that protect against ram raids on warehouses, accounted for about 80% of Eruma’s £2.4m revenue, and lighting 20%. But this year Money thinks that the split will be closer to 50/50. Given the security side is doing well that implies that 2012 revenues could top £4m, and that could be enough to see Eruma to its first annual profit.
Having originally focused on emergency lighting – the sort of lighting tracks that you see running up the aisle of an aeroplane for example – Eruma’s Illuminex subsidiary now offers a complete range and is benefiting from a switch towards energy saving lights.
Thanks to LED lights, which last longer and use less electricity than traditional forms, their adoption offers a swift and painless route to achieving cost savings as well as reducing the carbon footprint. Illuminex has teamed up with project managers and has started to win business notably in the public sector where it has reported contracts with schools, the NHS and the police.
‘I am not interested in selling’
Money was keen to point out that Eruma had in fact achieved a profit in the second half of 2011, but this year it should certainly do even better. As I have pointed out before, in the absence of recurring revenue from service contracts, the business relies on new sales and if sales really take off Eruma may need more working capital of the type that UK banks no longer seem to provide. But that would be a nice problem to have.
Given the publicity that Eruma received at the recent awards dinner I asked Wayne if a rival might be tempted to buy Eruma. His answer was clear. “I am not interested in selling,” he told me. “Shareholders have supported the business for long enough. I will not be happy until I see them with a profit.”
A refreshing view. But then Wayne Money is a very nice guy. So it did not surprise me. This is a company that I’ll continue to follow very closely in the months ahead.
• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
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