SMARTFOCUS (STF)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

SMARTFOCUS (STF): Project Delays - Feb 2007

RHPS Recommendation – SELL

Results for 2006 were below forecasts, as “some current and anticipated projects have been delayed until early 2007.” This is never an entirely convincing excuse, especially as most companies try to ensure that forecasts are set at a conservative level. I also still have concerns about smartFOCUS’ cash flow and balance sheet – issues that were not addressed by the latest trading statement. This has shaken my confidence, so we sold on 25 January.

SMARTFOCUS (STF): Oct 2006

RHPS Recommendation – BUY

Turnover grew by 73% in the first half of the year, helped by contributions from recent acquisitions Aims Software and Email Reaction. smartFOCUS now reckons that it is uniquely placed to manage campaigns both through online and offline channels. It has been investing heavily to grow the business, and this is one explanation for the outflow of cash in the first half of the year. Broker Arbuthnot is forecasting a profit of £1.2m this year and £2.2m for 2007.

SMARTFOCUS (STF): Aug 2006

RHPS Recommendation – BUY

Revenues increased “substantially” in the first half, and smartFOCUS has been profitable and built its level of cash. May’s acquisition, Email Reaction Limited, is showing “considerable potential” and smartFOCUS has signed up new clients, including WH Smith and Harrods.

SMARTFOCUS (STF): Buys more than 100 new clients - Jun 2006

RHPS Recommendation – BUY

smartFOCUS is buying Email Reaction Limited, a digital marketing software company for £1.6m, payable mainly in shares. This will give Email’s owners a 12% shareholding in smartFOCUS. Email Reaction has over 100 clients, including the Labour Party, the Ideal Home Show and Dorling Kindersley and helps them to communicate effectively and generate maximum response from online marketing. In 2005 it made a small operating profit on turnover of £0.7m and has annualised recurring revenues of approximately £0.6million. Broker Arbuthnot says Buy, and has a target price of 30p. Taking this advice director Jeff Maynard bought 100,000 shares.

SMARTFOCUS (STF): 85% Revenue Growth - Apr 2006

RHPS Recommendation – BUY

smartFOCUS helps run effective and targeted marketing campaigns. In 2005 it achieved underlying revenue growth of 85%, with good growth in the US and Europe – the latter following the acquisition of the French company AIM software. Chief Executive Chris Underhill says that the business has gone form being “evangelical to commercial”. In other words it is now seen as a business imperative. An investment of £1.1.m this year is largely going on sales and marketing as smartFOCUS seizes the growth opportunity. I have lifted my buy limit to 22p.

SMARTFOCUS (STF): Feb 2006

RHPS Recommendation – BUY

smartFOCUS, which provides software that enables companies to better target and manage their marketing campaigns, has reported strong growth in turnover, a maiden year of profitability and a £1.1m investment programme. Targeted marketing is really taking off and smartFOCUS won new clients including T Mobile, NSPCC and Sportingbet. Now it plans to boost its sales and marketing effort, and is moving its software to Microsoft’s net platform. Broker, Arbuthnot, has increased its 2006 revenue forecast from £8.2m to £9.2m and, even after the extra investment, expects a profit before tax of £1.2m. I have raised my buy limit to 20p. My target is 35p.

SMARTFOCUS (STF): Launches smartCAMPAIGNER - Jan 2006

smartFOCUS will be at the ‘Technology for Marketing’ show at Olympia in February to demonstrate its new smartCAMPAIGNER module, a key component of its smartMARKETER software that enables the delivery of Intelligent Marketing. The shares now look very cheap on 2006 forecast earnings per share of 2.2p.

SMARTFOCUS (STF): A big new contract - Nov 2005

RHPS Recommendation – BUY

smartFOCUS have won a £0.65m contract to supply Intelligent Marketing Solutions to Creation Financial Services Ltd (CFS) which manage over three million cardholder relationships across the UK through branded store card and credit cards. Its software will enable CFS to consolidate its data assets and have a single intelligent view of the customer. The contract is significant in relation to smartFOCUS’ total turnover of £2.2m in the latest six months.

SMARTFOCUS (STF) :Smart Figures - Oct 2005

RHPS Recommendation – HOLD

smartFOCUS, which sells marketing campaign software, has announced turnover growth of 70% in its first half and a 75% increase in new orders from customers such as Hilton and the Automobile Association of America. smartFOCUS has integrated July’s acquisition of the French company AIMS, and the combined group has already won new business. Broker Arbuthnot is forecasting earnings per share of 2.3p next year, and has confirmed its buy recommendation with a new target of 30p. But with the shares some way above my 16p buy limit, HOLD.

SMARTFOCUS (STF): Aug 2005

RHPS Recommendation – BUY

One little company is changing the face of direct marketing. Soon, everyone will see its hidden value. Buy now and target gains of 146% in just 12 months

Chris Underhill lives in the rural north Somerset village of Wedmore. He travels up to Bristol each day to the office of smartFOCUS, where he is Chief Executive. And he gets home in the evening to find that the postman has delivered letters offering him special discounts on tractors and chicken feed. There happen to be one or two farmers in the village, you see, and those agricultural suppliers cannot pinpoint them.

It is a waste of money, isn’t it? You probably have your own tales of misguided marketing. Phone companies that ring you up when you are halfway through your dinner; motoring organisations that offer you a special discount to join – forgetting that you are already a member. Promotions that arrive for people who have moved house or passed away. And as for all those offers of credit cards and loans…

Direct marketing is the name of the selling game these days. Consumer companies cannot rely on you and me to watch the TV commercials or to look at magazine adverts. They want to get up close and personal. They want to know us in rather

intimate detail!

Fed up with being targeted with useless, inappropriate and irrelevant direct mail? I am – but this smart software will put an end to our misery

In theory, the data that we leave in our tracks makes this task easier. Each time we use a credit card, visit a store or even make a phone call we generate a new piece of data, a new insight into our habits and tastes. But, in fact, the sheer volume of all this information is making the job of the marketing department more complicated. The data trail is getting longer and longer and longer… but any company that can actually decipher it, and put it to good use, will be on to a winner. And smartFOCUS has developed software that can do just that.

The company’s sales pitch is ‘Would you like to run more profitable campaigns more often?’ And with companies increasingly snowed under by the complexity of the direct marketing task, more and more are saying ‘Yes, please!’

Data can be generated internally – for instance, a store can keep records of its customers. But it can also be acquired from external sources such as postcodes, credit agencies and subscriber lists. The first task is to put that all together, and smartFOCUS has built a database that can load data from all other technology platforms, clean it up and respond to a typical query on 10m rows of data in less than one second.

This software pinpoints who you are, what you want and when you want

it – that’s some clever piece of kit!

But it’s not what you’ve got, it’s how you use it! And smartFOCUS has also developed software that enables direct marketing organisations to make the right offer to the right person at the right time. No longer do they want to send heavyweight product catalogues to all their customers, at huge expense.

They might not want to slip anything at all through your letter box, because, with text messaging and email, there are so many other channels of communication. Which is most effective? smartFOCUS’s ‘Intelligent Marketing’ software will tell them that, too. And, by plotting patterns of behaviour, it will predict when you will be ready to spend your money – and on what.

smartFOCUS software enables direct marketers to build a database from all sources, analyse it swiftly, automate the planning and delivery of campaigns, and report and analyse the results. It used to only sell licences to use the software in perpetuity. But over the last few years it has started selling multi-year rental licences, giving smartFOCUS a more consistent stream of income. It has also made it possible for customers to use the software either in-house, or via an outsourcing arrangement which again gives smartFOCUS a continuing revenue stream.

The UK order intake grew by 67% last year alone – but there’s much more to come

In the UK it has its own sales force, but in the USA it has chosen to sell directly to, and through, partners such as BeNOW. These pay an annual fee to use the software themselves, or sell a sub-licence to those of their customers who decide to take the job in-house. There are 1,500 direct marketing service companies in the USA and smartFOCUS, which already derives a quarter of its revenues from the USA, aims to have partnerships with 50 of them within three years.

Back home in the UK, smartFOCUS increased its revenues by 29% last year and grew its order intake by 67%. It added the likes of Hilton International and Provident Financial to its client list, which already included Carphone Warehouse, Lloyds TSB, David Lloyd Leisure and Matalan. For Matalan, smartFOCUS software enabled it to progress from doing a limited number of campaigns each year, spread over its entire list of shoppers, to being able to deliver hundreds of campaigns, all swiftly executed and carefully tailored for small, specific groups.

Not only are companies eager to find new customers, but they are also desperate to keep hold of them. Mobile phone companies such as Carphone Warehouse, another customer invest months’ worth of revenue acquiring customers and need to find exactly the right deal to persuade them to renew their subscriptions.

In just five years the average value of orders has risen by 525%

The stakes are large. A lot of cash is being thrown at the problem, and much is being wasted. smartFOCUS is targeting companies that are spending £2m or more annually on direct marketing. Company bosses are beginning to wonder what they are getting for all this money, and are worried by the future threat of being fined for carelessly marketing to the 8m of us who have elected to be left alone.

So smartFOCUS is finding a ready response from marketing executives, who are happy to sit down and build the investment case for smartFOCUS software. They can show that money spent on smartFOCUS software is money well spent, and in consequence the average value of smartFOCUS’s orders has risen from £40,000 in 2000 to almost £250,000 today.

An investment of this size, though, is beyond smaller companies, so the outsourced service is being developed to suit smaller customers, while smartFOCUS is also looking to expand into Europe. It took a step in this direction with last month’s acquisition of French campaign management software specialist AIMS, a deal which also takes its number of customers to approximately 200, and will make it the only European company with a complete marketing management package based on Microsoft.NET.

RHPS Verdict: In June smartFOCUS announced its largest contract to date, a deal worth £800,000 over three years with Cendant VRG. And at the same time as announcing the AIMS deal, it reported strong organic growth this year. On forecast earnings per share for 2006 of 2.1p, the shares trade on a p/e of just 7, and can easily double over the next 12 months. So next time the postman brings you a totally inappropriate marketing offer, smile. It could make you very rich! BUY.

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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