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Now and again, the UK penny stock market serves up a rare opportunity to patient investors — and I think I’ve found one. With a similar business model and near identical financials to Ideagen, could Skillcast (LSE: SKL) be heading toward a billion-pound valuation?
A decade ago, savvy shareholders could buy Ideagen stock for under 50p per share. The niche compliance software business subsequently rocketed in value, eventually commanding a £1.1bn takeover price in 2022. Today, Skillcast bears a striking resemblance to that early-stage Ideagen, offering what could be a genuine ‘second chance’ for investors who missed the first opportunity.
Ideagen in 2015
In late 2015, Ideagen was a classic AIM penny stock with an unglamorous but essential proposition. The company operated in the Governance, Risk, and Compliance (GRC) sector — helping businesses navigate regulations through software. For corporate clients, its tools were not luxuries but necessities.
The financials told a compelling story. Trading at around 50p per share with a market capitalisation of roughly £70m, Ideagen generated £14.4m in revenue in 2015. More importantly, the business was transitioning to a recurring SaaS (Software-as-a-Service) model, meaning cash flow was becoming predictable and customer relationships increasingly sticky.
Over the next seven years, it executed a ruthless ‘buy-and-build’ strategy, acquiring smaller rivals and compounding shareholder value more than 600% before its sale. That’s an astounding return in just seven years!
Skillcast today
Fast-forward 10 years, and Skillcast presents an almost identical financial snapshot. The company currently trades around 61p per share with a market-cap of around £55m. Plus, it generated roughly £13.3m in revenue during its latest financial year. Like Ideagen a decade ago, Skillcast operates in the compliance and e-learning space, helping corporate clients manage regulatory training and risk through software.
The parallels run deeper than headline figures. Skillcast has successfully shifted its revenue model towards recurring subscriptions, which now account for over 80% of sales and grew 23% year-on-year. This is actually a higher-quality revenue mix than Ideagen achieved at the same stage (53% in 2015). Equally telling, Skillcast has recently crossed into EBITDA profitability, signalling it has passed the cash-burn start-up phase — precisely where Ideagen stood in 2015.
One critical difference
The main distinction lies in Ideagen’s aggressive expansion strategy. Following several lucrative acquisitions, it achieved growth of 60% in 2015. Skillcast, by contrast, has relied primarily on organic growth, expanding at a more measured 18% pace.
However, with £11m in cash on its balance sheet and no debt, Skillcast has the financial capacity to pivot towards a buy-and-build strategy (if management chooses). But as a micro-cap stock with low liquidity it faces significant volatility risk – even a small mis-step in execution could spell disaster.
My verdict
Skillcast certainly has undeniable similarities to Ideagen but that doesn’t guarantee it’ll achieve the same success. To do so would mean a notable change in strategy — and the economic landscape today is vastly different to 2015.
If it chose to abandon organic growth and pursue a similar strategy of aggressive expansion, could it achieve the same result today? Overall, I think there’s a strong possibility — and at only 61p a share, I think that’s a risk worth considering.
