Buy Digital Barriers (DGB)

A report by AllNewIssues.com

Background: Digital Barriers is a new security services company founded by the successful management team behind former fully-listed firm Detica, which was sold to BAE Systems in 2008. Detica's former directors have now listed their latest venture on AIM, raising GBP19 million in net proceeds through the issue of 20 million shares at 100p each. The shares began trading on the junior market on March 4th after the IPO and since then have gained 36% to currently trade at 136p. Despite that share price rise and no longer being a penny share we see scope for further gains...

Operations: The company is newly incorporated and thus has no operations. However, the firm is currently involved in "detailed acquisition negotiations" with two security companies and is holding preliminary discussions with a number of other businesses.

Business Development: Digital Barriers sees the homeland security market as presenting significant opportunities, with the threat of terrorism resulting in the reallocation of defence budgets from equipment required for state-to-state conflict towards homeland security needs. In light of these conditions the business believes further investment will be made in digital security and surveillance technology to protect high-profile targets, crowded spaces and national infrastructure from attacks. The UK government's latest counter-terrorism strategy, Contest II, recognised this need and Digital Barriers believes a consolidation opportunity is available with private and public sector clients currently being served by a "highly fragmented supplier base".

Through a strategy of organic growth and acquisitions management hope to create a mid-market firm focussed on the provision of such services. Takeover opportunities are most likely to be of firms in Western Europe and the UK and all proceeds from its placing are expected to be deployed on business purchases within the first 18 months.

Assessment: Market research firm Visiongain values the global market for homeland security at $140 billion (GBP91.7 billion) with further growth expected over the next 10 years. We would not disagree with this assessment as the threat to western countries from surprise attacks by ideologically-motivated civilians is real. In January the UK raised the terror threat level to "Severe" - the second-highest category which signifies that an attack is "highly likely". Similarly the US Department for Homeland Security has an Elevated Status (third-highest position) for the country's national threat level at present and a High threat level (second-highest) for domestic and international flights. While reported incidents are rare, the most recent being an attempt by a Nigerian man to bomb a plane via a device concealed in his undergarments, there is a consensus in a post 9/11 and 7/7 world that constant vigilance and investment in advanced surveillance networks is required to prevent these attacks.

Bearing in mind the early-stage nature of Digital Barriers' activities an investment at this time is essentially a play on management. In that respect the company's board has an excellent track record, creating significant shareholder value at Detica, which joined the Official List in April 2002 with a market capitalisation of GBP87 million. Six years later the business was sold to BAE Systems for approximately GBP531 million, netting shareholders a compound return of approximately 30% per annum. We can also be encouraged by the strong institutional backing of the IPO, with 14 asset managers, including heavyweights like Blackrock and Henderson Global Investors, taking up 73.4% of the firm's shares. SPECULATIVE BUY.

Key Data
EPIC: DGB
MARKET: AIM

Allnewissues.com is an impartial website dedicated to UK IPOs and we publish 3 notes per week covering companies on their way to market. Our team of analysts will pick apart a new issue's business model, how it hopes to grow and how you can buy shares in it. And we always end with a firm investment recommendation. Once a month we will also send you a newsletter with a detailed report on what we consider to be the top new issue of that month. One year's access to this amazing site costs just GBP 19.99 and you can register today by clicking HERE.