Recently a little business I hold shares in called IkeGPS (ASX: IKE) decided to raise capital. This is necessary due to the company’s perpetual losses. The typical catch is they never become profitable.
I hesitate to advocate investing in loss-making small-cap stocks, but it has generally worked for me and although my main game is investing in established profitable high quality businesses, I am nonetheless an incorrigible speculator in small-cap softwares stocks.
I bought initially bought shares in IkeGPS after the share price dropped to around 80c because it announced that:
“Following negotiations, entry into a short period of exclusive due diligence, and soundings under confidentiality & stand-still agreements from several major shareholders, IKE considers that the Potential Acquirer’s final offer of approximately NZ$1.00 per IKE share representing an approximately +62% premium to IKE’s share price as of 5 February 2025, has no realistic chance to secure sufficient support from shareholders to effect a scheme of arrangement. Accordingly, IKE has discontinued discussions with the potential acquirer.”
I basically thought that if IkeGPS insiders thought there was no chance they would sell for NZ$1 (which is about A$0.90) then I should do ok purchasing IkeGPS shares at under 75c per share.
I also noted that due to the way the data providers like S&P CapIQ classify this kind of event, that this event would be treated by automated strategies and automated content providers as a takeover falling through, would reduce sentiment about the stock. You can see the “article” below just takes S&P CapitalIQ events and turns them into an article, replete with a vague title that does not reflect the actual content of the “article.”
IkeGPS Financials
In the last half, IKEGps actually produced positive free cash flow and even for the full FY 2025 year — IkeGps reports the year to March 2025 — it was tantalisingly close to breakeven on a free cash flow basis.
However, IKEGps gets paid upfront in lumpy multiyear chunks, so you can’t trust its free cashflow as a good guide to the business. In fact, it lost a whopping NZD$16.4m in FY 2025 and has a $20m deferred revenue liability on the balance sheet. This means it has a lot of service to provide to earn the cash it has already collected!
IkeGPS Capital Raising and Share Purchase Plan
Unless IkeGPS managed to keep selling multiyear contracts in FY 2026, it was in danger of running out of money since it had only NZ$10.2 million in cash at the end of March 2025. Now, after raising A$20m ($18m from institutions and $2m from retail), the company says it “will have pro-forma cash of approximately A$27.4 / NZ$29.8 million after completion of the Offer.” This gives it more of a buffer zone to keep losing money for longer, but also implies that it managed to burn through a couple of million since March.
New shares under the Placement and SPP will be issued at a price per share of A$0.81. Assuming the full $2m is raised from the SPP, then IKEGps will have around 186 million shares on issue or a market capitalisation of about $183m at the current share price of 98c.
IkeGPS Stock Sentiment Analsysis
The reason to own IKEGps is that its subscription revenue one day could be a high margin recurring revenue stream. For example, you could imagine it making $30m in subscription revenue on 20% net profit margins, generating around $6m in net profit after tax. In that case, the market would likely pay 20x to 40x earnings which would imply something around the current market capitalisation.
Of course, that implies IkeGPS shares are already pricing in some stonking revenue growth with phenomenal operating leverage. This gives me the signal that the share market is already very optimistic about the stock.
However, I then noticed that a fund manager had jumped on LinkedIn to point out IKEGps will not be profitable for the foreseeable future, and eight of his LinkedIn circle had liked the post. This implies that sentiment about IkeGPS is actually somewhat negative, at least amongst his LinkedIn circle.
Dean Fergie is the Director & Portfolio Manager at Cyan Investment Management which manages the CyanC3G fund. According to its website, the CyanC3G fund has generated returns of -5.5% per annum annualised over the 7 years to June 30, 2025, -1.2% per year annualised over the 9 years to June 30, 2025, and 4.1% per annum since inception. I consider his lack of enthusiasm for IkeGps shares to be a mild positive as evidence of negative market sentiment.
Should I Participate in the IkeGPS Share Purchase Plan?
At the IkeGps share purchase plan price of 81c, the stock trades in the vicinity of 10x the March 2025 “annualised recurring revenue run rate.” This is an extremely high multiple and I would not necessarily expect the market to maintain this multiple. However, the company projected “subscription revenue to continue to increase strongly, at growth levels of 35% or greater.” At this kind of growth rate, the IkeGPS share price could still go up even if the multiple of subscription revenue declines.
Therefore, considering multiple factors, and cogniscent of the high risk nature of the investment, I nonetheless currently intend to apply to buy shares at 81 cents under the IkeGps share purchase plan.
As a final note I was amused by this (comedically staged) picture of the founder of Ike GPS, Leon Toorenburg, clutching a whole bunch of devices in a white lab coat. The company disclosed that Leon Toorenburg had about 1.27 million shares in September 2021, though I don’t know if his holding has changed since then.
Disclosure: the author owns shares in IKE and will not trade IKE shares for 2 days following this article. This article is not intended to form the basis of an investment decision. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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