Companies: APC    BVM   

‘We substantially expanded our offering through the acquisition of both Touchstar and Novo,’ John Kembery, chairman of £14.56 million Belgravium Technologies, assures me. The maker of hand-held and vehicle-mounted mobile computers, as well as barcode scanners, terminals and associated software, counts Heinz, a host of airlines and BP among its customers and has just reported a near-90 per cent rise in adjusted pre-tax profits to £1.84 million (£1 million) for 2006.

This performance was wrought from higher than forecast turnover of £10.9 million and investors were also treated to news of an upturn in orders in the fourth quarter, which has spilled over into 2007.

Much of the year’s top-line growth came from Touchstar, which sells airline and rail retail systems, and has had its sales pipeline reinvigorated under its new owners. As well as cross-selling opportunities for the enlarged group’s sales force, Touchstar has enabled Kembery to pool together product development efforts. Novo, bought in early 2006 and now integrated as a sales division of Touchstar, has boosted ‘sales flexibility’ on larger contracts.

For December 2007, City number-crunchers envisage Belgravium delivering an extra half a million of profit – up to £2.3 million – from £11.8 million of turnover and 23 per cent earnings growth to 1.6p, leaving the 14.5p shares swapping hands for only nine times forecast earnings.

Given the strongly cash-generative nature of the business and its solid yield, I feel that’s miserly, and urge investors to consider joining star fund managers such as Anthony Cross (Liontrust Asset Management) and Patrick Evershed (New Star Asset Management) on the shareholder register. A re-rating is long overdue.

As easy as APC

Specialist electronic components distributor Advanced Power Components – worth just £8.35 million – is another that merits investor consideration, having returned to annual profits after several years of losses.

Over the past three years, APC has quietly restructured and refocused under the guidance of no-nonsense chief executive Mark Robinson, with whom I met a few months ago.

Offering products such as display components, power supplies and optoelectronics to a customer base including BAE Systems, APC returned to profit at the interim and the momentum carried through into the second half – culminating in the recent announcement of a swing from losses of £500,000 to pre-tax profits of £200,000 for the year to August, with Robinson flagging up management’s continued tight rein over costs.

Turnover sparked up by 45 per cent to £6.5 million, boosted by good organic growth as well as a three-month turn from May 2006 acquisition, Hero – a deal that has allowed APC to market a wider range of complementary electronic components into its growing customer base.

Profits recovery play

This year, newly appointed broker Seymour Pierce suggests an upsurge at the top line to £9 million, pre-tax profits of £600,000 (pre-goodwill) and a leap in earnings from 0.9p to 2.7p, since there is no tax to pay. The following year, £800,000 pre-tax is predicted and sales could be just shy of £10 million. Based on those estimates, the 31.25p shares trade on lowly forward multiples of 11.6 and 8.7 for the next two years – even after a sharp recent spike in the price – which to my mind looks undemanding for a strong profits recovery play.

I’m led to believe new orders in the first five months of this year were very strong and that another good year is shaping up. Robinson says APC has managed to attract a slew of lucrative new customers; and niche manufacturers are beating a path to the APC door, offering distribution rights to their products. Likely dividend payment resumption ‘as early as practicable’ – with the deficit on the P&L eliminated – offers another tick in the investment box.