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Summer is usually a quiet time for the market but there has been a definite energy about the smallcap and growth company scene over the past four weeks. Our 2003 Company Watch and Company Profile recommendations, already strongly ahead by 31 per cent when we reported last time, have maintained their momentum and are now a handsome 36 per cent ahead. The main reason for this has been an abundance of positive trading statements, a welcome spattering of sterling results from those reporting and a distinct lack of profits warnings.

Patsystems surges

Derivatives trading software specialist Patsystems, a firm whose stock market history is strewn with profits warnings, was one of our best performers during July.

We first recommended this company back in May, suggesting that the group, which had racked up incredible losses of £31 million since its market debut in 2000, was worth a second look after a significant management overhaul and the underlying strength of its core products.

We rather cautiously underlined our own support with the words that it was 'one for brave investors'. But if you picked up the stock at 6p in May, you are now sitting on a 162.5 per cent gain as the shares recently soared to 15.5p on the back of a robust performance in the first half of 2003.

Chief executive Kevin Ashby was positively glowing as he introduced an improvement in turnover by 35 per cent to £4.8 million, a reduction in operating expenses by £2.4 million to £6.4 million and news that with pre-exceptional and pre-goodwill operating losses down to roughly £75,000 per month, the group was very close to break-even. It also had £3.4 million of cash resources.

Ashby claimed the figures represented 'sustained growth and impressive progress', which if you inspect other aspects of the company's performance you would be unable to disagree with.

Patsystems' software, a risk management tool that offers three different levels of sophistication for those in the derivatives trade, is now used by 37,555 end users. It is also used by seven global exchanges. The last one to take it up, The Agricultural Futures Exchange of Thailand, contributed £158,000 to the interim sales figure (this contract will yield the group an eventual £1 million).

With further gains made in Japan, a management reinvigoration programme completed in the States and the new 'Patsystems Enterprise 2' product set for launch in the near future, it's little wonder that Ashby says the company 'will soon have the best derivatives technology in our industry'.

The full year is likely to see the group lose £600,000 (pre-exceptionals) but profits of £1.26 million are expected by Seymour Pierce in 2004.

Take some profits now, but leave a significant amount in to benefit from the bounce likely to occur when profitability is reached.

Tikit ticks up

Legal software, services and consultancy group Tikit seems to be following Patsystems' upward trajectory. Since we advised readers to buy last month at 80p the shares have pushed ahead 16.9 per cent to 93.5p – not bad for four weeks' work.

The main reason for the spurt of upward activity was managing director David Lumsden's recent pre-close trading statement.

Lumsden reported that trading in the first half was 'robust, with demand for higher margin consultancy and support services continuing and the order book for these services remains strong'.

The net result is that sales and profits are well ahead of this time last year (when the group was suffering from the legal fraternity's decision to rein in spending in the face of uncertain markets).

Large scale implementation of its business intelligence, content management and digital dictation systems is continuing apace, and there is every reason to believe the company will easily meet forecasts for the year. The market is expecting sales of £8 million and profits of £1 million. If you bought in on our advice, keep holding. The interim results are due in September.

Celsis delivers the deals

Fresh from delivering a return to profitability in May (2003 pre-tax profits of £3.9 million against losses of £5.7 million last time) Celsis has continued to impress its investors with a brace of deals that should allow it to continue its improvements this year.

For the uninitiated, the group is a world-leading rapid microbial testing company whose diagnostic systems detect and measure contamination for the pharmaceutical, personal care, dairy and beverage industries. The technology allows companies to screen their products and get results in less than 24 hours, detecting problems sooner and therefore making savings through better inventory management and warehousing expenses.

Since our recommendation at 23.5p in June, the group has announced two significant deals that have allowed it to shrug off a slowdown in its laboratory division.

In the first deal, the group confirmed that it had secured a preferred supplier contract with global giant GlaxoSmithKline for its testing kit. This deal is perhaps not that surprising considering that Glaxo has already implemented six of Celsis' systems.

The other deal, which actually extended the company's customer base, was with Sanofi Synthelabo, which will take receipt of chemistry and microbiology analytical testing systems at its US and Puerto Rican subsidiaries.

Chief executive Jay LeCoque suggested both deals lent credence to his claim that the company is slowly establishing its technology on a global basis with all the major pharmaceutical players.

Both deals preceded a welcome statement from LeCoque at the group's AGM where he held up the possibility of further aggressive growth which he hoped would provide 'increased earnings and shareholder funds'.

At the current share price of 26.75p, up 13.8 per cent on our June buy price, the group is still valued at less than one times this year's sales.

If you haven't yet bought in, consider doing so.

Clarity refuses to budge

Clarity Commerce Solutions, the customer relationship management software provider to the leisure trade, is still trading at the 58.5p level at which we backed it earlier this year.

At first glance, this may seem surprising, considering the company's recent results showed a swing into profits of £382,000 against a (re-stated) loss last year of £841,000.

However, while the profits are the result of Clarity selling higher margin software products, its markets remain tough. Chairman Bob Morton explained that 'many prospective clients are trying to optimise their original investment, resulting in delays in making investment decisions.'

That said, there is still good reason to be confident in the group's overall strategy.

This is because contracts are still being reeled in – two regional brewers recently rolled out Clarity's software solutions – and there has been a healthy take-up of its internet booking systems from local authorities.

Moreover, the acquisitions completed last year have moved the group into new areas, particularly the private health and fitness arena, which bodes well for future advances.

Although still über-cautious, Morton reckons growth should be delivered this year. The market is expecting profits of £400,000 on sales of £8 million. With a value of £8.1 million the group is still not expensive. Buy/hold.

Ben Bailey on song

In contrast to Clarity, Yorkshire-based housebuilder Ben Bailey, a GCI recommendation at 129.5p, has made dramatic improvements recently. It now trades at 274p, an improvement of 33.9 per cent.

The group, which is building a reputation for topping expectations (and has just raised money at 240p a share to snap up more land), posted strong turnover and earnings growth for the half to June.

Profits powered ahead by 163 per cent to £5.8 million on sales lifted from £18.7 million to £28.8 million, thanks to a combination of strong market conditions, a successful shift in the product mix and the benefits of its high-quality land bank.

The 54 per cent rise in sales was won through higher average selling prices (£147,900 against £107,500 in the first half last year) as well as a 12 per cent jump in unit sales.

For the year, analysts Craig Cowan and Ben Fuller at Brown Shipley are going for pre-tax profits of £11.5 million on £60 million of turnover to produce EPS of 72.4p and a 12p dividend pay-out. This leaves the shares on a miserly forward rating of 3.8 times despite a strong rise from our original recommendation price. Ben Bailey also yields an attractive 4.4 per cent on these estimates. Worth adding to your holding if you bought on our advice.

Electric Word still worth it

Media and publishing companies have served readers of these pages well over the past year or so, despite the enduring advertising downturn.

One group finally coming in to its own is Electric Word, the publisher of professional development information for managers, chaired by entrepreneur and 12.46 per cent shareholder Nigel Wray. It moved from our October 2002 buy price of 4.5p to 6.6p on the announcement that it had made its first profit – albeit one achieved only after stripping out goodwill and new product development investment.

In the six months to May, £281,000 of hefty product investment caused the company to lose £318,000. But before goodwill and investment, profits reached £31,000 against a £76,000 loss last time, on turnover up 18 per cent to £1.25 million.

Chief executive Julian Turner says the core subscriptions business saw an impressive 33 per cent rise in revenues, accounting for 85 per cent of total sales. Much of Electric Word's business addresses managers in education and local government, but Turner and his team have also moved into primary healthcare management for the first time. Furthermore, Electric Word also provides education information for sports science and sports health professionals.

At the half-year, the company had £850,000 in hard cash, which is typical of a subscriptions-based business where payment is taken in advance but much of the revenue is deferred to future periods.

In the last financial year to November, Electric Word flagged up a 46 per cent fall in pre-tax losses to £480,000, on sales up 76 per cent to £2.5 million. House broker Seymour Pierce forecasts profits before tax of £100,000 this year and earnings of 0.13p a share. Hold.