Online advertising and marketing, a sector that went into meltdown in the aftermath of the dotcom boom, is finally on the up.

According to research by PricewaterhouseCoopers, the online advertising sector is likely to grow by about ten per cent this year, with total takings likely to hit $1.03 billion (£617 million). By 2007, PwC reckons the sector could be worth $1.27 billion.

All of this will be music to the ears of investors in Deal Group Media, the online advertising specialist that recently reversed into Aim-listed IBNet in an all-share £7 million deal. It is one of the most successful online advertising and marketing specialists in the UK, is growing at a rapid rate and is already very profitable.

Prior to the deal, IBNet was a disappointing – and loss-making – online venture that provided internet surveillance services for the protection of brand names and search engine marketing services. But the completion of the reverse take-over has transformed the group, making it 'easily the largest performance-based online marketing agency in the UK', according to new chief executive Adrian Moss.

'We have got to this position because we understood, earlier than most, that online advertising wasn't about traffic numbers, registrations or anything else that was bandied about,' says Moss. 'If you're a marketing specialist like us, it's about maximising the return on clients' advertising spending – simple delivery of return on investment [ROI]. We do that online, which is why we are where we are.'

From initially placing advertising for clients though a single channel of UK marketing via ukaffiliates.com, Deal Group has branched out to offer a wide range of services, all based around assisting clients in the formulation of their online product presence and advertising strategy.

Its ukaffiliates offering allows advertisers to access and interact with a vast network of niche websites that are appropriate for their business. Its affinity marketing programme, which is partnered with the top-targeted UK sites, gives clients the ability to communicate with specialist audiences.

The IBNet business adds extra search engine marketing gravitas and brand protection intelligence – in the shape of its exciting Netdetec product – to Deal Group's wider offering.

Says Moss, 'our software and our services allow us to track and analyse advertising campaigns and monitor consumer activity – all of which enables us to improve and optimise campaigns for clients.

'In this arena, you need multiple products and offerings to satisfy clients' needs. Clients also need a trusted intermediary to ensure they get a return on their money. We are that intermediary. We have delivered sales of over £150 million to our client base.'

The formula is working. In the past two years, Deal Group has lifted its sales from £0.72 million to £7.3 million. That figure produced an operating profit of £583,000.

For Moss, the enlarged group offers even greater growth potential. 'Deal Group has over 170 clients, IBNet had around 250. There are tremendous cross-selling activities and attendant cost savings to be made.'

In terms of products, Deal Group has just launched a new premium inventory product that 'is already delivering returns', is about to launch a new technological offering next year and holds out a lot of hope for its profitable (although still embryonic) Spanish operator and its fledgling Australian outfit.

Moss is also keen to develop IBNet's Netdetec product as a valuable add-on to other products. 'IBNet products sit very well with ours. We believe we are the first ROI online marketing group to offer both search marketing and internet intelligence and brand monitoring services. It's a one-stop shop, a very attractive portfolio sell.'

The fundraising that accompanied the reversal (Deal Group raised £1.2 million) has given the company a welcome cash injection. 'We don't need the cash, but it will no doubt come in useful. There's a growing UK and European market to aim at and a lot of consolidation in this space to be undertaken.'

A market capitalisation of £14 million suggests there is a lot of upside to come. Buy.

Deal Group Media

GCI Recommendation

Buy