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The Growth Company Investor team unveil their Christmas stock picks

Target Tarsus in 2005 – Leslie Copeland

With a market value just shy of £55 million and revenues and profits this year expected to hit £16.7 million and £2.64 million respectively, I'd be the first to admit that Tarsus, the international exhibitions organiser, is by no means cheap. But what this group does have is an excellent management team, a strong niche position in an attractive market and many expansionary irons in the fire.

The management here is dominated by executive chairman Neville Buch, the ex-chairman of exhibitions giant Blenheim Group, a venture that was sold to United Business Media in 1996 for £593 million. Easily one of the ten most important men in the exhibition sector in the UK, his presence on the Tarsus board has opened, and will continue to open, many money-spinning doors.

In the chief executive seat sits the highly respected Douglas Emslie, previously the financial planning director of Miller Freeman, the exhibitions and trade division of United Business Media.

At present, this dynamic duo lead a global exhibitions and publishing business that focuses on five main sectors – labels, discount clothing and home goods, IT, education/training and marketing. Their most high-profile events are in the labelling and clothing arenas (dowdy maybe, but very lucrative and serving a huge global market) and over the past few years they have moved out of their core European and US markets and launched into Mexico and Russia.

In the six months to June – traditionally the weaker half of the year – sales hit £4.34 million and losses were curtailed to £180,000, a considerable achievement if you factor out the fluctuating exchange rate of the US dollar.

Since the year end the group purchased 65 per cent of a French call centre events business that it did not own (raising £3.78 million to fund this) and has reported that it is very optimistic about its 'new launch' programme and existing core business.

It has also made moves into the Chinese market via a joint venture (it owns 75 per cent) called Rising Star Exhibitions. This new operation is led by industry veteran Stanislava Blagoeva and it will launch, in the spring of next year, the only Chinese event focusing on the Chinese 'outbound' travel market. Following recent legal changes to international travel, Chinese tourists are expected to become the largest block of international travellers over the next decade or so. This event could become a serious profit centre if Tarsus gets it right.

Mouchel Parkman It's difficult not to be bullish – James Crux

I'm exceptionally bullish on the prospects of support services star Mouchel Parkman, the venture born of the 2003 merger of two fast growing and profitable businesses. Fronted by savvy chief executive Richard Cuthbert and his right hand man Kevin Young, finance director, this enlarged group recently wowed followers with local government contract wins that fattened up its order book by £84 million.

This followed an emphatic financial year to July in which Cuthbert and his staff carried off all integration tasks with some aplomb, as well as managing to secure new work in the company's core sectors of expertise – highways, property, rail and water. Intriguingly for the future, Mouchel Parkman made inroads into 'incubator' sectors such as gas, waste, education and housing.

Last year, underlying profits powered ahead by 43 per cent to £19.4 million as turnover firmed up by 22 per cent to £271.9 million. Equally encouraging was the fact that operating margins strengthened from 5.8 per cent to 7.1 per cent, partly through savings from the merger coming through. Management also boasted of forward orders worth a staggering £850 million.

What's most impressive is that in a year of great upheaval, Mouchel Parkman kept the top line moving forward and continued to grow its order book. Looking further down the track, the bringing together of Mouchel and Parkman means the enlarged group should be far more effective in winning and managing larger and longer-term deals. This year, investors should expect profits of £23 million, giving earnings of 14.8p. The shares, which reached a 52-week peak of 268.5p, have come off slightly, presenting a great buying opportunity at 233.5p. I reckon a forward multiple of 15.8 is measly for a business of this quality. Stash the shares away in your Christmas stocking.

Disperse holds speculative appeal – Elliott Davis

2004 was a busy year for Disperse Technologies, recent months having witnessed its graduation from OFEX to AIM, the completion of a £5 million fundraising – to pay for the commercialisation of its technology – and the £4.5 million acquisition of cosmetics brand owner Elizabeth French (EF).

The last of these three measures appears particularly significant. Disperse only completed the purchase of EF in late July, yet by the company's 31 August year-end it had already contributed sales of £1.77 million. 'Revenues were not growing as quickly as we wished,' explains executive chairman Colston Herbert, 'so we looked for a cosmetic business to acquire and EF fitted the bill.' Having hitherto focused on developing methods of cream manufacture for the cosmetic, personal care and medical sectors, the purchase has the potential to transform Disperse's fortunes. During the 12 months to August the company saw losses fall from £1.6 million to £1 million as sales leapt 178 per cent to £2.8 million. For 2004/05 house broker JM Finn predicts that EF will boost annual sales to £16 million and enable the company to report a profit before tax and goodwill of £1.1 million.

Such forecasts place the shares on a prospective p/e of 9.4 times and, although matching these expectations will prove to be difficult, the shares should rightly appeal to speculators.

Retail Decisions could easily exceed forecasts – Vikki Kunz

I can only assume that the taint of being a small cap technology play has held back the share price of Retail Decisions (ReD). For the second consecutive year, the credit card prevention and fuel card operator announced that profits for the 12 months to December will be higher than expected. Joint house broker Daniel Stewart now expects pre-tax profits to come in at £6.7 million, an increase of £600,000, on turnover of £32 million.

The overlooked stock has thrived on the back of its cash cow, the multi-branded, Australian-based fuel charge card business. Within four years, chief executive Carl Clump managed to build the Australian business to annual sales of £7 million. It now provides 80 per cent of the group's profits. Unsurprisingly, ReD is looking to expand the business geographically.

Total group turnover last year was £30.4 million with pre-tax profits of £5.5 million. At the interim stage, it increased pre-tax profits by 127 per cent to £2.5m (£1.1 million) and increased its cash pile within the space of six months from £4.2 million to £6.3 million. The cash will be used to fund future acquisitions.

ReD's long-term growth, however, should stem from its payment processing and card fraud prevention services. Already capturing blue chip clients such as Walmart and T Mobile, the company is increasing its presence in the card-not-present (CNP) arena, which it operates in the UK, the US and South Africa. The potential of this market is enormous when you consider the recent spike in internet e-tailing and interactive retailing. It is also looking to develop new services such as internet payment schemes.

The only blip on the company's horizon is a legal action by competitor CyberSource over an alleged patent copyright infringement. ReD hit back asking for a re-examination of the patent after discovering 'prior art'. As this area covers three per cent of RD's turnover, the only provision it is making is £500,000 to pay for lawyer's fees.

While the company's prospects are healthy to say the least, it's amazing that it currently trades so cheaply. The shares are at 19.75p and the EPS of 1.58p provides a prospective p/e of 12.5 – way below the sector average of 32.3. Next year's profit is expected to be £7.2 million, but I wouldn't be surprised if it's third time lucky and the figure is exceeded again.

ID Data to benefit from card changes – christopher spink

Despite political hostility against credit card providers, as expressed in the Government's Consumer Credit Bill, paying by plastic remains one of the most popular ways to buy goods. This continued growth means manufacturers of credit cards, such as AIM quoted ID Data, should see their revenues rise steadily as well.

Other factors stimulating extra growth in this market are the introduction of smart cards for travel, such as the London Underground's Oyster card, and national ID cards, another recent Government proposal. State benefits are also starting to be paid via a card system, administered via the Post Office.

One major development is 'chip and pin' cards, which have a silicon chip incorporated in their design as an added security measure. Banks, in an effort to combat fraud, are introducing these to their customers even before their current cards expire. Card manufacturers stand to benefit greatly from this switch over.

Peter Cox, chief executive of ID Data, has worked out a strategy to make the most of these changes. The industry has traditionally suffered from low margins and this has prompted a number of operators to consolidate their activities. Cox has snapped up several of these and plans to move some of his UK activities to Eastern Europe, where labour costs are lower.

The acquisition of Mids & Horsey in March was principally paid for by a £4 million placing at 7p a share. Since then, on weaker results, the shares have slid to just 2.5p, valuing the group at £7.9 million. Given the developments expected over the coming year this seems too low.

Cox envisages that the group will be profitable if it can produce sales of £22 million annually. In the year to March, this seems probable as Cox has recently agreed contracts to supply such major players as GE Capital and Citibank.

House broker KBC Peel Hunt expects that if these sales are achieved in the year to March 2006, ID Data will make a £1 million pre-tax profit, equating to 0.3p of earnings per share. At the current price this puts the shares on a modest forward p/e of 8.3.

Southern African finds friends – Robert Tyerman

Ex-spin bowler Phil Edmonds' entrepreneurial persona is not to everyone's taste. But he seems to have hit on a winning streak with Southern African Resources, the platinum group metals and gold prospecting company he floated on AIM in 2002, in which Wall Street giant Goldman Sachs has emerged with 3.7 per cent.

Goldman's purchase follows buying by other US institutions: Fidelity took 13.3 per cent and Royce Fund Management has 4.5 per cent. In September, Southern African raised £15.5 million at 30p to fund a bankable feasibility study on its Leeuwkop platinum group metals project in South Africa and that brought more buyers.

The market's dramatic reassessment of Southern African was underpinned last month when Edmonds and fellow director Andrew Groves, who did most of the delicate early project negotiating, moved to non-executive positions. Originally floated at 1p, Southern African, where another Edmonds float Central African Mining took nearly six per cent, had long failed to impress.

Edmonds, a Zambian, and the younger Groves, son of a Rhodesian security chief, negotiated a significant interest in Leeuwkop in South Africa's Bushveld. But the political risk of southern Africa and Edmonds' entrepreneurial image outweighed the quality of the project – until some new heavyweight participants appeared.

Nicholas Kaplan, boss of America's Apex Silver, took a stake. He was instrumental in recruiting Roy Pitchford, formidable – and credible – boss of Zimbabwe Platinum, to be Southern's chief executive.

Since then, John Smithies, former chief executive of Impala Platinum, has joined the board and hedge fund pioneer and banker Charles Hansard has become chairman. Pitchford says Southern African targets a near-fourfold resource increase to 200 million oz, while it is also probing other prospects in Botswana and Mozambique. The shares, now 39p, remain essentially speculative. But, if the feasibility study pleases, the re-rating should continue.