Shares in County Down-based IT group First Derivatives climbed to record levels in late June on the back of strong results for the year to end-February. But, given current forecasts and a consistent track record, the company still looks a good investment proposition.

Last year saw First Derivatives grow pre-tax profits by 40 per cent to £811,000, on sales up 41 per cent at £3.8 million. Perhaps the most encouraging factor was that growth occurred across the board.

First Derivatives’ main focus is on two, largely related, areas: the provision of IT consulting/services to investment banks and the resale of high-speed database technologies to the same organisations.

On the IT consulting and support side the company is benefiting from the current trend towards outsourcing. Under pressure to slash IT costs, many large firms have sought to move processes such as systems development offshore, often to Asia.

First Derivatives' major selling point is that, as a Northern Ireland-based company, it can offer a 'near-shore' alternative. 'We are up against the Indian market,' chief operating officer Michael O'Neill concedes. 'But while we can't compete with them in terms of price we can in terms of logistics.'

JP Morgan, Royal Bank of Scotland and most recently an unnamed London-based client of business solutions group EDS have all signed up. The contracts tend to be long-term, generating swathes of repeat revenue. Recurring income now accounts for around 62 per cent of group turnover.

On the high-speed database technology side, First Derivatives focuses on software developed by the US company Kx Systems, which is already used by eight of the world's top ten investment banks. O'Neill and his team have a worldwide sales and marketing contract covering all industry sectors with the exception of insurance.

The sale, support and implementation of Kx's software is not just a big revenue spinner but also a relationship builder. And that offers First Derivatives a chance to develop its own products. It hopes that, eventually, it will be able to sell its own suite of analysis tools and the like to sit atop Kx's core offering. 'The move to develop our own software should be hugely promising, providing we do it right,' O'Neill reasons.

The initial omens are good. Over the past two years the development team has constructed a range of online e-business applications. Initially conceived for in-house use only, these have been picked up by BT, which is now marketing them to its own business customers. Although still at an early stage, this operation achieved break-even during the final quarter of last year.

As for the future, O'Neill hints that the hunt is on for the next Kx, explaining: 'We do try to build relationships with non-European software developers and are always trying to pick the next big thing in the financial markets sector.' Relationships already exist with firms in Australia, the US and Canada and the signing of a formal agreement with one of these technology hopefuls could, once again, mark a significant step forward.

In its latest forecast, house broker Corporate Synergy predicts a £1.6 million profit for the current year on sales up 45 per cent to £5.5 million. Earnings are expected to hit 9.7p per share. This puts the shares on a prospective p/e of just 9.6 times, a figure that drops to 8.7 if forecasts of 10.8p of earnings in 2006/07 are hit. At current levels the shares look very attractive.