Landround, the UK's only listed travel promotions business, received something of a bloody nose in early June when it issued six-months figures that were, at face value, disappointing in the extreme.

Although sales rose 25 per cent to £4.96 million, the pre-tax line showed an unexpected loss of £26,000 against a previous profit of £896,000. The shares immediately lost a third of their value. They are still flat on their back at 205p, roughly half what they were in January.

The cause of all the pain was a large voucher promotion campaign that the group had run for a well-known client. Under normal circumstances, companies that sign up to the scheme are able to issue travel vouchers to their customers, who subsequently redeem them against the cost of a flight or a holiday any time in the next 12 months. Voucher promotions are very effective marketing tools for businesses, and Landround makes its money when the person travelling either takes another person with them (quite usual), rents a car, books a hotel room or buys travel insurance (again quite usual).

But the promotion in question had some unique features to it. The most notable of these was that customers had just four months to redeem their vouchers. In the event, many more consumers took up the offer than Landround anticipated and, even worse, they did so without buying extras.

The net result was that Landround was faced with unexpected costs of £450,000. 'This contract was very disappointing, but it's not as bad as it seems,' says Landround chief executive David Lyne.

'It was still profitable for us – and for our client – but our results were affected because, while the sale value was booked into last year's results, all the extra costs fell into this year's. However, the saga is over, we've taken the hit, there are no more charges to come and we are still progressing as a business.'

Lyne's assertion that Landround is making progress is not without justification. The voucher business, although not as buoyant as it was in 2003 ('an exceptional year,' asserts Lyne) is performing 'creditably' and the client list is impressive and growing.

However, it is Landround's other major interest, its 'Buy & Fly' flight promotion business, that underpins hopes of a return to growth. Sales at this outfit, which is a serious rival to the more high-profile Air Miles points scheme, grew 57 per cent at the halfway stage, to £1.21 million. Buy & Fly is now backed by 18 international airlines, a number it hopes to increase.

Moreover, in what Lyne calls a 'landmark deal', the group recently signed a substantial contract with Morgan Stanley for the issue of a Buy & Fly credit card. Says Lyne: 'This is a major, multi-year, multi-million pound contract. Prior to this deal, Buy & Fly has been a business-to-business project. Now, it is consumer facing – a market we have been eager to crack. I hope it will herald more such deals.'

The Morgan Stanley deal will only make itself felt for a small part of the current year to end-September, figures for which are not expected to be tub-thumping. Nevertheless, house broker Evolution Beeson Gregory expects Landround to produce revenues in the region of £11.2 million (against £9.9 million in 2003) and a pre-tax profit of £2.1 million (before exceptional items).

On that basis, the shares are selling for 7.4 times anticipated earnings. They will soon look mispriced if this cash-generative, debt-free group can reinvigorate its voucher offering and continue to grow Buy & Fly. Buy.