Companies: BCT    PST   

Customer interaction optimisation play Portrait Software – profiled by Growth Company Investor at 18.75p last year and lately 10.25p – looks decidedly unloved, but the company should yet win the affection of investors.

Its technology helps companies with millions of customers improve customer experience, boost sales, cut costs and manage ‘customer risk’. In short, it helps them become more profitable – the return on investment is measurable – by understanding customers far, far better.

Clients ranging from Nationwide Building Society to Merrill Lynch are able to see which customers are profitable or loyal and which are ‘most likely to buy, defect or default’. Portrait also helps them design ‘intelligent interaction strategies’, which basically help to discern what to sell, when and to whom, as well as make each customer interaction count.

A million reasons to listen
My ears pricked up on Portrait’s recent £2.3 million acquisition of fast-growing, Oslo-headquartered Million Handshakes, a deal underscoring Portrait’s position in a market growing at 20 per cent a year and forecast to be worth $5.5 billion (£2.74 billion) by 2013. This keenly priced takeover brings with it ‘powerful new marketing technology’, about 100 new customers (including Sage and Mercedes-Benz) and a proven software-as-a-service capability.

In short, this cute deal means the group now has predictable revenues based on over 300 customers. It also strengthens Portrait’s position in the fast-growing ‘mid market’, where customers prefer to buy entire ‘suites’ rather than individual software applications.

Portrait’s interim results to September (the seasonally quieter half) encouraged investors, revealing a revenue rise to more than £6.3 million (from £6.06 million) and reduced losses of £310,000 (from £390,000). Analysts are slating a profitable full-year outcome and forecast earnings of 1p and 1.5p for March 2008 and 2009 respectively, which means Portrait trades on a prospective multiple of 6.8 times. To my mind, that is too low and the shares trade at the wrong price, especially since analysts are targeting 22p – buy and hold for the long term.

Be patient with BCS
Just over a year ago, I flagged up the investment merits of tech minnow Business Control Solutions (BCS), a business now valued at just £7.1 million, with its shares sold down from a 52-week peak of 7.38p to 2.62p. Despite its size, this management consultancy services and operational control software play punches above its weight in the financial services sector, with its diverse batch of clients including six of the top ten banks in the world.

Moreover, recent troubles and tumult for the financial services sector, where processes grow ever more complex and regulation more onerous, are boosting demand for BCS’s consulting services and software products. Rather than seeing a slowdown, the company claims the current environment has ‘heightened the awareness of control-related issues within the financial services marketplace’.

This is a market that chief executive Nigel Walder, a banking technology entrepreneur with fantastic contacts, knows well and in which BCS is brilliantly positioned.
Recently announced numbers for 2007 were upbeat, with sales coming in at £9.7 million, 20 per cent up year on year and ahead of house broker Arbuthnot’s £9.2 million estimate. Losses were reduced from £684,000 to £399,000. Moreover, BCS turned in a profitable second half-year and finished 2007 with £2.8 million in its coffers.

For 2008, I am expecting a swing into pre-tax profit of £300,000 from a top-line of £10.2 million and I’m not panicking about the share price. BCS, strong in management, cash and client credentials, is another worth backing over the long haul.

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