Norcon

BUY

09/09/2009

Bolstered by strong relationships and good revenue visibility, Norwegian technology consultant Norcon offers investors exposure to strong organic and acquisitive growth as well as a prospective dividend yield of 7%.

Norcon delivered unspectacular 7% sales growth to $37.4m (£22.6m) and a 6% pre-tax profit increase to $5.2m for the first half, although the numbers were posted against strong prior year comparatives and Norcon is confident of meeting its full year targets. Laconic chief executive Arnold Rørholt admitted the organic growth rate was ‘slightly slower’ in the half, but pointed out that it is just the nature of the business that some periods see large projects tapering off before others begin.

‘And customers continue to spend large amounts of money, although there are slight delays in some projects,’ adds Rørholt, with long-time client Saudi Telecom delaying some spending on ‘4G’ mobile due to ‘economic and customer demand’ reasons. ‘But we compensate by moving into advisory services, meaning we move from their capital budget to operational budget.’

With Saudi Telecom companies and neighbouring Middle Eastern business historically dominating group revenues, a continued effort is being made to diversify by sector and region. Defence spending in the Middle East is at record levels and Rørholt says, as a company with 20 years’ experience, there are ‘a number of potential projects’ there, with geographic diversification likely from two potentially significant mobile telecoms projects in India and South Africa.

Rørholt and finance director Marne Martin have been looking at a number of potential acquisitions but have ruled many out as they have ‘not been growing as quickly as us’. As such only ‘sizeable’ purchases are likely, to deliver new geographical strength and new customers.

As its long-term contracts provide enviable revenue visibility, full year forecasts of $11.4m profits, 19.4c earnings and a 9.7c dividend can be confidently anticipated. Previously backed by Growth Company Investor at 69p, the 82.5p shares trade on an undemanding rating, yield 7% and look very good value.