Datong

HOLD

12/01/2011 Ben Jaglom

Datong, the supplier of technology to intelligence services worldwide, has posted a resilient set of results for the 18 months to September.

The AIM-quoted company, which changed its financial reporting year from March to September, reported pro forma results in which adjusted pre-tax profits of £819,000 (2009: loss of £1.2m) came on sales that increased 80% to £14.06m, with net cash up from £1.7m to £2.6m at the year-end.

The Leeds-headquartered venture, which because of the nature of its work does not disclose or admit to the names or identities of any of its customers, develops technology for intelligence agencies worldwide, with a range of products that can monitor, intercept and track potential targets.

Chief executive officer Dean Blood says the substantial increase in sales was due to a ‘diversification strategy’ that had led to a number of new customers ‘in market and territories including in the Middle East.’ With sales to Europe having almost tripled over the period from £1.5m to £4.35m, Blood opines this growth was driven by the increasing need for European customers to deal with ‘illegal substance trafficking’.

Looking forward, he remarks a ‘healthier balance sheet’ gives the company the confidence to create ‘a lot of opportunities’. Now that existing customers have had time to test and evaluate several of Datong’s products, Blood suggests this should create ‘substantial business’ for Datong.

For the year to September 2011, analyst Bob Liao at Canaccord forecasts sales to climb £900,000 to £15m, with no forecasts made on pre-tax profits.

A company which does not discuss customers and will only discuss certain projects is never an easy one to assess. But the continuing need for security agencies to combat both terrorism and the drugs trade should provide a steady stream of customers.

Recommended last June by Growth Company Investor at 40.5p, the shares have gained nearly 41% since and now trade at 60.25p. With the threat from terrorism unlikely to disappear in the immediate future, they remain a hold.