Delcam

Delcam (DLC) has not disappointed since our advice to buy the shares in May – indeed, strong demand for its niche CAM software products has helped drive record interim results.

Improved trading conditions buoyed sales in the six months to June by 13% to £20.1m, which led to an 87% leap in pre-tax profits to £1.5m. Recurring revenue from software maintenance and support jumped 10% to £6.6m, and this high-margin business now accounts for a third of sales.

Delcam develops software for designing complex 3-D products. It delivered a robust performance in its key markets of Germany and the US, while it also achieved strong growth in Asia, particularly in China, Korea, India and Indonesia. The AIM firm plans to step up its sales efforts, with particular emphasis on exhibiting at major shows.

Though well known for its work in the aerospace and automotive markets, Delcam is focusing on new areas such as healthcare, composites, robot machinery and power generation. It also plans to further its global sales network of 80 countries by selling its newer products.

Net cash now stands at £10m, so investors are to be rewarded with a 30% dividend hike to 1.75p. The final quarter is always the key period, but chief executive Clive Martell says, 'We have not seen any significant impact on the business despite the recent market turmoil.'

Broker WH Ireland forecasts 2011 pre-tax profits of £2.8m and EPS of 31.6p. We urged readers to buy at 430p, so the recent rise to 447.5p is pleasing. Trading at an unjust discount to its peers, shares in Delcam have further to go. Buy.