PSG Solutions

Well below the radar for many investors, shares in mini-conglomerate PSG Solutions (PSG) soared five times in value last year – but they still look cheap.

The AIM-listed company owns three businesses: residential property surveys arm PSG, packaging specialist Moore & Buckle and surveillance expert Audiotel. Driven by the efforts of the management team over the past couple of years, PSG is now in rude health, as recent results testify.

In the six months to September, it achieved a pre-tax profit of £3.86m (2010: £315,000 loss) as sales soared fivefold to £20.8m. Net cash also stood at a chunky £16.3m – not bad when compared with its current market value of £26.1m, but to be fair a large proportion is set against the delivery of a major contract.

This significant piece of business relates to the Audiotel operation, which last year secured a contract worth £48.7m with a government department. As a result, it kitted out new premises and installed dedicated production lines, as well as taking on a team of 170 employees. Completion of the contract is set for October this year.

Thanks to its already cash-rich balance sheet, last year it returned £3m to shareholders via a tender offer at 200p a share, and it has already signalled its intention of rewarding investors with a further payout. Recently appointed broker Northland Capital is yet to issue a research note, but at current levels the valuation looks anomalous. Buy.