Continuing to benefit from the desire of mid-sized companies to outsource the boring and complicated disciplines of IT managed services and security, Netstore added two acquisitions during the year but posted a pre-tax loss.

Profitable and fast-growing System Software Solutions (SSS), a security business, was picked up for £3m and is performing as expected. The group will close down its old Netstore Security office and move to SSS’s Birmingham site, ‘retaining revenue and saving costs,’ reflects finance director Ian Daly.

The second acquisition, for up to £12m in cash and shares, for ‘highly profitable’ Intercea, a provider of managed IT hosting services, has done even better. It boasts high margins and 75% recurring revenues, is providing numerous cross-selling opportunities and has traded ‘well ahead of expectation’.

Daly admits to trials and tribulations at May 2005 acquisition Cassium after it lost its largest client and had other ‘general problems’. The client base has been restored now and with a ‘more focused’ sales team it is ‘going well’, winning contracts with the likes of Barclays and Microsoft.

So, overall the figures for the year to June demonstrated revenues from continuing operations up 43% to £30.5m, £36m with acquisitions included. However, a pre-tax loss of £805,000 – due to a £3.4m of goodwill impairment and amortisation – is a blot on the accounts.

Netstore lost a few contracts this year, though as the group has stabilised this is likely to reverse. Management is confident of sustained high growth in the longer term and, furthermore, received government supplier status in June, which should prove a big boon and is an area where SSS already makes sales.

Recommended by Growth Company Investor at 45.25p in March 2005, the shares have come off a fair bit. If you still have them they’re worth holding on ample upside potential.

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