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A bombed-out communications technology company that lost more than its own stock market value in its last financial year might seem an unlikely magnet for such aggressive investors as Paul Curtis and Swedish wheeler-dealer Peter Gyllenhammar. Yet these two have been snapping up shares in Indigo Vision Group.

They have not bought out of admiration for Indigo Vision's track record (its shares have lost more than 90 per cent of their value in the three years since flotation), but because the company still had more than £6 million cash at its July year-end – even after returning £11.7 million to shareholders – and because chief executive officer Oliver Vellacott has embarked on a new business strategy. This is taking the company out of software licensing and into supplying its own security-related products.

Vellacott says the cash and the new strategy are 'enough to get us back to profitability' either by 2004-05 or the year after. At present, Indigo Vision has between 75p and 80p net cash per share.

Whether Curtis, Gyllenhammar and other investors are willing to give the new business plan a chance to prove itself, or whether they will urge a break-up and cash distribution, depends on how the programme shapes up.

Curtis spells it out: 'This is a very critical stage. If the figures for the next quarter show no significant increase in revenues, then the company should be wound up.' That is the challenge Vellacott, who says he is 'not really grateful' for the attentions of Curtis and Gyllenhammar, knows he must grasp.

Indigo Vision raised £20 million three years ago to back a programme of licensing innovative video communications technology to major multinationals.

The company had developed a new digital software technology for closed circuit television and signed up some of the biggest players in the business, such as Honeywell.

But the royalties never matched expectations. Vellacott claims 'the client companies simply sat on the technology without using it, so as to protect their existing analogue CCTV products.'

A year ago, Indigo Vision decided the game was up for licensing. It had to 'reinvent itself as a production business,' recalls Vellacott. Luckily, the company still had plenty of its original money left. This was mobilised to support the move into production and fund an £11.7 million pay-out to shareholders, worth 17p a share.

Now Indigo Vision has a range of products made by sub-contractors in Scotland's 'Silicon Glen'. The core is made up of IP (internet protocol) video products for the security markets, such as a box to convert security cameras onto IP networks, recording software and a Windows application to help security officials monitor and supervise their systems.

The company has been extending its '6000 product suite' to include the VideoBridge Rack for retro-fitting large-scale analogue systems with IP. A new 'suite', the 8000, includes a 'unique chip' to deliver a guaranteed 30 frames-per-second DVD-quality video, encoded in MPEG 4, which Vellacott says is fast becoming the standard for all video encoding and recording.

It has not all been plain sailing. Quarterly revenues rose steadily last year from £300,000 to £600,000, but fell in the latest quarter to £360,000. This was a 'disappointment' that Vellacott attributes to the time and expense involved in installing and 'bedding in' a new North American sales team, with offices in Toronto and New Jersey.

If the current quarter shows a significant upturn and the new strategy looks like paying off, all well and good. If not, some shareholders will press for a break-up. Either way, the shares at 33.5p could reward a purchase.

IndigoVision

GCI Recommendation:
Buy

Indigo Vision	AIM	£22.63m	312.50p	2.50p
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