Derek Pain: Software supplier must cope with failure of customer

The failure of the New York futures brokerMF Global has impacted on an already struggling constituent of the no pain, no gain portfolio. A few weeks before the US group went belly-up, Patsystems warned shareholders they would have to be content with only a "modest profit" this year as sales of its derivativesoftware had suffered withdealers and others delaying – or reducing – their need for cutting edge technology.

Now the group has to contend with the US shock. Although it describes MF Global as an "important customer" the damage inflicted is, I believe, tolerable. The American brokerage provides around £3m of recurring revenue to Patsystems and owes some £300,000. Still, even a fleabite can be uncomfortable when you are under the weather.

Whether the collapse of MF Global, which started life a few centuries ago as a London sugar broker and used to be related to the Man Group hedge fund business, will create long term financial ripples – and present further worries to companies like Patsystems – remains to be seen.

A week before its troubles materialised, MF Global, it is reported, seemed a relatively solid and sound dealer. But dabbling in eurozone government debts has been its undoing.

The portfolio alighted on Patsystems more than two years ago, paying 24p a share. With the price at 11.5p, capitalising the company at £23.5m, there is a temptation to lock in the loss. But I have decided to hold fire for the time being.

If, as some suggest, this year's profits will be around £400,000 with £2.8m next year, the shares could rally. But the stockbroker Arbuthnot has cut its target price to a mere 14p and withdrawn its buy recommendation. I reckon my tip is well and truly underwater unless ION Trading decides the time is ripe to strike.

ION's interest was diluted to 27.9 per cent when earlier this year Patsystems embarked on a New York buy, bringing into its orbit equities and options software. It was a £17.6m cash and shares deal.

ION Trading, an Irish-based company said to be run from Italy, has displayed a keen interest in Patsystems for the past six years, seemingly content to enjoy a position below the 30 per cent level that triggers a takeover obligation. The two are not, strictly speaking, rivals. Patsystems is involved with derivatives whereas bonds are ION's software speciality.

Still, perhaps the slump in Patsystems shares will prompt the Irish-Italian group to embark on takeover action with a view to merging the derivative and bond operations.

The decline in Patsystems shares should not, I suppose, come as a complete surprise. In addition to the obvious impact of the profits warning they have the misfortune to be traded on the secondary market AIM, and there is little doubt the performance of many junior market constituents has been disappointing. The AIM index has under-scored both the FTSE all-share index and even the FTSE small-cap index.

Now to the fully listed constituents of the portfolio. G4S, the security giant, has sadly been forced to abandon predatory action. Investors rebelled against its planned £5.2bn acquisition of ISS, and it became clear it would not obtain the 75 per cent approval needed. The shares are still some way from their pre-bid level and are likely to remain forlorn for some time.

I have not seen any stockbroker comments on just how well Avation, the aircraft leasing group, will perform this year. But prospects are obviously promising. Last year it produced profits of around £5.6m.

That figure did not include any contribution from the three aircraft already leased to the Australian airline Skywest to operate on behalf of another airline. A fourth is due to be leased this year and four are scheduled for next year. All told up to 18 aircraft could be involved.

If all continues to go well, Avation's current year's pre-tax profit could approach £7m with, perhaps, more than £8m in the following year. The group has a progressive dividend policy and that can only enhance the shares.

They have risen from a 58p low to a peak of 120p since becoming fully listed, when the group climbed directly from the fringe Plus market. Current price is around 107p.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Suggested Topics
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths
Life and Style
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Amazon misled consumers about subscription fees, the ASA has ruled
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Austen Lloyd: Law Costs HOD - Southampton

    £50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

    SThree: Recruitment Resourcer

    £20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn