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 But the stockbroker Arbuthnot has cut its target price to a mere 14p and withdrawn its buy recommendation.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 VouchedFor.co.uk

Suggested Topics
Arts and Entertainment
Supporting role: at the Supreme Court, Rhodes was accompanied by a famous friend, the actor Benedict Cumberbatch
booksPianist James Rhodes on the extraordinary legal battle to stop the injunction of his memoirs
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
filmDheepan, film review
Sport
Steven Gerrard scores for Liverpool
sport
News
Tattoo enthusiast Cammy Stewart poses for a portrait during the Great British Tattoo Show
In picturesThe Great British Tattoo Show
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
    Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

    Laughter, but no tears, as Letterman takes his bow after 33 years

    Veteran talkshow host steps down to plaudits from four presidents
    Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

    Hozier's 'blasphemous' song takes Novello award

    Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
    Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

    Join the tequila gold rush

    The spirit has gone from a cheap shot to a multi-billion pound product
    12 best statement wallpapers

    12 best statement wallpapers

    Make an impact and transform a room with a conversation-starting pattern
    Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

    Paul Scholes column

    Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?