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 But the stockbroker Arbuthnot has cut its target price to a mere 14p and withdrawn its buy recommendation.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
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Voices
Ed Miliband, Nick Clegg and David Cameron appeal to the audience during the Question Time special
voices
Sport
Danny Jones was in the Wales squad for the 2013 World Cup
rugby leagueKeighley Cougars half-back was taken off after just four minutes
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
News
Tiger Woods and Lindsey Vonn are breaking up after nearly three years together
peopleFormer couple announce separation in posts on their websites
Sport
football
Life and Style
Google celebrates Bartolomeo Cristofori's 360th birthday
techGoogle Doodle to the rescue
Arts and Entertainment
Haunted looks: Matthew Macfadyen and Timothy Spall star in ‘The Enfield Haunting’
tvThe Enfield Haunting, TV review
News
The Mattehorn stands reflected in Leisee lake near Sunnegga station on June 30, 2013 near Zermatt, Switzerland
news
News
Michelle Dockery plays Lady Mary in Downton Abbey
peopleBut who comes top of the wish list?
News
Miriam Gonzalez Durantez, right, with Lib Dem candidate Jane Dodds in Newtown, Powys, as part of her tour in support of the party’s female candidates
general electionNick Clegg's wife has impressed during the campaign
Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Recruitment Genius: Online Customer Service Administrator

    £16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

    Recruitment Genius: Digital Marketing Executive

    £18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

    Everyone is talking about The Trews

    Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living