No Pain, No Gain: It could at last be time to beam up Scotty's shares

A casual observer could be forgiven for believing that investors are ill-treating Scotty, one of the stock market's army of "penny dreadfuls". Its shares are currently bobbing along at just over one pence – close to their level when I discussed them 14 months ago.

Yet the company could for the first time be in the money. Its order book is standing at a peak and there are hopes that, given a fair wind in its final quarter, a profit – possibly comfortably exceeding £1m – will be achieved this year. Certainly more than £600,000 seems to be already in the bag.

So why are the shares so neglected? One reason, of course, is the punishment inflicted on many smallcaps. The arrival of the credit crunch appears to have panicked smallcap investors, prompting some to unload and switch into what they regard as safer havens, even interest-bearing deposits. The undercard has always been more risky than, say, blue chips. And prices are more volatile and spreads much wider. Even so, the sell-off has been nothing short of astonishing.

But perhaps there are more fundamental reasons for Scotty's failure to reflect its improved prospects. Too many false dawns must have blunted the enthusiasm of investors. I suspect they will want to see hard evidence that the group, which develops and produces sophisticated video and data equipment, really has plugged into a profits circuit. For example, long-time follower Tom Winnifrith, the internet tipster, says a case for buying the shares could be emerging, but he wants to see "evidence of Scotty's purported operational health" before changing his recommendation from "hold".

The company must also contend with its long-lost high-flying days when, during the dotcom boom, the shares flew to nearly 350p. Many investors from those madcap times are, I suspect, still on the share register. Others will have climbed on board in more halcyon days. With the tax year near its end, the shares provide an avenue for offsetting capital gains and could encounter weakness as investors' juggle with their tax position.

I first encountered Scotty, then called Motion Media, at a boozy presentation in a Fleet Street pub 12 years ago. Before floating its shares, it displayed its video telephones to assembled hacks. I was impressed. They were the sort of hi-tech gadgetry even I could appreciate. Unlike many other dotcom players, Scotty actually had a viable product. But making the profit connection proved elusive.

Scotty is still deep into video communications. But its offerings are now much more sophisticated and largely for Government or military use. Indeed, a merger between Motion Media and Scotty, an Austrian group, in 2004 resulted in a much wider and improved product range and allowed what is in effect a niche player to target high-powered customers.

In the past it has suffered from contracts being shelved or delayed. But with orders running at record levels, such setbacks should no longer distort its performance. Indeed, the group is now enjoying a run of civil and military contract wins that have involved the United States, Germany and Venezuela. A Nato presentation – to procurement officials – appears to have been well received, and, in the past month, the group's flag has been flown in Singapore and India, with a Chilean exercise due to take place soon.

I would not rush to buy the shares. Interim figures are due soon, but it would be wise to wait and see what is delivered over the full year. Certainly hopes are running high, and one profitable year could set a trend.

Since the merger, Scotty has run up losses of more than £15m. But with costs cut by some 30 per cent and the order flow still strengthening – and, being a niche player, Scotty's margins should be robust – there is reason for cautious optimism.

Now Scotty has got its act together it could even become a takeover target. After all, it is capitalised at only about £12m and would make an ideal add-on for a major electronics group. Of course, those heady days when the world went mad and hi-tech shares soared into the stratosphere will never return.

So any bid would offer little comfort to long-term shareholders. But the board, basking in the glory of moving from losses to profits, would surely insist on a considerable uplift from today's dismal level.

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

PROMOTED VIDEO
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

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    MBDA UK Ltd: Indirect Procurement Category Manager

    Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

    Recruitment Genius: Web Developer - PHP

    £16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

    Day In a Page

    Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

    Greece elections

    In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
    Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

    Holocaust Memorial Day

    Nazi victims remembered as spectre of prejudice reappears over Europe
    Fortitude and the Arctic attraction: Our fascination with the last great wilderness

    Magnetic north

    The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
    Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

    Homeless Veterans appeal

    Homeless in Wales can find inspiration from Daniel’s story
    Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

    Front National family feud?

    Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
    Pot of gold: tasting the world’s most expensive tea

    Pot of gold

    Tasting the world’s most expensive tea
    10 best wildlife-watching experiences: From hen harriers to porpoises

    From hen harriers to porpoises: 10 best wildlife-watching experiences

    While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
    Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

    'I don’t want just to hold tackle bags, I want to be out there'

    Nick Easter targeting World Cup place after England recall
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore