No Pain, No Gain: It could at last be time to beam up Scotty's shares
Saturday 15 March 2008
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; request a free guide on NISAs from Hargreaves Lansdown
Mark Dampier: An infrastructure fund that builds returns by taking different roads
Simon Read: Timeshare owners accuse Macdonald Resorts of land grab
Donald MacInnes: Let's pretend Scotland won and now a salmon is running the country
10 tips for taking out a personal loan
Bargain Hunter: Win a new iPhone 6
- 1 Mario Balotelli: Staff at arson-hit Manchester Dogs' Home convinced Liverpool striker is behind five-figure donation
- 2 Friends 20th anniversary: Alison Jackson photographs reunited cast
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 The response to my Pizza Express review has been overwhelming, and taught me a lot about journalism
- 5 Free U2 album: How the most generous giveaway in music history turned into a PR disaster
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Scottish independence: The Queen breaks silence on referendum debate – as think tank warns of £14bn black hole if Scotland votes Yes
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...
Day In a Page
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize