No Pain, No Gain: Scotty could still beam us up to a modest profit

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The Independent Online

Scotty is a survivor from those madcap dot.com days when a weird and wonderful assortment of technology shares soared into the stratosphere and the Footsie index hit a 6.950.6 peak.

Unlike many of its peers, the group, then called Motion Media, did have tangible success to dazzle investors. It was in the shape of a video telephone that had a variety of applications and appeared destined for a rewarding future.

But, as so often occurs when a fledgling pushes against the frontiers of technology, ambitions have been largely unfulfilled. Its products were not to blame. They had much to commend them. The trouble was the profit connection. Making money has always eluded the group, which was born out of a Government-backed research initiative.

I have followed Scotty's progress - or rather lack of it - since, 11 years ago, I attended a boozy presentation in a Fleet Street pub that was once an outpost of the Bank of England. The then Motion Media thought it would be a good idea to demonstrate its revolutionary phones ahead of floating on the Plus fringe share market.

Later it graduated to the Alternative Investment Market (AIM). The shares were sold at the equivalent of 6.75p; subsequently they brushed 350p, as the dotty excitement spiralled out of control. But when reality returned, the shares - together with other internet high-flyers - went into freefall. Today's price? A mere 1.5p.

Motion Media became Scotty following a merger - almost a reverse takeover - with an Austrian group. It seemed a good idea at the time. But the inability to turn inventive skills into profits remained. At the time of the 2004 get-together, which broadened the group's range considerably, there were hopes profits would hit £1.5m and then £2.5m. In the event, losses were £5.4m and then £3.9m. I am not aware of any brave soul venturing a forecast for the current year.

But Scotty has some City support. Stockbroker Colin Blackbourn, aka the Black Prince, is a long time fan and sits on 5 per cent of the capital. And tipster Tom Winnifrith, on his T1ps.com website, says the shares "might well be cheap" but awaits evidence of progress before considering switching his stance from hold to buy.

There are signs Scotty is making headway. The trouble is too many false dawns have eroded confidence. Like Winnifrith, I would like to see clear evidence that the dark days of profitless technology are over.

The latest trading update offers only marginal comfort. Progress is tortuously slow. Last year, with losses narrowing, turnover jumped from £4.1m to £6.4m. The picture is confused because an important £4.6m contract that should have contributed to last year's results was not completed in time. So it will be included in this year's figures, together with a £1.6m follow up order.

One hopes the delayed contract will make a significant difference to the current performance. But messages from the company are mixed. The recently installed chairman, Lord Trafgarne, says the group's potential is starting to be reflected in its returns. But the chief executive, Kurt Kerschat, warns: "Growth over the coming months is likely to be somewhat uneven."

Still, a positive cash flow has been recorded and running costs have been cut. Even so, the balance sheet is weak. And cash reserves totalled only £262,000 in July. Some form of money-raising exercise cannot, therefore, be ruled out.

Scotty now concentrates on two markets - defence and healthcare. It offers a range of video and data communications for aircraft, ships and vehicles, as well as for headquarters and in the field. On the health front it provides a complete communications package.

When I last commented on Scotty, in September 2004, the shares were 3.5p. I said they were worth a modest punt with a 25p dream target. At the risk of being wrong again, I suggest they could deserve a little speculative interest.

Scotty's volatile ride means that any long-term shareholder is heavily out-of-pocket. But in its halcyon days it was actively traded and many investors banked considerable profits. Quite clearly, the shares are unlikely to regain the giddy heights achieved in the dot.com boom. But Scotty has survived and could, with a little luck, emerge as a rewarding high-tech player. But 25p? Perhaps with a consolidation.

cash@independent.co.uk

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