The Investment Column: Xansa's prospects not bright enough to outweigh the risks

DCD Media; Begbies Traynor

Our view: Hold

Share price: 74p (+1.25p)

Xansa has been busy of late, racking up three contract wins over the past month. However, the outsourcing and IT services company's success has done little to reverse the decline in its share price.

At 74p, Xansa shares stand at a near-two-year low, trading almost 30 per cent below the 100p they fetched in February. With full-year results due on 29 June, investors do not appear to be very interested in the contract wins.

The three deals - with Barclays, Lawson Software and yesterday's Office of National Statistics tie-up - are with existing customers that were widely expected to re-sign. Many investors would prefer the company had announced a slew of new contract wins with new customers which would have helped get revenue growth back on track.

In last month's trading statement, Xansa said its full-year performance was "in line with management expectations". But City analysts seemed unimpressed and promptly downgraded their forecasts.

For the year to 30 April, most now expect a fall in revenue of about 5 per cent to £357m and a 22 per cent decline in earnings.

Xansa has two key selling points. The first is that it was one of the first western IT services providers to enter the Indian market in 1997. It has used that experience to cut costs for its customers and position itself as an outsourcing specialist. The second is its innovative joint venture with the National Health Service. Unlike iSoft, Xansa is not exposed to the problematic upgrade to IT infrastructure. Instead, it works with the Department of Health to take over the finance and accounting departments of NHS trusts.

The 50:50 joint venture takes cost out of the NHS and feeds half the profit back into the service. With more than 100 NHS trusts already signed up, Xansa can expect to start winning outsourcing contracts in areas such as human resources.

But despite the obvious potential of its Indian and NHS investments, Xansa is still a risky prospect.

Until a clearer picture of its prospects in 2007 emerges - specifically whether revenue will rise next year - it is difficult to recommend buying the stock, even after the recent price drop.

DCD Media

Our view: Worth a flutter

Share price: 1.2p (unch)

The Television production company DCD Media, under the stewardship of former Channel 5 boss David Elstein, has raised the scale of its operations dramatically over the past six months.

On the way, it has secured a number of commissions to make various programmes and the latest was unveiled yesterday. It will see DCD produce for the BBC a major new adaptation of The Wind in the Willows, featuring Bob Hoskins as Badger and Matt Lucas, of Little Britain fame, as Toad.

The agreement should generate more than £3m in turnover for the group and is expected to be aired on BBC1 towards the end of the year. Filming has already started in Romania.

The deal is the latest coup for DCD. Last month it won a commission from ITV to make the new Saturday morning music slot that will replace the long-running CD:UK. The company is producing 15 one-hour shows and if the yet-to-be-named format proves successful it will become a permanent feature on ITV1.

DCD shares have doubled on the back of all the positive news since the start of the year and yesterday closed at 1.2p. Although the company is a true penny stock it is by no means a minnow - its market capitalisation tops £50m. And despite the strong rise its shares still offer good value. Analysts expect DCD to make a pre-tax profit of £3m for the year ending 30 June 2007. That leaves it trading at just 12 times earnings. If it continues to win commissions at the current rate these forecasts will prove to be too conservative. That makes DCD worth a flutter.

Begbies Traynor

Our view: Buy

Share price: 146p (+0.5p)

Investors looking for a safe place to put their money in these volatile markets should have a look at corporate and personal insolvency specialist Begbies Traynor. It makes money irrespective of the state of the wider economy and does particularly well when things are going down the pan.

The group has made a string of acquisitions since its 2004 flotation and it unveiled the latest of these yesterday. Begbies acquired Wilson Pitts, a Leeds-based rival, for £1.1m. The firm's entire client base and 17 full-time staff will transfer to Begbies with immediate effect.

Given the record amount of debt the average man in the street has, Begbies' consumer business will have plenty of work to do for a long time to come.

Meanwhile, should the economy suffer a downturn, its corporate unit is expected to get an added boost as more companies go to the wall. At 146p, the stock is worth tucking away.