Healthy gains recently, any ideas why and how much further likely to go?

this one about to rocket too. 7m in bank, directors buying too

why do YOU MONEY AM show my 50000 BUY @14.5 as a sell when it,s a BUY!!!!!!,some great things to come very good and postive results.
I,AM PLEASED I AM IN,I JUST WISH INFO GIVEN WAS CORRECT

Buy Business Systems Group at 18p (wrongly tipped on 29/7/2005 - now 12p)
Suggests small cap guru Bill Johnston of Watshot.com


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Business Systems Group (BSG) puts its occupation bluntly - it is about "increasing the efficiency and productivity of IT Departments". Let us be blunt in turn. If the recent record of the company is anything to go by, efficiency, like charity should begin at home, and, although a start has been made, there is a long way to go. Yet we have seen before that when companies move to AIM - which Business Systems Group did about this time last year - it can so often be an outward sign of inward dynamics, and heaven only knows, the market is big enough and ripe enough yet, especially at the service levels which only modestly-sized companies seem able to achieve. But that market is changing - indeed has been for some time.

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The Market

Once the earth seemed covered with people and organisations engaged in some aspect or other of IT, all of them making money - but with hindsight, that situation peaked when, with breathless anticipation we waited to see if the additional funds which we had coughed up would prevent global catastrophe as the Millennium hour approached, and those computers, so smart in so many ways, coming to a puzzled halt in the face of all those zeros. Well nothing happened, but we couldn't help wondering if anything would have, anyway. It was in that year that I wrote this:

"The problem of course, with the brutal wisdom of hindsight, was the management's failure to foresee the speed of the decline in the prices and margins attributable to computer hardware and pre-packaged software, and a consequential lack of celerity in moving on to establish itself in the much more stable and lucrative area of IT services, from consultation and installation, through training, internet and intranet needs, to the provision of outsourcing services proper."

Compare that with this:

"....turnover for the year reduced by 14%.... the principal reason for the reduction was a 23% year-on-year decline in hardware revenues."

The point is, that it was the Chairman of Business Systems Group that penned the latter, and he did so in June last year. And the first quotation? That refers to ComputerLand (CPU) another AIM-quoted company. As it happens I have not written here about ComputerLand - successfully tipped at 100p on this site in January 2003 - for I have considered the latter fully valued of late. But the point is that it was a much changed business by then - but Business Systems Group, which lost 3 million pounds in the year to March 2003, looked to have hardly started the process. And the question is - can a similar transition take place?

The Business Now

By March 2004 the loss had been eliminated - just - but with recurring income of 5 million pounds out of a 22 million pounds total (and that total having fallen by 4 million pounds) it was clear that the desired and orthodox solution - transition of the bulk of the business to that of the provision of managed services - to put it at its kindest still had some way to go. In fact drawing in the horns seemed more like the name of the game, the move to AIM which followed publication of the figures being part of a general belt-tightening.

But what of the 2005 figures published about this time last month? Sales, from continuing operations were 25 million pounds - but supplemented by an acquisition, totalled almost 30 million pounds. Gross profits were a touch over 6 million pounds - expenses a touch under - the outcome a near thing, just 200,000 pounds in the black. That acquisition, the Unix business of Global Networks Solutions not only extended the group competence so that all the main operating systems fall within the extended technology remit, but made about one-third of the profit, too. Contractual revenues were circa 8 million pounds, annualised.

As always, the assignments have to be won (like last Christmas, a nice present in the shape of a 2 million pound job from a prominent City legal firm) but with hardware margins in seemingly secular fall, the strategic goal is that of gaining managed-service contracts. Like its peer group, the company argues that it can deliver reduced costs, increased service levels and enhanced capability. Mulling this over, many an organisation will consider too the flexibility that comes from not having to employ non-core staff, and the fact that you have more power over contractors than you ever will over employers. So the market is a growing one. But Business Systems Group itself says that the market is nevertheless competitive, even if it claims that the breadth of its expertise and the depths of its software development skills give it a distinct advantage.

The Investment Case

That last point, is it true? Well, time will tell, although many will think that the process should have commenced a bit earlier. To complete the statistics, adding interest earned meant almost 600,000 pounds at the pre-tax level. There was a tax repayment so that earnings were about 1p per share.

At the present share price of 18p, the company is capitalised at 15 million pounds and sell at 17.5 times earnings of course. But there is 9 million pounds in cash there, 1 million pounds of which accrued in the last financial year, fruits of an established and successful enterprise, even if (some would argue) a characteristic of a non-dynamic one. The Chairman is not given to banging the drum, contenting himself with the observation that the business is growing and that he thinks that the group, as at present constituted has all the technical and commercial weaponry that it needs to prosper.

I find it difficult to believe that the great depths of experience and contact will not allow that contracted income to grow, nor that 30 million pounds of annual turnover is not worth much more than the 5 million pounds at which the company is valued - net of the cash. And that 5 million pounds would take five years to be generated at last year's pace. But these arguments are academic. What is more practical is the fact that if forward way is being achieved - and I think that it is - the City will eventually wake up to that fact and pay proper attention. (I also like the fact that if there is much downward potential, it is hard to discern). After all, risk is the name of the game.

But there are no forecasts, so perhaps this conjecture is wide of the mark. But how much would it cost to buy the business? That's conjecture too, but here's my estimate - 25p, and all points north from that. So that is my target price, and tells you why I regard Business Systems Group as a good risk - and a definite buy.