Datong set for bumper second half

published 29 May 2012

First half numbers were down at covert intelligence company Datong but the company is set to deliver in the second half.

"The financials are down but that is not a reflection of the business," Finance Director Stephen Ayres told Sharecast.

"Our revenue stream is a bit lumpy, and on any given year it depends on when you take the snapshot as to how good the picture is," Ayres added.

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If Datong is right, the end-year picture should be a lot sharper. "It just so happens that, in this particular year, in every region in which we operate, the results will be second-half weighted," Ayres said, citing US budgetary delays as one reason why the first half appeared to be a step back for the company.

One large order for around £900k has been delayed because of operational difficulties experienced by the customer, but will go through in the second half, the company said.

Revenue in the six months to March 31st tumbled to £3.84m from £6.33m at the interim stage the year before, while the group returned a pre-tax loss of £0.14m, versus an operating profit of £0.76m the year before.

Earnings per share slumped to 1.18p from 5.03p the year before.

That's the bad news. The good news is that the confirmed order book at the end of March was £2.36m, up from £1.07m a year earlier.

Furthermore, order intake in April and May really picked up, with the company booking £3.1m versus £1.23m in the corresponding two month period of last year.

The group launched a number of new products last summer, and 35% of the group's revenue in the April-May period was from these products, which the management took as a good sign of the shape of things to come.

"We are pretty confident of the full year outcome," Chief Executive Officer Mark Cook revealed to Sharecast.

Looking ahead, the company is looking to expand its footprint in the USA. It already has an office in Chantilly, Washington DC, where Washington Dulles international airport is based, and plans to open another one near the Mexican border - "the US side," quipped Group Sales Director John Kirtland - soon, which will have a sales facility and maybe some technical support people.

The company's position in the Middle East is also improving, but Cook said that relationships with customers in this region had "a long gestation period" which he ascribed to cultural differences.

Further down the line, the group would like to address the issue of its somewhat "lumpy" revenue stream.

Only about 5% of revenue is currently of a recurring nature. "We are basically a widget supplier. We get an order, we produce it and we move on," Ayres said. Make that a "highly complex, technological widget maker" ...

One of the ways it might address the issue is by expanding its customer base beyond government agencies.

This is not to say it will be selling its high-end powerful "widgets" to terrorist organisations and suchlike; what the company has in mind is moving into "adjacent markets" where its technology could prove desirable to non-defence based clientele.

Cook said he could not say much more at the moment but all would be revealed in due course. In the meantime, watch this space.

House broker Canaccord Genuity said the figures were in line with forecasts and the company "appears on track to meet full year earnings expectations".

The broker is forecasting full year revenues of £12.8m, £9.4m of which is already visible in the order book.

The broker thinks the shares are "deeply undervalued", but then, it is the house broker. However, the market seemed to agree with the shares surging by more than a third on the day of the results.

The company has not declared an interim dividend.