API, whose products are used in packaging applications in the luxury goods, beverages and tobacco sectors, returned to operating profits before goodwill in the first half, despite tough competition and weak demand in its markets. Interims to March showed pre-tax losses narrowing from £2.3m to just £849,000 on turnover of £84.2m (£88m), but the deficit before interest and tax was a mere £145,000 (£1.63m). Although chief executive Derek Ashley is urging caution on the second half due to the SARS outbreak and the Gulf War II effect, recent numbers suggest it is on the recovery trail (at the preliminary stage losses were slashed from £4.5m to £1.4m). It's core foils, laminates and metallised paper business improved first half profits, though the converted products arm continues to disappoint and is 'under review'. UK sales held up at £64.5m (£64.7m), but sales to the US were 14% off at £12.1m and 11% lower to the rest of the world - this reflected lower sales in the Chinese foils business and flagging demand from the medical and hygiene sectors supplied by coated products. Half-end net assets stood at £60.2m, and net tangible assets were equivalent to 179p a share. Furthermore, net borrowings came down by £900,000 to £13.9m, leaving the company 23% geared. Some tough times ahead, but the stock looks undervalued nonetheless. Hold.