Marketing services minnow Cagney is anywhere but on top of the world at present, having reversed profits of £300,000 to pre-tax losses of £3.1m in a challenging year to December. But behind the scenes many positive moves are afoot.

Losses reflected lower than forecast new business levels, a lacklustre turn from advertising business Chick Smith Trott (CST) and hefty investment in senior management. On the positive side however, turnover increased by 37% to £11.3m, gross profit grew by 36% to £7.5m and cost cutting prompted profitable trading in the final quarter as well as the first quarter of 2008.

In addition, January 2007 acquisition Tree, the market research and data analysis business, was ‘the star of the show’ last year, according to chief executive Paul Simons, having ‘virtually doubled its profits' year on year. And client growth encourages, with new additions to the client roster including Budweiser, Virgin Trains and The Belfast Telegraph and Cagney benefiting from contract renewals with its top three clients.

Leaner, yet stronger in terms of management, Cagney insists current macro-uncertainties have yet to have ‘any material impact’ on its business, which reflects diversification in terms of ‘clients, markets and communication channels’ as well as its leaning towards fee-based, as opposed to expenditure-based, work. Simons remains keen to do earnings-enhancing deals in a large market, earmarking opportunities in digital, direct marketing and media planning and buying.

With its ability to deliver above average margins, Cagney could prove an intelligent recovery punt and the long-term story is compelling. However, we think the risk-averse investor should steer clear based on last year’s outturn and significant debt (around £2.7m).

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