Companies: CPC   

Capcon, the private investigation, audit and stocktaking group founded by ex-detective Ken Dulieu, has wrapped up two acquisitions since floating two years ago. This has taken the company into new areas of investigation such as insurance, banking and multinational concerns. And according to managing director Cliff Cavender, more targets are being sourced to help grow the business.

Recent figures for the six months to the end of March showed turnover rocketing 61 per cent to £3.34 million. Much of the increase was attributable to two acquisitions: Vincent Sherman (Creditor Claims), known as VSA, which was bought in April 2002, and corporate investigation business Argen, which was acquired this February. But there was also some organic growth.

However, profits fell from £154,000 to £33,700. That was after goodwill and a higher interest charge which reflected borrowings taken on to fund the acquisitions. Strip these costs out and profits slipped only slightly – by £9,000 to £202,200. Remove central costs and each of Capcon's divisions is improving its profitability.

What bodes well for the future is that sales at all of these divisions were ahead on a like-for-like basis. As Cavender explains – 'if you take the original core business we bought back from Carlisle three years ago, sales were ahead two per cent' – not a bad feat given Capcon overwhelmingly sells its services into the battered leisure sector.

Sales in the core audit and stocktaking division rose and income from Capcon's traditional investigatory services division was maintained at last year's level, though margins increased. The board is confident Capcon can flourish organically as well as via acquisition, and the first half pay-out was lifted 4.3 per cent to 0.73p.

Encouragingly, VSA, a specialist in investigating fraud in the insurance sector, was turned around from loss to profit during the first half. That was partly down to its appointment to the motor investigators' panel of one of Europe's largest insurers. Three other insurers have also appointed VSA to their panels this year.

The London-based corporate investigations business, Argen, carries out investigative activities such as due diligence, corporate fraud investigation and intelligence gathering. It is proving a neat fit with Capcon's core investigative business.

Broker Charles Stanley originally brought Capcon to Aim, but the company has since moved to Williams de Broe. Analyst Tania Wild suggests profits of £380,000 pre-tax and goodwill for the full year to end-September, giving earnings per share of 3.82p.

Profits should rise to £700,000 before tax and goodwill in 2004 – for earnings per share of 6.13p. After falling from the 80p issue price to 55p at one point, the shares have since crept back up to 63.5p. At this price, they sell for as little as 10.4 times likely 2004 earnings. Worth investigating.

Capcon

GCI Recommendation

Buy