Companies: DATA    MCHL   

Support services companies should always be measured by the size of their order book, the amount of cash they generate, and their ability to secure ever larger contracts. If they can collaborate with industry-leading players, so much the better.

I’ve been a regular cheerleader for Mouchel Parkman, the outsourcing partner to government and the regulated industry with expertise in highways, water, and rail. Main board-listed, the business’ fortunes are guided by the modest Richard Cuthbert, a chief executive who was in confident mood when he unveiled outstanding results for the year to July – its second successful set of results since a highly successful merger.

Profits powered up 23 per cent to £23.8 million and earnings were boosted 21 per cent to 15.3p. Growth is on a tear and it’s impossible not to warm to the tasty cash conversion, which left the year-end coffers brimming with no less than £18.7 million. Cuthbert was equally keen to impress upon me that operating margins are now 7.5 per cent and edging ever closer to his ‘near-term’ eight per cent target.

If you’re impressed by this, then you will be equally impressed by the fact that the forward order book stands at £1 billion – the same figure at which the business bid pipeline sits.

And it is difficult not to be piqued by the group’s June appointment as preferred bidder for a ‘bundled’ contract with Rochdale Metropolitan Borough Council. Kicking off in April and worth some £187 million, Rochdale is Mouchel Parkman’s biggest single contract win to date, and will see Cuthbert & Co provide a bundle of engineering, property and IT services over 15 years.

Rochdale validates what Cuthbert told me about the merger at the time in 2003, that it would deliver greater ‘bidding leverage’, a key development given that ‘clients are looking to place more work for longer with less outsourcers’. He says investors might expect further ‘large bundled’ deals down the track, and hints at a contract ‘of a similar size to Rochdale’ in the offing.

The City’s number crunchers have pencilled in profits of £27.5 million for 2006 and earnings of 18p, placing the 268p shares on a prospective multiple of 14.9. Not budget stuff, but to my mind still too low a valuation given the earnings visibility and upside on further bundled wins.

Datacash – cash by name….

I have consistently waxed lyrical about the merits of DataCash (a Company Watch recommendation at 71p), which provides payment processing solutions over the web, via interactive TV, through call centres and also in the card holder present (chip and pin) market.

Steered by proven technology entrepreneur Terry Cave, DataCash has just announced a chip and pin win through EPOS systems service partner Andromeda, which has been appointed to supply systems by leading US pizza company Papa John’s.

Investec Securities’ Guy Hewett says the news ‘emphasises the benefits of DataCash’s broadening range of partners’, as well as the potential from the chip and pin market.

An emphatic first half of 2005 saw DataCash’s profits spike 70 per cent north to £1.14 million – all, significantly, scored on ‘card holder not present revenues’ – while the cash pile burgeoned to a not insignificant £4.1 million (£2.35 million).

Further chip and pin wins will likely drive profit upgrades. Hewett’s current 2005 estimates – profits of £2.5 million and earnings of 5.3p – factor in none of this potential upside. The shares are changing hands for 110.75p, giving a full forward rating of 21 times and valuing the company at £50.2 million, very high for a business that turned over less than £3 million at the interim. Nevertheless, I’m convinced it will justify the rating.