Companies: CAE    DATA    SHL   

'Turnaround plays' inspire those with an eye for speculative deals. The risks you run are high, but with a bit of research (and the rub of the green) you might secure a handsome return a few years down the line

I'm convinced boom times are ahead for AIM-quoted business and IT management consultant Charteris, which has completed the first of its three-year turnaround. David Pickering, chief executive, and finance director Marsali Harwood persuade me Charteris is recovering from the long IT downturn and has successfully broadened its business base, reducing its dependence on financial services and media clients.

Annual numbers to July showed a robust return to profitability, ahead of upgraded forecasts. Profits came in at £717,000 (£14,000) on a 13 per cent revenue hike to £13.8 million, and Pickering reported healthier cash balances of £4.2 million (£3.3 million). Despite emphatic progress, the shares still trade at just 27p a share, valuing the group at £11.3 million.

KBC Peel Hunt's Alex Jarvis has upgraded her July 2005 profit estimate by 13 per cent to £900,000, which gives 1.5p of earnings and a forward rating of 18 times. For 2006, trading profits of £1.2 million and earnings of 2p place the shares on a forward multiple of 13.5 times, substantially below the 18.65 sector average. In my view, a re-rating is on the cards.

SHL passes the test

Another venture on my radar is main board-quoted assessment services play SHL, which has attracted column inches because its psychometric tests have been used by the likes of AC Milan and the Ferrari racing team. But the market is waking up to the improving financials, boosted by chief executive John Bateson's effort to simplify the business, build margins and grow sales.

Figures for the half to June were glowing, with losses of £11.3 million converted into an £800,000 surplus. Since 2003, Bateson has ditched a swathe of businesses and analysts now regard the company as a 'revenue growth story' again. This year, Brewin Dolphin forecasts a £6.4 million profit and earnings of 7p, rising to £7.1 million and 8.4p by December 2005. At 110p a share and on undemanding forward multiples of 15.7 and 13.1, I advise readers to take a look at the business.

Cave convinces on DataCash

Away from the turnaround game, I'm keen to push the attractions of AIM-listed payments service provider DataCash – a Company Watch recommendation at 71p – having visited new CEO Terry Cave, a man with bags of credentials in growing technology businesses. The shares currently trade at 80p, which is ahead of our recommendation price but down from the 12 month high (of 120p) largely because the company has yet to announce any 'Chip & PIN' deals.

To re-cap, DataCash is part of a team helping mid-tier retailers implement Chip & PIN, the new credit and debit card fraud system being introduced in January. Retailers, reluctant to mess with their systems before Christmas, have been sitting on their hands somewhat. But Cave says the delay has, in fact, 'extended the window of opportunity' for DataCash.

He is even more bullish about the group's core Card Holder Not Present business, where DataCash processes transactions for a growing number of new clients in retail, travel and ticketing. Cave, who only joined in July, is stepping up the group's focus and insists 'we've done a great job hiding our light under a bushel. We've merely scratched the surface'. Crucially, September was a record month for both volumes transacted (an amazing 3.5 million) and revenues for the company.

In the half to June, DataCash's profits powered up 155 per cent to £670,000 on a 26 per cent revenue jump to £2.14 million. For the year, the City envisages profits of £1.5 million and earnings of 3.3p, rising to £2.6 million and 5.8p by December 2006. Cave is comfortable with forecasts, and I believe exciting Chip & PIN news flow will stoke up the shares, which look great value on 13.8 times 2006 earnings.