Talks with a major 'tier one' telecoms carrier over a possible strategic partnership could, if successful, be the spark that ignites Eckoh Technologies' share price.

On the face of it, it should not take much to do that. Eckoh has annual revenues of almost £50 million. It is on the verge of breaking even, boasts three profitable, cash-generative businesses, and sports cash and bank deposits worth £11.2 million.

Yet it is valued in the market at a mere £13.4 million. Deduct the cash, and that leaves an enterprise value of just £2.2 million.

How can this be? Well, blame it on the past. In its previous incarnation as 365 Corporation, Eckoh ran up losses of £47.5 million (in the year to March 2001) and £34.7 million (2002) trying to become a major player in the digital content field. It operated dozens of websites, but demand for its content did not grow as quickly as it expected.

Happily, apart from the consumer side, Eckoh owned a robust business division providing telecoms, interactive voice and internet services to corporations large and small.

During 2001 it engaged in a bout of heavy restructuring. The most significant decision was to bundle the consumer internet operation into a new company called Rivals Digital Media – now jointly owned by media group Chrysalis (40 per cent), Eckoh (40 per cent) and RDM's management (20 per cent). Eckoh has a limited management role and no financial liabilities.

The company also offloaded its telecoms hardware arm (which was struggling) and rejigged its remaining interests.

In its present guise, Eckoh consists of an interactive voice response (IVR) division, a mobile wholesale arm, a network services division and a speculative, although potentially rewarding, speech solutions operation.

The IVR arm is one of the largest call-processing platforms in Europe. Its centres can process almost 250,000 calls per hour and, according to chief executive Martin Turner, the business 'has been cash-generative for years'. He hopes to augment Eckoh's position in the industry by increasing the number of calls it can handle to 500,000 per hour.

As you might expect, the voice processing industry is very competitive. Sales in the first quarter of this year were down from £5.7 million to £5.1 million, and Eckoh's margins also came under pressure.

While Turner reckons the increase in capacity will provide a degree of protection, he also believes the fledgling speech solutions technology has a lot of potential. Put simply, it represents something of a quantum leap in call-processing. It can significantly reduce call-centre operating costs, allow firms to process calls quicker, create 'competitive market advantages', and enable clients to liaise and interact with their customers more efficiently.

Virgin Mobile, an existing IVR client, recently signed up for the advanced services that, among other things, enable mobile users to pick up e-mails. Deals have also been signed with Centrica and William Hill. Turner confirms that talks with a major carrier over a strategic partnership are ongoing.

Of the other businesses, the network services division resells mobile and fixed-line telephone services to the small-and medium-sized enterprise market. It has around 6,500 customers, and lifted first-quarter sales from £4.5 million to £5 million.

The mobile wholesale arm markets mobile phones and airtime packages to consumers, reaching its target audience via print and digital TV advertisements. It started up in September 2000 and the first quarter of this year saw sales spurt to £1.8 million (from £500,000 last time).

Having been instrumental in revamping the company, Turner says investors 'could see profits this year'. His faith is based on the fact that Eckoh 'is no longer looking at a cash-burn issue'.

As for the valuation, Turner remains sanguine in the face of market indifference: 'Nobody would give us any credit for the past few years, which is fair. But now we have three cash-generative businesses, a very exciting emerging business and a healthy cash-pile in the bank.'

For the year to March 2003, the market is expecting Eckoh to make EBITDA (earnings before interest, tax, depreciation and amortisation) of £500,000 on sales of £49 million. Cash in the bank should be around £8.5 million. Based on a sum of the parts valuation model, the City consensus is that Eckoh should be valued at 12p per share, rather than 6.5p. If it delivers over the next nine months, it could easily achieve that and more.