Eckoh Technologies has surged 43 per cent since we recommended the company at 6.5p in October. At the time we suggested that chief executive Martin Turner and chief operating officer Nik Philpot were on the verge of converting a once-disgraced dotcom disaster into a profitable telecommunication services venture.

The interim figures to September suggest that they are almost there. The results showed turnover surging to £27 million (£21.7 million) and operating losses reduced from £7.3 million to a mere £191,000. In the last three months of this period, the group actually made an operation profit of £8,000. An equally reassuring development was that cash and short term deposits were in the region of £10 million.

Three legs good

Turner said that the Interactive Voice Response (IVR), Network Services and Mobile Wholesale divisions all operated profitably at the pre-tax line.

IVR, which is basically a computer automated phone call processing operation (a service that is often a cheaper alternative to call centres – either in the UK or abroad) witnessed its revenues dip slightly, from £5.1 million to £4.8 million, while margins also slipped. Business, however has since picked up and Eckoh now has one of the biggest call processing platforms in Europe (it can process around 500,000 calls per hour!).

By contrast, Network Services, the division that resells fixed line and mobile services to business in the UK and Ireland, witnessed both turnover and margins improve and the customer base improved to 6450 clients (6307). Turner reckons that this business could easily 'double in size' in the medium term.

As for Mobile Wholesale (Eckoh sells telephone handsets and airtime packages directly to consumers through various mediums), its sales almost doubled to £4.0 million. According to Turner, 'the growth here is down to our ability to market niche packages to niche audiences through digital TV and specialist print titles'.

Speech surges

Perhaps the most exciting news, however, concerned Eckoh's Speech Solutions' division. This arm is involved in the development of sophisticated call processing services that are activated by voice rather than 'touchtone phone' solutions. Up to now, this has been loss making, with Eckoh directing the profits from the other areas of its business into Speech Solutions (roughly £2 million per year).

However, a ground breaking deal with BT is likely to radically alter the cash that it absorbs. Under the terms of the agreement, BT will fully fund an exclusive alliance with Eckoh called Speech Alliance. This investment will cover the installation of a dedicated speech solutions call processing platform for dedicated Eckoh operational and technical personnel. Eckoh is the exclusive developer and provider of these services to BT and – in what should provide another boost to the business – a preferred supplier of IVR services. BT has also agreed to be the exclusive reseller of speech recognition services, although Eckoh is free to sell directly to any client.

Turner says this alliance – coupled with existing deals with Centrica, William Hill and Hasbro – should ensure that Speech Solutions 'is no longer a drag on cash resources. We also expect every other division to continue on their growth trajectory'.

For the full year Eckoh is expected to produce a £400,000 operating profits (before goodwill and other non-cash items are added back into the pot) and sales of around £60 million. As for next year, there is a growing feeling in the market that a pre-tax profit could be posted as all goodwill has been written off, while its 40 per cent stake in Rivals, its old internet interests now controlled by Chysalis, has been written-off as well.

At 10.75p, Eckoh is valued at just £22.3 million. If you strip out its cash pile, this puts a risible enterprise value of £12.3 million on the company. Those who followed our advice should resist the temptation to take a profit and sit tight.

Market – techMARK

Sector – Software & Computer Services

Market Cap – £22.3 million

Share price – 10.75p

Recommendation – Hold