It’s a tough time to be in the traditional media in the UK. Newspapers like the Evening Standard are suffering declining circulation as newly arrived free papers take crucial market share. Meanwhile, the Sportsman – a paper founded this year that aimed to cash in on the rise in betting and gambling – was put into administration in July, just four months after its launch.

Traditional broadcasters are also finding life difficult, thanks (in part) to the emergence of dozens of free-to-air and paid-for digital TV channels. Just this month, the chief executive of Channel 4 warned that the broadcaster could face a funding gap of more than £100 million a year because of a decline in advertising budgets.

But it is a whole different story on the internet. According to the Internet Advertising Bureau, UK online advertising expenditure grew by a staggering 65.6 per cent last year and it now accounts for 7.8 per cent of all advertising spend. In 2006, UK spending on online advertising is set to increase by another 50 per cent, compared with 3.9 per cent growth in overall advertising expenditure.

This is great news for companies that specialise in online marketing, such as AIM-quoted Interactive Prospect Targeting. Recent interim results revealed that the company’s pre-tax profits increased 47 per cent to £1.7 million in the six months to 30 June on revenues that had increased 73 per cent to £9.8 million.

Up until this summer, the company operated solely in the UK, where it has generated revenues by building email databases that can then be used to conduct email-marketing campaigns on behalf of clients. These databases are also used to conduct market research. Email addresses are acquired through websites such as the popular myoffers.co.uk – a prize draw site operated by the company.

The quality of the customer data stored on these email databases is very high compared with rivals, according to chief executive Lionel Thain. ‘There is a lot of information held against those email addresses,’ he says.

Of course, demand for email-based marketing is being driven by cost. According to independent broker Investec, email-marketing campaigns cost around 10p per email compared with 50p per person for postal direct marketing campaigns. Meanwhile, email campaigns can be completed in under a week, while postal campaigns take between 10 and 12 weeks to complete.

In May, IPT agreed to pay up to £22.5 million in order to acquire French firm Directinet. The company is France’s leading provider of online direct marketing services and it generated £7.7 million of revenues in 2005. The UK and France represent 63 per cent of European online advertisement spending, so the acquisition means that IPT is now the number one European online direct marketing company.

Together the businesses are forecast to increase the company’s pre-tax profits by 136 per cent to £5.2 million this year on revenues of £25 million (2005: £13.6 million). Next year, pre-tax profits are expected to increase to £7.9 million.

This means that the shares are currently trading at around 20 times 2006’s estimated earnings per share of 9.3p and just 15 times 2007’s expected EPS of 12.5p – which is not too punchy for a fast-growing business. With net cash of £8 million (equivalent to 18.1p per share) forecast for the year-end, the balance sheet is healthy too. Buy.