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The recent spate of interim results from technology companies has shown that in many cases trading has recovered, justifying the remarkable share price rises these outfits have generally experienced this year.

Investors should still tread carefully though, since many of these operational improvements come from implementing cost controls rather than growing sales. After all, last year was apparently the worst for IT expenditure in the past 20 years.

Recent leaps have also pushed valuations of tech companies higher than the rest of the market. The software and computer services sector trades on a historic p/e ratio of 36, which is double the rating of 18 currently displayed by the FTSE All-Share Index.

Such a premium can only be justified if revenues grow as quickly as anticipated. This improvement will be reflected in the bottom line quite quickly in the many companies that have pared costs back dramatically.

Retail turnaround

Fraud prevention technology provider Retail Decisions is one such outfit this might apply to. The group specifically emphasised this point in its figures for the six months to June, which showed an impressive move from losses of £1.9 million in the first half last year to pre-tax profits of £1.1 million.

However, the group cautioned that it is 'unlikely to report a higher adjusted operating profit for the second half, compared to the first'. Nevertheless, the market has still sent the shares up 16 per cent to 10.75p over the past two months.

Electronic data capture software specialist DICOM divulged no such qualms about growth for its products, reporting that its market 'continues to show good growth in contrast to the difficult trading conditions in the IT market'.

This statement accompanied another set of bumper results, covering the year to June, with pre-tax profits showing a 150 per cent improvement, hitting £8.8 million before exceptional items. The shares continued on their superlative run, moving up 26 per cent to 657.5p.

Public sector work pays off

Public sector markets are also looking healthy at the moment, with ITNet proving itself to be one of the big beneficiaries. Its interim figures were ahead of expectations, with pre-tax profits up to £8.7 million, net cash much stronger at £14.9 million and a good outlook identified for the future, too.

George O'Connor and James Mitchell of broker Arbuthnot put the shares on their 'buy' list at 327p, with the expectation of £18.7 million of pre-tax profits for the year to December. Since then the shares have fallen to 204p, but this is still a 22 per cent improvement since the end of July.

Systems management and information logistics firm Macro 4 did even better, rising 37 per cent to 114.5p after publishing figures for the year to June. Performance across the group's divisions was mixed but strong recurring revenue helped adjusted pre-tax profits rise 64 per cent to £1.8 million.

Tom Kristensen of KBC Peel Hunt expects, 'on a cautious view', profits to surge to £2.6 million this year, producing 10p of earnings per share. This puts the company on an attractive forward p/e ratio of 11.5. The stock displays a nice yield, too.

Medical successes

Some medical-related ventures have impressed, notably sterilising plant operator Isotron, which has climbed 27 per cent to 402.5p over the past two months, helped by a fine set of final figures.

These showed the benefits of recent acquisitions. Pre-tax profits rose 43 per cent to £7.3 million at the group in 2003 – and volume growth is expected across all divisions this year.

Similarly, diversified healthcare company Provalis advanced 29 per cent to 12.25p after reporting its first profit of £1.3 million – benefiting from an exceptional gain of £3.4 million. Operating losses halved as sales advanced 49 per cent to £14 million.

Celsis coming up

Celsis International, recommended at 23.5p in June's Growth Company Investor, will report figures for the six months to September on 29 October. The provider of rapid diagnostic systems for microbial contamination turned a £4 million loss into a £2.5 million pre-tax profit in the year to March 2003.

Backed by strong finances, including £4.2 million cash at the last count in March, broker Panmure expects Celsis' profits to rise to £3 million in the current year. This will give 3.4p of earnings per share signalling the shares, at 31p, still have potential to rise. Good interim figures should prove this.