Having returned corporate promotions provider MKM to stability after two years of losses, executive chairman Andrew Johnson has lined up an Australian acquisition to add fresh ideas and much-needed bulk.

His strategy of signing more clients to longer-term, higher-margin contracts appears to be working. In the year to March, although sales were £500,000 lower at £3.9m due to the effects of a calamitous deal with Express Newspapers three years ago, MKM turned a £362,000 loss into a £456,000 pre-tax profit.

‘We have a better client mix now, with more recurring revenues,’ declares ebullient Johnson, ‘so we’re a smaller but better quality business than before.’ With the company more secure, a first acquisition has been lined up to provide ‘critical mass’ and reduce dependency on its single clients.

Provided the shareholders agree, Australia-based Leapfrog will be acquired for up to £6.95m in cash and new shares with the deal part-funded by a £500,000 placing. Profitable and with clients including Lufthansa, Procter & Gamble and Coca-Cola, Leapfrog is a ‘very similar’ business to MKM and should assimilate easily.

Forecasts from house broker and 6.9% shareholder WH Ireland suggest the acquisition will triple revenues and profits this year to a predicted £12.2m and £1.6m respectively. Yet Johnson, who plans to acquire again, is confident Leapfrog will add more with ‘a transfer of management and ideas’ benefiting both sides. He has put his money where his mouth is by topping up his holding with £10,000 worth of shares, taking his stake to 8.2%.

Trading on a forward p/e of 4.3 times – due, no doubt, to the shadow of the Express debacle – MKM shares are too cheap considering its increased stability, scale and expanding recurring revenue base. Speculative buy.