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Smaller companies have continued to fare especially well during August and September and our Company Watch and Company Profile recommendations continue to thrive. The average gain of all of our 2003 recommendations is an impressive 43 per cent.

For the most part, the annual flood of company results around September has bolstered our performance and solidified the market's burgeoning optimism. Profitability levels have generally been good, with forecasts being met or beaten in most cases.

Pursuit takes off

Contract win rates have also proved encouraging, boosting the share prices of many ambitious companies at the more speculative end of the spectrum.

A perfect example of this is Pursuit Dynamics, the developer of 'PDX technology', which uses steam as the sole motive power in an innovative process device 'that at its simplest can be viewed as a pump with no moving parts that cannot be blocked.'

The device has applications in many industries, from defence through to healthcare and the marine sector. Early in September it announced that 'a leading confectionery manufacturer' would trial its technology, which was enough to thrust the shares forward 75 per cent to 84p.

Metalrax and Fitzhardinge looking solid

As well as Pursuit, almost every other July/August recommendation is ahead. Grosvenor Land is up 15.2 per cent, Savoy Asset Management is up 1.89 per cent, while Datamonitor is unchanged at 71.5p.

Indeed, our only laggard from the last issue is engineering conglomerate Metalrax. It has slipped from 82.5p to 80.5p. But, following results for the six months to June, that only gives us good cause to reiterate our positive stance on the company.

The half-year figures showed pre-tax profits up slightly to £5.7 million on slightly reduced turnover. But, against this, historic and prospective dividend payouts put the shares on a yield of 6.7 per cent, and its also worth remembering that this is backed up by an extremely strong balance sheet that includes net cash of £7.8 million.

Peter Joseph of KBC Peel Hunt says 'Buy', pointing to a potential annual return of ten per cent. And while there may be a lot more action-packed rides around the market at the moment, Metalrax remains a classic sturdy stock to tuck away.

Commercial property consultant Fitzhardinge is just marginally up from our recommendation price in August, but again its recent interim results offered plenty of scope for optimism. The group has now completed the integration of acquisitions Gooch Webster and Fisher Wilson (Scotland), while operating profits showed encouraging growth of 26 per cent in hitting £1.3 million, on turnover increased 36 per cent to £23.6 million.

Roger Hardman of research house Hardman & Co, who at the time of writing had yet to update his forecasts, says that, in terms of reported figures, 2003 as a whole 'is going to be a pretty unexciting year.' However, he adds that '2004 is the year of a big jump in profitability', as the full force of this year's cost cuts come through and interest costs are reduced by debt reduction.

Given that the company's interim figures were 'right in line' with Hardman's expectations, his forecast of £4.9 million pre-tax for the year (excluding £1 million of exceptionals), to deliver 11p of (adjusted) earnings per share looks reasonably secure. Profits of £6.7 million pre-tax and 14.8p EPS had been pencilled in for 2004 prior to the interims, leaving the shares on a forward p/e of 7.6. Hold on.

Media stars

In the media sector, publishers Future Network and Wilmington are respectively trading at 28 per cent and 66.7 per cent premiums to their recommendation prices, helped by more positive market sentiment towards the sector this year.

Future Network, the computer games magazine publisher, came in with interims that were ahead of forecasts, showing pre-tax profits rising 38 per cent to £6.7 million for the half-year to June, with the UK and Europe's relative weakness continuing to be offset by strength in the US.

Andrew Walsh of Altium Capital and Meg Geldens of Investec both put out 'Buy' notes following the figures, while Baird's Richard Cecil decided on a 'Neutral' stance, expressing worries about the quality of revenues from the gaming sector and the medium-term effects of online gaming on prices and circulation. With £15 million of net cash to hand, though, the group is in strong position to diversify further out of gaming. As Geldens points out, 'this is one of the cheapest ratings in the media sector'. Keep holding.

Wilmington's final results were slightly disappointing, causing forecasts to be trimmed for the current year, leaving the shares slightly down. But the diversified publishing and information group continues to be robustly profitable, reporting a pre-tax figure of £8.8 million for the 12 months to June (when excluding amortisation costs), down from £9.9 million but including £239,000 of net exceptional costs. The group's balance sheet remains strong, with net cash of £5.6 million that should see it continue to weather difficult market conditions without too much trouble. A little bit of profit-taking looks in order nonetheless. Top slice.

Global gone far enough

Business and resource management software star Atlantic Global was backed in October 2002 at 37p. The company actually dipped below its stop-loss briefly, but if you took our advice to either hold the stock or buy more when it fell, you are no doubt feeling pleased, as it is now 116 per cent ahead, due to the excellent progress its management continues to make despite a difficult market environment.

The interim figures for the six months to June showed pre-tax profits raised a mere £1,000 to £231,000, on turnover increased from £860,000 to £907,000.

But its prospects remain strong as a new product called Corporate Vision is due for commercial launch in November, with an order already secured for £300,000 from Norwich Union. Chief executive Eugene Blaine, who founded Atlantic Global in 1993 and floated it in 2001, says that Corporate Vision 'could genuinely revolutionise the way that large corporates work' — quite a claim but nevertheless one that does seem within the bounds of possibility. For it is clear that this company's strength is its ability to develop products that are simple and deliver tangible benefits to corporations. The group also has plenty of cash — £1.9 million at the end of June — to raise its marketing profile when the time is right.

Overall, it is a great business story, but the shares look fairly valued at current levels. House broker Collins Stewart expects £700,000 of pre-tax profits this year, rising to £1 million in 2004 — to deliver earnings per share of 2.1p, rising to 3p. Top slice your gain.

Despite the brickbats, hold HOF?

Some analysts have been suggesting a similar course of action to investors in department store group House of Fraser, which we highlighted at 73p in last December's edition (price now 94.75p). This is despite highly encouraging like-for-like sales for the six months to July.

The results themselves showed losses reduced from £5 million to £3.9 million, excluding exceptional items. But, since the half-year end, like-for-like sales have improved 5.4 per cent compared to last year, helped along by refurbishment work and new brand launches.

Robert Brent of broker KBC Peel Hunt is not impressed, pointing out that 'fundamentals are weak'. He questions the group's upmarket store opening strategy, high debt and high capital requirements and slaps a 'Sell' recommendation on the shares.

Brent's view is not shared by us though and we stick by our previous comments on the company. There is still bid talk and decent dividend payouts continue to underpin the share price. Hold, but keep a close eye on developments.

Holidaybreak on song

April's Company Profile Holidaybreak is going great guns, having ticked up 22 per cent to 569p since our mention. In Seymour Pierce analyst Paul Leyland's words, the group's recent trading update 'highlighted a degree of recovery in camping and adventure, with continued growth in hotel breaks'. Reiterating his 'Buy' recommendation, he suggests that 'the share price should be supported by a resilient business model, strong cash generation and a progressive dividend policy.'

Baird's Nick Batram is more cautious, taking a 'Neutral' stance, adding that 'in the long-term we are buyers but in the short-term we do not believe that the shares will outperform'. He expects the company to make £28.3 million of pre-tax profits for the year, with EPS at 43.2p, while Leyland has kept his pre-tax forecast at £31.5 million, to convert into 47.9p of per-share earnings. Taking the median of these two projections puts the shares on a prospective p/e of 12.5 and a dividend yield of 3.8 per cent. Hold on.

Stay put at Hiscox

Hiscox remains stubbornly situated at around the level we recommended the insurance group back in February, despite what chairman Robert Hiscox describes as 'a strong first half' to the end of June; Hiscox reported a pre-tax profit of £31.5 million, up from £3.9 million for the first half last year.

Robert Hiscox adds that 'all parts of the business have made extremely positive strides, encouraging us greatly in our determination to build a first rate, balanced insurer', adding that 'we believe that these excellent market conditions will remain longer than some pessimists are forecasting'.

Altium analyst Dilip Shah was reassured by the statement's content, noting that, despite incremental costs associated with the World Trade Center attacks that are due to hit in the first half of 2004, the company 'still remains comfortable with forecasts in the market'.

As a result he has upped his recommendation from 'Reduce' to 'Hold' on the basis of reduced potential future risk to do with WTC provisions. Shah remains of the view that fair value is only 154.5p per share, though his forecast is at the bottom of the range for 2003, with the consensus view being that Hiscox will produce £61 million pre-tax, against his £49 million target. On the basis of this most bearish of views, the company trades on a prospective p/e of 13.3, falling to 9.4 for 2004. Stay put.