Companies: QDG   

Russ Singleton’s Quadnetics has not been the best share price performer, despite last November’s acquisition of AIM-rival Protec having boosted the group’s scale in the electronic security systems sector.

Figures for the year to May revealed normalised pre-tax profits of £3.6m (£2.7m), from consolidated sales of £49.6m, with only a seven-month contribution from the Protec deal. Underlying earnings sparked up by 21% to 24.2p, benefiting from a reduced tax rate stemming from the usage of Protec tax losses.

Singleton, chief executive, plans to maximise the growth of Synectics’ digital CCTV control systems and recording solutions, and turn Quadnetics into a leading electronic security services company by building on leading positions in ‘verticals’ like prisons and other government high security sectors, which the Protec deal is helping to do.

Last year QSG, the security services operation that installs and maintains systems for local government, prisons and the retail sector, suffered a drop in profits from £2.1m to £1.8m. This reflected a build-up of long-term deals with large customers that carry lower margins initially. Returns should grow as Quadnetics becomes more entrenched with clients. As well as a temporary lull and tighter margins in the UK local government CCTV sector, which thankfully has picked up of late.

Singleton says Protec has already proved a successful addition to QSG, with cost reductions identified as planned and investors sure to see cross sell benefits coming through. Its special projects surveillance business has also been integrated into Synectics, Quadnetic’s security surveillance products and software business.

Flush with £8.9m of net cash at the year-end, Quadnetics lifted total dividends by 25% to 5p, and boasts strong order books and good earnings visibility. The shares are well worth holding.