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Painful growth at Digital Barriers

RESULTS: Digital Barriers has an impressive game plan, but will the company meet its break-even target of 2015-16?

Ever since Digital Barriers (DGB) joined Aim three years ago - and now 13 acquisitions later - the company has followed a well-known game plan. Namely, develop top-notch surveillance products and then ramp up sales of them around the world.

IC TIP: Hold at 186p

Nor is there any doubt that this strategy is working, on one level at least. Last year the main products division reported pro-forma sales up by a third to £16.6m while international revenues doubled to £6.7m. The company now sells to more than 20 countries with Asia and the Middle East particularly welcoming markets.

But such expansion has come at a cost, with the underlying pre-tax loss of £7.6m still significant, even after allowing for all sorts of adjustments. Clearly a lot of money has been spent on product development, sales and marketing, but an administration cost of £20.8m is daunting when it continues to run close to total sales. Something has to give soon: either sales rocket or costs must be cut.

Broker Investec Securities reckons that the company's sales successes, and move into both commercial and government-funded surveillance, suggests that Digital Barriers' business model "is finding material traction". Analysts forecast a fall in reported losses to £5.2m this financial year and a loss of £1.3m the year after.

DIGITAL BARRIERS (DGB)

ORD PRICE:186pMARKET VALUE:£94.8m
TOUCH:184-188p12-MONTH HIGH:197pLOW: 120.5p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:90p*NET CASH£4.46m

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2011†6.6-4.6-15.4nil
201215.0-4.1-8.1nil
201323.3-10.8-21.8nil
% change+55---

Aim: Support services *Includes intangible assets of £30.5m, or 60p a share †13 months