office2office - 180p

We covered office2office last September when the shares were marginally higher than the level at which they currently stand. As we said at the time, Simon Moate is now the chief executive and he is already stamping his authority on the business.

The recent acquisition of Triplearc demonstrates that he is pushing to grow the business and forecast profits for this year and next have now been adjusted upwards by analysts. This acquisition adds scale to the existing print management offering.

Triplearc is a business facilitator involved in print management, marketing fulfilment and database management. The client base is very impressive and includes AOL, BAA, Carphone Warehouse, Virgin Mobile, Microsoft, Setanta, Citigroup and Home Learning Group.

The other major piece of news which has been released this year is the results for the year ended December 31,2007, which came out at the end of February. Revenue came in at £167.9million and underlying profit before tax, exceptional items and non-recurring costs was £11.6million, up marginally from £11.5million.

Profit before tax fell from £10.3million to £9.0million and basic earnings per share fell from 20.2p to 17.4p. A final dividend of 6.8p was paid versus 6.4p a year earlier and this brought the total for the year to 10.0p, confirming the progressive dividend policy.

The balance sheet was very strong and at the period end cash and cash equivalents of £7million were held. The acquisition of Triplearc means that this will swing into a significant net debt position. Whilst this increases the risk profile of the business, the debt has been taken on for sensible reasons and the Triplearc deal should be earnings enhancing.

Those who are keen on dividend income from their investments should note that the progressive dividend policy remains in place despite the major expenditure on the acquisition. At the current share price the shares are yielding over 5.5 per cent based on the 10p payout for 2007.

The future still looks very bright for office2office and it is easy to see why analysts are keen on the shares. Given the benefits which will be derived from the Triplearc deal, the case for investment is even more compelling and we continue to rate the shares as a buy.

  • WARNING: Opinions expressed are the writers' judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek their own professional advice as to the suitability of the investments.