AIM listed business market research Company has today published its results for the six months to 31st March which, as expected, show a headline loss but the Company has stated explicitly that it expects to meet market expectations for the full year which implies that it will be profitable during the second half. We have made only minor changes to our estimates but critically have not amended profits forecasts for the 2010 and 2011 financial years, despite paring revenue forecasts to take account of changes within the IQ Research division and hence we are not amending our valuation of 0.43p per share. The shares have doubled since we initiated our coverage on April 6th at 0.15p but at 0.3p we maintain our stance of “buy.”

In the six months to 31st March, sales increased from £461,000 to £980,000. A good – but unspecified – portion of that increase was the result of the purchase of Viewpoint and The Wire on January 29th. Viewpoint has operated profitably from day one and is working well with IQ’s Rosslyn unit, but The Wire recorded a loss of £56,000 and IQ ceased trading at The Wire before the period end. The operating loss for the period was £294,000, up from £256,000 during the first half of the 2008 financial year but without the adverse contribution from the Wire, losses would have been reduced. Since the period end the Company has agreed to allow Ms Janette Wier, a director of IQ Research, to buy out her small part of the business. This will reduce annualised sales by around £300,000 but will actually increase Group profitability and the company has also addressed its cost base in other parts of the Group.

The half year balance sheet showed short term borrowings, net of cash of £129,000, long term borrowings of £700,000 and other current liabilities of £1.794 million while trade receivables were £1.009 million. Discussions with finance director Jon Mitchell lead us to believe that while the short term net debt position is largely unchanged, IQ has worked to reduce the short term liabilities in a planned way. We believe that with the Group now operating at break-even or better that its cash position, though tight, is not business critical and that IQ should strengthen its balance sheet as a result of underlying cash generation. Net assets at the half year were £1.096 million although this included intangibles of £2.931 million.

The company states that “whilst the Board feels that the Group can achieve market expectations for full year performance, current market conditions remain very challenging” although our discussions with management indicate that there has been a material pick up in order enquiries during the past two months. The second half will benefit from a full contribution from Viewpoint and this will transform the picture from that in the first half – assisted by a very solid performance from the Rosslyn unit. Accordingly, we have left our full revenue forecast unchanged at £3.5 million although we have increased our full year loss forecast marginally, from £128,700 to £150,000. However that indicates that in the second half the Group will trade profitably. For the September 2010 and 2011 financial years we have reduced our revenue forecasts by £300,000 to reflect the rescaling at IQ research, to £4.75 million and £5.1 million respectively but we have maintained our pre-tax estimates and earnings forecasts at £350,000 and 0.029p and £640,000 and 0.053p respectively. The investment thesis and target price of 0.43p are thus unchanged. The shares have doubled since we initiated our coverage on April 6th with a “buy” stance at 0.15p but as IQ increasingly shows that it is delivering at the bottom line we see further upside and tour stance remains “buy.”