ECK ---100% GAINS POSSIBLE--- as company springs into profit!!

So what’s the end-game for ECK? I continue to be fascinated and wonder about the future of a company which has struggled so hard to find its identity, which is struggling to meet the expectations of the market and which, frankly, makes me sometimes wonder why it exists at all, at least in its current form.

That is not to say that I don’t believe it has any value. With a market cap of £21m and with cash of circa £11m, not much value is placed on the actual trading business is it? And yet the many bits of the business are worth something. Aren’t they?

The IVR Advertised Services (chat, dating etc.) made H1 net op profits of £0.8m, whilst the Media and Broadcast (eg. TV and press comps/voting) pulled in £0.6m on wafer-thin margins and only a part contribution from the recent large deal with Trinity.

Even the much derided Symphony (small biz telecoms) and Freecom (websites) delivered H1 op profits of £0.7m and £0.1m respectively. And the oft quoted rising star, Speech Solutions (voice, call-centre) has finally turned profitable, to the tune of £0.2m in H1.

Yes, H1 central costs were £2.4m, but even when shared out on a pro-rata basis, the only unit that looks suspect is the Service Provider business(switch network).

For me ECK is definitely a business where the parts are worth more than the sum – and that makes the company (or parts of it at least) a very attractive proposition.

Take the smallest unit, Freecom, and compare it to IOM, a larger but similar company with similar levels of profitability. Using a like-for-like valuation Freecom could be worth as much as £2m.

Symphony - a stable business with £20m pa sales but going no-where fast - would be an excellent morsel for a larger predator looking to reap economies of scale. Any larger telecoms provider could easily strip-out 20-40% of the annual op expense (amalgamate sales teams, service centre, billing etc) and deliver results to the bottom-line. So what price for Symphony and its 6000-ish business customers? I’d conservatively suggest a range of £5-10m.

Notice that we haven’t even taking into account the “growth” businesses – IVR and Speech Solutions. With combined sales of £35m+ pa delivering op profits of £3m pa (or approx £1m pa if you want them to bear their share of the central costs) – what price would you pay for their blue-chip client base, eh? I’d suggest a range of £10-£20m.

I think there’s gold in ‘em ECK hills – just waiting for someone to dig it out!