ANNUAL results from Autonomy yesterday suggest that the company is beginning to hit its stride.

Investors who bought shares in the company when dot-com mania was at its worst may need persuading that Autonomy has enduring virtues, but in truth it always looked likely that Autonomy’s data-sorting software capabilities were strong enough to underpin long-term prosperity. The company has done very little except deliver impressive results through the booming and busting of the technology cycle.

Results for the three months to December 31, issued yesterday alongside the annual figures, showed the company to be profitable for the the 24th consecutive quarter. Investors would, naturally enough, prefer to see consistent growth across that period of time. However, Autonomy is a young company that has had to invest in development and marketing at a time when demand for technology was, for long stretches, lying flat on its back.

Sales and profits for last year, and the last quarter of last year, show tremendous growth and the trend may well continue. Autonomy has established relationships with target customers and, having tried and tested the technology, they may well decide to deepen the relationships. At present, companies that are using Autonomy may do no more than scratch the surface. Since the software is often embedded in operating IT systems, customers may find it easier to enhance kit by buying from an incumbent, rather than replace it.

Meanwhile, the quantities of unstructured data, such as e-mails and voice messages, is only likely to rise from here on. At the same time, Autonomy’s acquisition of etalk and Verity, for a combined total cost of £325 million, secures the routes to market. Companies sometimes make acquisitions in order to disguise failings in organic growth. Autonomy, it seems, is buying for reasons that are more wholesome. Given that Autonomy’s future costs are unlikely to rise at the same pace as sales, extra-special profit growth can be expected.

There is a chance that Autonomy will come up against a competitor, or suffer as its technology becomes outmoded. It also seems to have little interest in paying regular dividends, which may suggest that it has only limited confidence in its capacity to generate genuinely robust and sustainable profits growth. But it may also simply be being financially cautious, and that is no bad thing. Buy.

Albemarle & Bond

THESE have been ideal economic conditions for Albemarle & Bond, Britain’s biggest listed pawnbroker. A rocketing gold price and a flood of personal bankruptcies means that business is strong and highly profitable.

Albemarle accepts only gold jewellery as security for its loans, offering credit of about one third of the value of the goods. If the borrower fails to pay back the loan — the fate of up to one fifth of customers — then Albemarle cleans up.

Yet it also makes money on non-defaulting customers, typically charging £5 to £7 a month on a £100 loan. These are eye-watering rates of interest, though Albemarle has had to invest in systems and staff to process thousands of low-value transactions. The average loan is only £90.

Results yesterday for the six months to December show the formula working. Profits before tax rose 12 per cent to £3.34 million and income from the core pawnbroking business grew

21 per cent. Stripping out new branch openings, growth was still more than 11 per cent.

Retail sales — Albemarle is unusual in that its branches double as jewellery shops — were up 13 per cent, revenues from cheque-cashing were up 16 per cent and an unsecured lending operation made “a worthwhile contribution”.

Albemarle depends for the most part on the poor, people who don’t have access to conventional credit. That may leave some with a sour taste, but with a record 70,000 personal bankruptcies last year and more predicted, future demand looks assured.

Albemarle is expanding to meet that opportunity, through greenfield openings and acquisitions. It targets profits of £6.4 million before tax for the full year. The stock market has long since seen the attractions of the company. It floated on AIM at 11p in 1995, but the shares have soared to 175.5p. That puts the company on a multiple of 18 times the current year’s forecast earnings. This is deserved, but the shares are no longer cheap. There are risks, too. The formula may not transfer into new acquisitions. The move into unsecured lending ups the ante as well. Hold.

Serco Group

IT IS not quite a case of “another day, another chunky contract win by Serco”, but news of the sort delivered yesterday is not unusual.

It would also be a mistake to assume that the contract will be worth £1 billion to Serco, because the Ministry of Defence marine services contract is valued at £1 billion. It will add about £75 million a year to sales over the the next 15 years and so be worth £1 billion in total. Yet Serco will also have costs to shoulder. If you assume that the profit margin is slightly better than the Serco average, it will add £3 million to operating profits and boost current-year figures by 2 per cent.

One of Serco’s great strengths is that it has a broad spread of contracts. The fact that they stretch into the future is another boon. It makes the outlook reliably dependable.

There is a danger that the Serco share price has run ahead of itself, but the underlying quality of the business justifies the p/e ratio of 20 and the dividend yield of 1 per cent. Share-price growth may slow and could encounter some short-term slippage, but hold.

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