In a strong set of final results to 31st March 2010 vehicle breakdown and insurance services provider NCI Vehicle Rescue reported a 93% increase in fully diluted earnings per share to 2.9p. The superb bottom line growth was a result of a 20% increase in turnover to £3.28 million and a dramatic increase in operating margins from 5.8% to 12.6%. Encouragingly, the firm also rewarded shareholders with a 0.5p dividend.

The company’s balance sheet was solid too, with year-end net current assets of £0.54 million and net cash resources of £0.34 million. Cash generation over the period was strong, with an inflow of £0.4 million from operating activities.

No segmental breakdown of its financial performance was provided however the firm stated that conditions in its Motor and Home Insurance division remained difficult due to the high cost of winning new business. The business stated that it was noticing a growth in renewal income in the unit that would help offset the increased cost of acquiring new clients. Conditions were better in its Breakdown Sales unit with its online presence continuing to drive growth and the firm looking to launch affinity programmes in order to achieve further growth.

Commenting on its outlook the group is hopeful of improving returns from its Vehicle Rescue Network following the expansion of operations into accident management and uninsured loss assistance. In addition, it expects its Sterling Rock subsidiary to turn profitable in the current year after identifying annualised cost savings of £140,000 per annum.

Aside from continuing to invest in its infrastructure the group hopes to bring a new database, that will facilitate cross-selling opportunities, live in the next quarter – a move that it believes could generate an additional £1 million of motor insurance sales. On the whole the business is confident about prospects throughout its activities adding that it was in negotiations on a number of schemes that would “add considerably to turnover and profitability” over future periods.

At a mid-price of 34.5p NCI Vehicle Rescue is capitalised at £3.4 million. The firm’s management has a very good track record of growing the business and we note that a number of catalysts for the shares exist in the form of further news about t“three major contracts under negotiations”. In addition we look favourable upon Chairman Richard Jackson’s decision recent investment in 105,000 shares (an investment of over £38,000) which is proof of management’s confidence in the company’s prospects.

At present the firm’s shares are valued on a fully diluted historic multiple of 11.9 and offer the bonus of a historic yield of 1.4%. NCI’s strong balance sheet coupled with the growth prospects across the business mean that we rate the shares as a buy.