In results for the six months to 31st May 2010 marketing agency Chemistry Communications posted an 11.1% increase in pre-tax profits to £613,000. The result was driven by a 3.5% increase in fee income to £6.47 million and a 0.3 percentage point increase in the operating margin to 14.6%.

The firm’s overdraft stood at £1.47 million at the period end, with interest costs for the half covered 15 times by operating profits. Net current liabilities were £2.1 million but the company has operated in this manner successfully for a number of years. No cash flow statement was provided with the results but the firm said that operating cash flow was “strong”.

During the period Chemistry saw overall turnover decline, by 8.4% to £8.84 million, but a growing focus on the provision of digital services, which have lower pass through costs, helped to grow the bottom line. The results are all the more impressive considering that interims last year showed a doubling of pre-tax profits and that the wider marketing industry continues to face significant challenges. Encouragingly, the firm said that the trading outlook remains good for the rest of the current financial year.

At a mid-price of 13.25p the company is capitalised at 4.43 million and trades on a historic multiple of just 4.8 times. That looks very cheap for a business which has proved it can grow during a recession, has posted a cracking set of interims and which has a comfortable debt position. Buy.