Cost cutting on the part of clients during the recession had a harsh impact on full-year trading at communications consultancy Argyll Consultancies. The group experienced a 7.5% fall in turnover to £1.86 million in the 12 months to 31st March 2010 as small and large customers reined in their public relations expenditure. Rising administrative expenses also hit the bottom line, resulting in a 42% decline in underlying operating profits to £94,000. However, earnings per share fell at a much larger rate of 82% to 1p as the previous year’s exceptional income of £0.2 million no longer benefited the accounts. No dividend was declared for the year as the company opted to conserve its sizeable cash balances .

During the year the company generated £0.12 million in cash from operating activities, which further strengthened its already formidable balance sheet. As at 31st March 2010 net cash was £0.79 million, net current assets were £0.58 million and tangible net assets stood at £0.55 million.

In its annual report the business stated that it expected conditions in its markets to remain “incredibly competitive”. While it does not have a significant roster of public sector clients Argyll Consultancies warned that the uncertain economic outlook and looming public sector cuts meant that businesses were monitoring their spending closely. No details about trading since the year-end were released.

At a mid-price of 5p Argyll Consultancies is valued at just £0.31 million – a 61% discount to year-end net cash resources and a substantial 44% discount to year-end tangible net assets. For a profitable, cash generative company to be valued at considerably less than its cash holdings is ludicrous. Even though the group is pessimistic about the state of the economy the valuation anomaly and the paltry historic multiple of 5 means that these concerns are more than priced into the shares.

However, investors should be aware that trading in the group’s shares is highly illiquid. Besides the large 4.5/5.5p spread the company’s stock was last traded way back in November 2009. But even though there are obstacles to an investment in the company, the ludicrous rating (which currently values the operating businesses at less than nothing) makes the share worthy of a buy.