In full-year results to 31st March 2010 the web hosting services specialist Daily Internet reported strong sales growth across its operations, which to narrow underlying losses by 24.6% to £0.38 million. Group revenues soared by 26% to £1 million, however a 290 basis points fall in gross margins to 50.9% restricted the benefit to the bottom line. As such, pre-tax losses narrowed by just 14.5% to £0.75 million. However, losses per share narrowed at a much faster rate of 50% to 1p due to a 73% increase in the number of shares in issue in line with its April 2009 acquisition of Lambolle Partners.

During the year the business experienced an outflow of £0.39 million from operating activities, which had a severe impact on its finances. The group finished the year with just £81,000 in cash to service net current liabilities of £0.42 million. Net assets at the year-end stood at just £13,000 as another year of loss making trading ate away at shareholder funds. While its financial situation is worrying we should point out that the company has access to a £0.3 million drawdown facility to meet working capital requirements.

Speaking about its future plans the business said the emphasis would be on developing products that complemented its existing range and would help it raise average revenues per customer.

At the current mid-price of 5p Daily Internet is worth £3.06 million. While the group has made great progress in achieving top-line growth and keeping administrative expenses under control over year, its loss-making operations mean that its balance sheet is in a very weak position. Furthermore, with year-end net assets of just £13,000 (a figure inflated by £0.57 million in intangible assets) the firm’s shares look extremely overvalued for a business that is still a very long way away from breaking even. Sell.