Blackfriar: Pace boxing clever as company regains its momentum

Profits up 46 per cent, revenues still ticking up despite the lingering effects of a supply squeeze and net debt halved.

Perhaps the market over-reacted when three profit warnings forced out Pace’s top management and sent shares plunging. From a low of 43.5p in late 2011 they are now worth 231.9p.

A recovery in its share price was always on the cards when former Asda CEO Allan Leighton took over as chairman. He instilled some simplicity and discipline and helped regain investor confidence.

But more important for the long-term future of Saltaire-based Pace is how it addresses the changing home entertainment market.

Chief executive Mike Pulli was measured in his optimism.

“We are fine – we’re not missing (technology) cycles; we’ve cleaned the company up; we’re innovating. You can always be better but I’m feeling pretty confident where we are,” he said.

He is pushing the company in the direction of software and services sales. They grew 7.6 per cent although still only make up less than one twentieth of the group’s revenues. Meanwhile, Pace is holding on to its number one spot in set-top boxes and gateways – devices which link to the internet.

“Pace’s markets have remained resilient during the year, with payTV continuing to show growth despite difficult global economic conditions and perceived disruptive threats from new OTT market entrants,” said the firm.

But the threats are more than “perceived”. In developed economies set-top boxes are a maturing market and Pace sees revenues this year being level with last year.

The number of tablet PC and smartphone users continues to surge. New high speed 4G mobile internet reduces the need for fixed broadband.

When Netflix and Skygo allow you to watch programmes via a tablet or mobile, why use a set-top box?

At best, Pace is making an informed gamble on the future of technology and home entertainment. For more advanced markets, it is plumping for media servers – high-tech units which link different devices in the home and connect to broadband. Sales of these are on the rise.

But the fact is no-one can be certain what the future holds. Mr Pulli is a “firm believer” in the need for a unit to link devices.

Pace’s long-standing relationships with media and telecoms giants such as BSkyB, Comcast, DirecTV and AT&T will be crucial to this future, as ultimately these are the companies which will mould the direction of technology and viewing habits.

Analysts at Canaccord Genuity said: “The set-top box market continues to defy expectations of a slow, lingering death. The emergence of the media server, combining the functionality of a set-top box and a gateway, is a major contributory factor to that resilience.

“Pace not only remains the number one global vendor but also the clear leader in innovation.”

While the future may be far from certain, Pace is regaining control of its destiny.

On the same day that the office of Fair Trading referred payday lending to the Competition Commission, doorstep lender International Personal Finance saw its shares shoot up 16.5 per cent.

Doorstep lending has already been cleared by the commission for offering a competitive service that is impossible to get elsewhere following the banks’ decision to withdraw from all but the safest of lending.

Leeds-based IPF said it wasn’t surprised that the UK regulators are planning tough action to crack down on irresponsible lending.

The group said that payday lending is predicated on a large proportion of customers not being able to repay the loans. This is factored into the model and a source of the large profits made by payday lenders.

IPF argues that its model has skipped payments factored in and customers will not be penalised when they miss payments. In addition payday lenders lend for just two to four weeks whereas IPF lends for 52 weeks or more. IPF was split off from Bradford-based Provident Financial in 2007. Both have continued a successful and profitable path during a period when rivals such as Batley-based Cattles have failed in spectacular style.

Yesterday IPF announced plans for a second listing on the Warsaw Stock Exchange. So does this mean a move away from the UK and the Leeds head office, especially following last year’s managerial job cuts?

IPF’s chief executive Gerard Ryan is adamant that the group will stick with its Yorkshire roots.

“We will keep our Leeds head office. We have a fantastic knowledge base in Leeds that we wouldn’t want to lose,” he said.

IPF is a good example of Yorkshire’s ability to successfully export its skills.