UK Small Caps

LONDON (ShareCast) - Datong is at its highest in 11 weeks despite a full-year loss after the intelligence gathering equipment maker reported record first quarter order intake.

A £1.96m profit in 2008 turned into a loss before tax of £1.75m in the year ended 31 March 2009 due mainly to a 39% slump in sales to £6.51m.

The firm, whose products help governments track "hostile targets" such as drug traffickers, terrorists and organised crime, blamed patent litigation, the change in administration in the US in November last year and general budget tightening within the law enforcement sector.

But investors focused on upbeat comments on current trade. "The 2010 financial year has started extremely well with a record first quarter order intake of £2.6m (2008: £0.5m) being achieved," the group said.

Broker Canaccord Adams is forecasting a rebound in sales to £11m this year and a return to profitability, albeit still modest.

Annual sales were up a touch in the UK this time to £3m, but fell from £3.3m to £1.3m in Europe and from £4.1m to just £1.9m in the US.

Personnel changes following President Obama's election win caused delays in the release of budgets within the US market, leading to "significant" weakening in US federal and military business compared to previous years.

But Datong is seeing signs in the US that budgets are starting to be released again, with order intake of £1.1m in the first quarter of the current financial year.

"Although budget conditions remain tight in the law enforcement sector, there are encouraging signs that the major adverse impacts from 2009 are largely behind us," it said.

The group is approaching 2010 with "cautious optimism".

India is set to become a focus for the current year. New chief executive Dean Blood told Sharecast that Datong will embark on a tour of Indian military and law enforcement agencies in September and beef up its exhibitions presence.

Progress is more advanced in the Middle East, but it's still "early days". Blood says he has it on good authority that the firm's products will be well-received in the region.

There's no dividend this year.