Datong has rivals in its sights as group prepares for acquisitions

The Leeds-based group, whose devices help police and security services track criminals and terrorists' mobile phones, returned to profitability and said its growing order book gives confidence for the future.

Datong has suffered over the past 18 months from deferred orders, litigation and exporting licence delays.

But yesterday the group said an order logjam in the US, held up by the administration change in 2009, appears to have ended.

The election of Barack Obama in the US meant budgets were capped and orders postponed.

"We've always said the interest was there, the demand was there, and they just simply did not have the budget to buy," said finance director Stephen Ayres. "The signs are very strong that this is coming back. We're cautiously optimistic on the US."

Datong said the release of $630m of military budget in December has helped it notch up orders worth 2.5m from the US since then. The US has traditionally provided up to 6m in annual revenues compared with just 2.8m over the past year.

Shares rose seven per cent to close the day up 2.5p at 39.5p.

Chief executive Dean Blood said he believes further industry consolidation is likely, following acquisitions by defence giant Cobham.

"The important thing is Datong has to prepare for that," he said. "Datong sees a position for two to three players moving forward. Datong is up there alongside them."

He said the group, which ended March with net cash of 1.67m, is considering partnerships and acquisitions. Targets are dotted around the globe and must add new capabilities, but are likely to be relatively small and early stage companies.

"We would be very disappointed if we have not done any over the next six to 12 months," said Mr Blood. "We're not really interested in buying more of the same. It's about breadth."

Datong recently changed its year end to September 30 from March 31 to improve the reliability of its year-end forecasting and smooth out the lumpiness of orders.

It made pre-tax profits of 206,000 over the six months to the end of March, compared with a 128,000 loss a year earlier. Operating profits before exceptionals hit 524,000 against 151,000 a year earlier. Revenues increased by 48 per cent to 7.41m.

Datong's order intake increased by 63 per cent to 7.75m over the period. Its order book at the end of March stood at 2.73m compared with just 210,000 a year earlier. Combined with 3.7m of orders received in April and May, Datong is optimistic about the rest of its financial year.

It is ploughing investment into research and development to provide the next generation of surveillance tools, including smaller and more sensitive kit. The group also continues its expansion into expanding markets such as India, where increased terrorism means increased security spending. Analysts at house broker Canaccord Genuity said they believe the company has been substantially undervalued, and have a 50p target price.

"The key is what appears to be the unblocking of the US logjam," they said. "Datong has started to see the US market coming back. Datong remains one of the cheapest stocks in our universe... The market seems to be ignoring the mounting cash generation."

Man who was instrumental in firm's success

Datong's former chief executive and executive deputy chairman Brian Smith recently stepped down to non- executive after 12 years at the company.

Mr Smith, who led the Leeds-based group through a period of substantial growth and development, joined as sales director in 1998, progressing to chief executive in 2000, before becoming executive deputy chairman in 2009.

The group said he was "instrumental in making Datong a successful international business with a well-earned reputation in the market place".

Mr Smith said: "Following my 12 years at Datong, including 10 as chief executive, I have decided to retire as an executive director, but am delighted to move into the role of non-executive director. The group has an exciting future ahead of it."

Datong chief executive Dean Blood said the group was keen to retain Mr Smith's expertise and knowledge.

"it would have be very easy for Brian to ride off into the sunset but I told him he could not leave that easily," said Mr Blood.