A confident trading update from electronics repair specialist Regenersis (RGS:AIM) helps to revive the share price, up 1.7% to 312p. The running Shares Play of the Week says it has achieved double-digit sales and profit growth. Cross-selling efforts are clearly working and it continues to win new contracts around the world.

While investors may be disappointed to see half-year net debt above market forecasts, it is important to remember that businesses growing as fast as Regenersis will always need lots of working capital flexibility. Before Christmas the small cap increased its banking facilities with HSBC from £23 million to £39 million to give it more headroom for both organic and acquisitive growth.

Today it says net debt is higher than expected due primarily to working capital investments in the Advanced Solutions division which undertakes set-top box fault diagnostics.

Working capital is the big risk surrounding support service companies. The sector often has to pay staff or contractors for a long time before it gets paid by the client. New contracts often incur large start-up costs, such as hiring extra workers or getting extra equipment. It is therefore good that Regenersis has secured extra funds, but investors should not take their eye off this subject area. The company has big growth aspirations as it will need to ensure it has the necessary working capital arrangements to achieve these goals.

RGS - Comparison Line Chart (Rebased to first)

The group is focusing on larger, higher-value contracts. That includes getting more work from existing clients which is certainly evident in the new trading update. Cross-selling successes include taking its business-to-business activities into the US with an existing European customer. This will lead to the opening of its first US depot facility in Memphis in the spring. Regenersis has also managed to get a large existing mobile client to use its South Africa depot services.

Coinciding with the trading update is news that Hanover Investors has sold an 11.75% stake in the business. The activist fund bought into Regenersis several years ago to influence a turnaround programme. That's clearly worked, so Hanover is cashing in a chunk of its investment. It is still left with 10% of the issued share capital.

We last wrote on Regenersis on 12 December, saying to buy into the share price dip following a strong rally. Central to our bull stance in the article is the company's attractive prospects given its strong infrastructure, growing client base and clear opportunity to expand geographically and replicate its successful model business.

Panmure Gordon adjusts its target price from 402p to 394p following the update. Cenkos Securities retains its view 'that the shares can track towards 400p this year backed by a number of contract opportunities in the short-term and a longer-term management ambition to develop an innovative mobile device refurbishment business with higher IP and margins.'

If you want to hear more about Regenersis and a host of other technology-led firms, Shares is running a free event next month in London in partnership with Cenkos Securities. Regenersis is among the companies presenting on 4 February. You can get more information and register to attend here. Other companies appearing at the conference include Earthport (EPO:AIM), Quindell (QPP:AIM), Globo (GBO:AIM), InternetQ (INTQ:AIM) and Optimal Payments (OPAY:AIM).

Issue Date: 14 Jan 2014