This stock was originally tipped in the Small Cap Shares Newsletter in March 2009, when the price was 54p. If you'd invested then you could be looking at capital gains of over 278% plus substantial dividends! Right now, despite the large gains already realised, the experts at Small Cap Shares believe there is still further to go. With continued strong performance and solid fundamentals, the team still rate this stock a "buy".

In the latest issue of Small Cap Shares, out next week, the team will be publishing 3 brand new recommendations on small cap companies they believe have fantastic potential, as well as providing updates on previously tipped stocks and lots more.

To get all this in a 20-page newsletter delivered to your door by first class post - and receive online updates on all tipped stocks - join Small Cap Shares now.

The Business

Chime Communications (CHW) is one of the largest UK listed marketing services providers. The company operates through three main divisions, which contain 36 agencies located throughout the world in the UK, Europe, the US, South Africa and the Middle East. Recent high profile activities carried out by the company include the promotion of the London 2012 Olympics, the re-launch of the new football pools and the launch of various alcohol awareness advertising campaigns on behalf of the Department of Health and the Home Office.

The Public Relations division is headed up by flagship brand Bell Pottinger, a group of 25 companies operating in the public relations, corporate responsibility and design industries. Rated number one in the league tables of industry bible PR Week for the past four years, Bell Pottinger focuses on the financial, public affairs, branding and sport and sponsorship industries, and has offices located in the UK, Europe, the US and the Middle East. The division also owns public relations businesses Good Relations, Harvard and Insights, as well as a few smaller agencies. During the last
interim financial period the division generated just over half of group operating income, and served more than 600 major UK and international brands, as well as governments, government departments, pharmaceutical and healthcare companies, charities,
not-for-profit organisations, professional service firms, consumer brands and famous people.

The second largest division by operating income is Advertising and Marketing Services. The division is headed up by VCCP, a group of companies which provide advertising and marketing services. These are supported by several specialist agencies including the sports media agency Fast Track, financial services agency Teamspirit and media buyer Pure Media. Areas of speciality across the division include direct marketing, digital communication, sponsorship exploitation, point of sale, sales promotion and specialist media planning and buying.

Finally, the smallest division by operating income is Research & Engagement. Six companies make up the division including research consultancy Opinion Leader, market research business Facts International, ethnography business Naked Eye and digital research business Caucus.

Financials

The company recently released a very strong set of results for the six months to 30th June 2010 on the back of a record first half for new business activity. Despite reporting a small 1% decline in revenues to GBP135.8 million, underlying pre-tax profits soared by 39% to GBP12.3 million as Chime benefited from a 180% improvement in operating margins to 18.1%. Adjusted earnings per share grew by 8.1% to 12.02p as exceptional costs relating to acquisitions and shares issued to fund its takeover strategy weighted on the bottom line. In other good news, shareholders were rewarded with a 15% hike in the interim dividend to 1.84p per share.

During the half Chime generated GBP11.1 million from operating activities ending the year with net cash of GBP5.5 million, up from the GBP4.8 million held at the 2009 year-end. As per normal the company finished the period with net current liabilities - of GBP21.9 million - down on the GBP30.8 million figure at the year-end. It has access to a GBP32 million bank facility to meet working capital needs.

During the period, the group acted for 1,353 clients, with its subsidiaries working on noteworthy transactions such as Korea National Oil Company's bid for FTSE 250 explorer Dana Petroleum, Qatar Holding's acquisition of iconic department store Harrods and Emirates Airline's sponsorship of the 2010 Fifa World Cup. Other operating highlights included the purchases of data analytics provider Tree (London) Limited and Pelham Public Relations.

Revenues at the group remain diversified with its top 30 clients representing 48% of income against 57% in the same period of 2009. Furthermore, Chime continues to offer very good revenue visibility with 91% of the group's 2010 operating income already secured.

Chime sees the UK economy as being in recovery mode but views growth prospects as being better in in operations away from home. Encouragingly its UK public sector exposure is limited as well with expenditure from UK government clients expected to be under 1% in the current year.

Trading since the year-end has been healthy with the business finishing the first two months of the second half ahead of budget and expressing confidence about its full-year performance.

Evaluation

This is another impressive set of results from Chime. Broker Canaccord Genuity, which has a 266p target price, increased forecasts on the results and now expects the business to report adjusted earnings of 21.5p in 2010 rising to 23.5p next year. This places the company on a current multiple of 9.5 falling to 8.7 with the shares offering a current yield of 2.9%.

In light of the impressive revenue visibility, limited public sector exposure and the good start to the new year, we continue to be bullish about the company's prospects.

The shares have performed strongly over August rising by over 20% to the current level. However, the strong outlook (which notably doesn't contain the ever-present phrase on uncertain economic conditions) means that we continue to be positive about its prospects. We remain well ahead on our 54p March 2009 tip but with full-year results likely to act as another catalyst for the shares we believe there are still capital gains to be had. We would also like to point out that investors who got in at our buy price should enjoy a yield of over 10% this year. BUY.

For more top tips like this from the expert team at Small Cap Shares, click here.

For just 90 pounds a year by direct debit (108 pounds by credit/debit card), Small Cap Shares offers a monthly newsletter with 3 new small cap tips, updates on previously tipped stocks, comment on IPOs of interest and a full performance table for all tips. To get all this, plus regular tip updates on the website, join Small Cap Shares now.

* The value of investments can go down as well as up. Past performance is no guarantee of future success. Investing in equities can lose you part or all of your capital. The tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the recommendations contained here should seek independent advice. By their nature investments in small cap stocks can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares. Small Cap Shares and UK-Analyst.com define a smaller company share as any stock traded on AIM or PLUS or which has a market capitalisation of less than GBP300 million.