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What a remarkable turnaround

PACE has spent the last 28 years quietly building set top boxes for pay-TV firms. After the explosion in satellite TV in the late 1980s, it probably thought its high-growth days were behind it; at the start of the last decade, it was teetering on the edge of bankruptcy.

That’s why yesterday’s results – which saw revenues break through the £1bn barrier for the first time – marked such a stunning turnaround. Things should improve further in 2010, with the company expecting single digit sales growth and slightly better operating margins, currently at 17.7 per cent.

As the world’s number two set top box maker, Pace is well-placed to benefit from the huge uptake of high definition (HD) TV and, to a lesser extent, 3D TV. Some are concerned that as HD becomes more popular, Pace will have to make cheaper boxes, pushing down the average selling price. Higher volumes and margins should offset that, however.

Pace is incredibly cheap, trading on around eight times consensus estimates for earnings in 2010, and that’s excluding its £74m cash pile, which works out at 24p per share. Buying opportunities are rarely this good.