Invocas shares soared almost 40% yesterday as the debt solutions company appeared to have convinced investors of a turnaround in its fortunes.

Invocas shares soared almost 40% yesterday as the debt solutions company appeared to have convinced investors of a turnaround in its fortunes - even as it revealed a fall in profit and a £247,000 charge for paying off previous chief executive John Hall.

Invocas announced revenue of £9.88m for the year ended March 31, 16% more than the £8.54m it booked in the comparable period, the 54 weeks to March 31 2007. But pre-tax profits were down 13%, from £3.36m to £2.93m, when the impact of the pay-off and associated costs are included.

The company has been hit by an increased unwillingness of financial institutions to agree to what are known as trust deeds in Scotland, or individual voluntary arrangements south of the border. Both are alternatives to bankruptcy that allow an individual to pay off a portion of their debts over a set period, after which the remainder is written off.

It has also been affected by a fall in market share as referrals from its traditional providers fell away and it sought to generate more of its own business through a new marketing subsidiary, Newtomorrow.

But chief executive Stephen Lightley, who took over from Hall in April, said: "The number of trusts deeds in Scotland is down 10%, the number of IVAs in England down 20%. That does not in any way reflect the levels of personal debt, which are increasing all the time."

Lightley acknowledged there had been some "shabby practices" in the industry but also said banks were currently unwilling to make provisions on their balance sheets for writing off debts.

He pointed to an agreement between the British Bankers' Association and insolvency practitioners about the framework for IVA deals in February as a sign that the situation could soon improve.

The biggest boost to the company's prospects could come from the economic backdrop. Lightley said: "You couldn't find a better sector to be in at the moment from a business point of view. All the macroeconomic factors (are in the sector's favour): the difficulty in raising credit, house prices coming down, the need to meet ever-increasing food bills, the pressure of people coming out of fixed-rate mortgages facing high increases in rates."

Lightley said the profile of clients had changed as the credit crunch and economic slowdown hit.

"We are seeing an increasing number of white collar workers with reasonable incomes." He said that lenders' increasingly strict approach on mortgages and the house price slump meant many were no longer able to use home finance to sort out their problems.

"The middle classes are starting to feel the pinch," he added.

Invocas, which receives a proportion of the debt recovered from clients, has built links with a number of mortgage brokers and independent financial advisers to get referrals from those in such a situation.

It currently generates 85% of its revenue from trust deed work north of the border, but is seeking to attract more work arranging IVAs and less formal debt management plans south of the border.

"That is not to say it won't be an absolute core part of our work. What we do see is that there are opportunities for us south of the border."

The company also announced a maiden dividend of 2.5p a share.

Ben Archer, of house broker Charles Stanley Securities, upgraded the stock to a "buy".

"With our 2009 and 2010 forecasts broadly unchanged, we are increasing our recommendation to buy' from add' given the recent weakness in the share price.

"Our forecasts assume that the recent case momentum continues. Given the economic backdrop and £4.3m of cash, or roughly 35% of the market capitalisation, the shares look undervalued."

Invocas shares finished the day up 15p at 54p, their highest close since April.