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HB Markets Daily Smallcap Newsflash including: Synchronica, Redhall, Penna Consulting, Kellan Group and others

HB Markets Daily Smallcap Newsflash including: Synchronica, Redhall, Penna Consulting, Kellan Group and others

@UK (LON:ATUK, 9.375p, £6.58m) The report by the UK Government’ National Audit Office (NAO) that highlighted significant savings within the NHS should better purchasing strategies be adopted was supported by @UK providing the analysis services using the group’s SpendInsight Service. Clearly this could lead to further work with both the Government and commercial clients. We move the group from a sell (at 14.25p with a 10p fair value on 21/1/11) to a HOLD. (Julian Tolley)

ILX Group (LON:ILX, 25.5p, £6.88m) The provider of e-learning software and business training has won 2 contracts extensions with 2 major clients worth £0.1m, firstly for up to 100 employees of Logica in Holland and with Thomson Reuters for their UK staff. We move the shares from a Hold to a Speculative Buy with a 28.5p target price. BUY (Julian Tolley)

Infoserve (LON:INFS, 1.625p, £0.96m) has announced the decision to delist from Aim, which would trigger an automatic sell recommendation due to the lack of liquidity, but we have had that recommendation for some time. SELL (Julian Tolley)

Kellan Group (LON:KLN, 3.125p, £2.74m) As we feared, and the reason for our Sell recommendation, the recruitment group has announced a cash raise of £1.35m  with the issue of 16.975m new shares at 2p, plus the issue of £1.011m of unsecured convertible loan notes which carry a rate of 10%, have a 4 year term and can be repaid with 50% cash and 50% in shares at the price at either the lower of the 20 day average price or 2.5p.  The group has also agreed a one year holiday on its £9.4m loan facility which it had been repaying at £0.21m per quarter and which had £1.68m outstanding. The debt holiday is conditional on the group raising a minimum of £0.84m. The group has updated that the second half has seen a modest recovery with full year sales expected to be some £29.9m (£29.2m), with H1:H2 revenue split of £14.4m:£15.5m and has reached  EBITA breakeven. With finances now stable, a repayment holiday, and underlying net fee income increasing plus a recruitment drive we move the shares to a Speculative Buy, noting the low market cap to sales. SPECULATIVE BUY (Julian Tolley)

Maxima Holdings (LON:MXM, 107.5p, £27.16m) Interims to November 2010  from the IT business systems and managed services company saw revenues of £23.7m (£26.2m), gross profits of £16.06m (£17.88m), gross margins of 67.8% (68.15), lower admin costs of £13.43m (£14.94m) leaving EBITDA at a respectable £2.63m (£2.94m) given the tough market conditions. Adjusted PBT of £2.34m (£2.64m) gives 6.4p (7p) EPS with a held 1p DPS. The group ended the period with net debt of £11.59m (net debt £11.78m at the year-end), reflecting underlying cash generation offset by an adverse working capital movement of £1.20m. The group won 39 new clients during the period (58 in H1 2009) and reported 61% (60% in H1 2009) of revenues are recurring. Encouragingly the order pipeline is reported to be improving across all areas with bidding on a number of significant opportunities with both existing and new clients that would benefit H2 onwards if won.  Key drivers include cloud computing with an important relationship with IBM, aided by the group’s relationship with 50 internet service providers (ISPs), and its support enablement systems that are based on market leading technology from IBM, Citrix and Oracle. We are encouraged by the group’s resistance to chase margins down in the support arena and by today’s contract wins with Amtico International to host and manage core business IT applications and with Ryanair to support the business critical web booking application using Citrix’ web acceleration tool. With expectations of £4.8m PBT with 13.5p EPS looking safe and some recovery possible the group is looking cheap in a Yr 1 PER of 8x – we see upside to around 10x or a fair value target of 135p. BUY (Julian Tolley)

Penna Consulting (LON:PNA, 110p, £28.38m) A downbeat trading update from the human resources consulting group for the year ending March 2011 has highlighted delays in customer projects which result in profits “materially lower” than market expectations. The group has won 57 major outplacement contracts and is in advanced negotiations with a further 55 organisations.  Public sector bodies are reported to be carefully planning their actions – thus delaying implementation. The group itself has reduced headcount from 497 at the start of the year to 375 currently, which will deliver £5.7m annualised savings. The group has modest net debt of £0.6m with the only debt being a finance lease of £1.5m. We see forecasts declining to £2.6m recovering to £4.5m next year, with EPS of 6.1p rising to 11.9p, putting the group on a PER of 18x falling to 9.2x, still ahead of a rating where we would feel comfortable. An 8x PER would equate to 95p – sufficient to SELL still. (Julian Tolley)

Redhall (LON:RHL, 161p, £47.68m) AGM trading statement has highlighted the impact of the weather on Q1 trading, though the trading from the rest of the year will result in full year in-line with management expectations, though weighted towards H2. The Energy and Defence order pipeline remains strong and there are signs of a recovery in Process Control for H2. After a solid run we see the group as trading on 9x PER falling to 8X in the following year, we reduce the recommendation to a HOLD. (Julian Tolley)

Synchronica (LON:SYNC, 25.75p, £23.98m) The developer of push email and instant messaging services has acquired 11 carrier and OEM contracts and technology, including some patent protection, from Neustar NGM Services, primarily relating to instant messaging for a total of $0.251m. The contracts acquired include 11 with Tier 1 & 2 mobile operators, including Vodafone and Optimus (Portugal), SFR (France), Globe (Philippines, TIM (Turkey), Turkcell (Turkey), Hutchinson 3 (Hong Kong), Vimpelcom and Megafon (Russia) and 2 contracts with Tier 1 device manufacturers. Slightly worrying is the news the group needed to access short term funding in the form of a $1.5m loan that carries 1% a month with a bonus of 450,000 shares – so over a year the cost to the group would be 24%. While we maintain the SPECULATIVE BUY we highlight concerns on funding. (Julian Tolley)

Torotrak (LON:TRK, 21.75p, £34.99m) Trading update from the developer of innovative infinitely variable transmissions for the second half reports a strengthening outlook post the termination of the exclusive MTD relationship. The programmes with Allison Transmission and the European Truck and Bus manufacturer are nearing completion – which bodes well for the move into commercial sales. The board has announced a restructuring including a reduction in board numbers from 6 to 4 with the aim of saving an annualised £1.6m to £1.9m a year compared with the March 2010 base, the majority will benefit the new financial year from April 2011 onwards. We maintain the SPECULATIVE BUY recommendation. (Julian Tolley)



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