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HB Markets Daily Smallcap Newsflash including:Forbidden Technologies, smartFOCUS, Netcall, DDD Group and others
DDD Group (DDD, 19.25p, £23.35m) Interims for the provider of software converting 2D to 3D are in line with management expectations. The 3D market has gained substantial momentum over H1 and the group have clearly benefited from it. Over a million units of the TriDef 2D to 3D conversion solution were shipped by licenses in the TV and PC market versus 0.1m units shipped at the end of 2009. In H1, the group changed its revenue model from monthly recognition up-front license fees to quarterly royalties generated. In H1 2010 revenues remained flat £0.72m, but tighter cost control drove adjusted pre-tax losses to decline by 40% to £0.26m (H109: £0.43m). Following a £3.4m fundraising in June 2010, net cash stood at £3.4m (H109: £0.27m). We are disappointed by the delays to essential third party PC graphics hardware, which will lead to the likely slippage of OEM TriDef sales to 2011. The delays are expected to be resolved in Q42010. Full-year revenues are now expected to be in region of £1.4m-£1.6m against previous expectations of £3.5m. We thus expect losses to widen. Fundamentally DDD is overvalued. However the group is very well positioned to capitalise on the 3D wave. We believe there is a hidden asset on the balance sheet for the goodwill of the product software. The 3D market has escalating and DDD has the right relationships and products to benefit from it. In our opinion, the 3D market will continue to gain momentum. We anticipate the group will win substantial new orders in the coming year. We reiterate our SPECULATIVE BUY recommendation. (Amisha Chohan)
Forbidden Technologies (FBT, 23.5p, £20.70m) Interim sales increase to £0.17m (£0.14m) with gross profits of £0.16m (£0.13m) with maintained gross margins of 94% offset by op costs up to £0.22m (£0.16m) leading to an increased op loss of £0.05m (£0.03m) we do not believe reflect the increasing acceptance of the cloud based video editing and distribution software. The group reports it is making good progress with major international partners, we believe it was not a leap of faith to demonstrate the software on a Nokia smart-phone but a way of highlighting the forthcoming surge of video in consumer goods. With the potential of deals in the TV/film and mobile phone arena we still maintain the SPECULATIVE BUY recommendation. (Julian Tolley)
Geong (GNG, 35p, £13.24m) In its AGM statement Geong has highlighted the launch of a number of new products, including those on its SaaS platform. It has also reminded investors H1 is traditionally the weaker and it has maintained tight cost controls while focussing on its working capital. We drop the recommendation to a HOLD till the interim results are released to ensure the group has sufficient working capital as it does consume cash on growth. (Julian Tolley)
Nasstar (NASA, 6.75p, £2.41m) intY Limited, an aggregator and global distributor of software as a service applications, has become a distributor for Nasstar’s Hosted Desktop cloud computing service. With a 3 year agreement and a target of 10,000 hosted desktop subscribers this could be very material for Nasstar that had a total user base of 9,649 at March 2010. We maintain the SPECULATIVE BUY. (Julian Tolley)
Netcall (NET, 12.50p, £15.28m), the provider of customer engagement software, reports prelims to 30 June 2010 are broadly in line with market expectations. Adjusted PBT increased by 23% to £1.02m (2009: £0.83m) on a 5% increase in turnover to £4.13m (H109: £3.93m). Currently 83% (2009: 78%) of revenues are recurring, typically from hosted platforms and maintenance and support agreements. The strong recurring revenue provides the group with excellent visibility. The group is well placed to withstand any further downturn. The recent acquisitions will bolster revenues from the broader product portfolio, the cross selling opportunities and the cost synergies. The business is debt free with net cash of c.£4m to date. Netcall continues to seek organic and acquisitive growth in the fragmented market to enhance greater presence and efficiencies. The outlook statement is positive. The market forecasts 2011 PBT and EPS estimates of £1.4m and 2.2p respectively. We see the valuation as attractive, trading on a 2011 PER of 5.7x, an unjustified discount to the sector. The strong recurring revenues encourages us to upgrade our recommendation to a BUY with a one year target price of 18.7p – equivalent to 8.5x prospective PER. (Amisha Chohan)
smartFOCUS (STF, 13.50p, £12.88m), has secured another new contract to provide multi-channel marketing software to Page and Moy Travel Group. The contract highlights the need for companies to acquire software to enables internal departments to deliver and drive business forward, while eliminating the time and costs of external consultants or resources. The small drift in the share price has encouraged us to adjust our recommendation to a BUY and retain our target price of 15p. (Amisha Chohan)
WYG Group (WYG, 31.35p, £11.03m) Finals to June 2010 cover a period of restructuring with revenues declining to £220.62m (£261.63m) and adjusted op profit of £7.15m (£16.98m), a finance cost of £5.12m (cost £4.87m) leading to an adjusted loss before tax of £3.09m (£9.2m) with exceptional costs of £23.8m. The group ended the period with net debt of £33.88m (£85.35m) following the conversion of £52.9m of debt into shares and preference shares. Engineering saw revenues of £53.41m (£76.57m) with op profits of £1.43m £2.08m), Management Services revenues of £24.95m (£28.59m) with op profits of £1.30m (£3.25m), Environmental Planning Transport revenues of £45.50m (£53.82m) with op profits of £3.30m(£6.33m) with the UK rail business sold in June, Ireland revenues of £32.70m (£52.14m) with op losses of £0.22m (op profit £3.77m) but has been downsized and International revenues of £65.35m (£52.83m) with op profits of £1.34m (£1.55m) with a healthy international order book. Overall the order book is down at £215m (£260m). With little growth anticipated we maintain the HOLD recommendation. (Julian Tolley)
