HB Markets is an award winning stockbroker and who offer share dealing services for private clients, experienced investors and companies. HB Markets specialise in the small cap sector.
These are flash views from HB Markets PLC and are not investment advice. Please ensure that you have read and understood the risk warnings below or by clicking here.
Hoodless Brennan Daily Small Caps Newsflash including Proventech, Supporta, Hyder Consulting, Armour Group, Earthport and others
You can receive this report by email in the morning by clicking here.
BlueStar SecuTech (BSST, 22.5p, £16.4m).The provider of digital video surveillance solutions in China announced its interim to 30 September 2009. Revenue for the period of RMB 67.3m (2008: RMB 80.6m). Software based revenue increased 2.8% to RMB 12.5 m (2008: RMB 12.2m). Gross Profit for the period was RMB 38.0 m (2008: RMB 40.6m), while average Gross Profit margin increased to 56.5% (2008: 50.5%) probably as a result of software mix and resultant net profit for the period was RMB 7.3 m (2008: RMB 12.6m). The company has cash at period end of RMB 49.3m (2008: RMB 67.0m).While interims are well behind the comparatives new business realisation, especially that anticipated for December means that the company is confident of achieving its revenue and profit targets for the year to March 2010. We have previously been holders at 25.5p (20/10/09) which still seems around a reasonable valuation for these shares which have since weakened. The company would be trading at 7x FY EPS of 3.7p at 25.9p. We upgrade to BUY.
Digital Marketing Group (DIGI, £55m, £37.1m). The UK's largest digital marketing agency announced interims to 30 September. These were resilient results against a difficult backdrop with revenues of £24.7m (against £26.5m) and gross profit of £18.7m (against £17.4m). EBITDA before share based payments of £3.6m (2008: £3.9m), PBT of £688k against £998k last year. Digital agencies have shown strength with e-commerce particularly strong with a 34% increase in PBT. The data business which has a focus on the financial services industry sector has been more adversely affected with a £3.4m fall in revenue. However, the group has reduced cost by some £2.3m and there has been a pleasing reduction in net debt (this rose to £9.4m due to acquisitions in 2008 but was reduced by £3.4m to £6m). A number of recent client wins bodes well (Berghaus, Sony Ericsson, Royal Mail etc). Going forward the group cites market research suggesting 94% of marketers expect to spend more online in 2010 when the financial services sector should also be on a firmer footing. We have previously been wary on DIGI due to cautious statements and its financial services exposure. However the backdrop of an improving PBT run rate, lowering debt and a cautiously optimistic forward statement mean that the FY EPS estimate of 7.5p looks achievable if demanding (last year was heavily H2 weighted). At a P/E estimate of 7.3p the stock trades on 7.5x. There must be some residual uncertainty on this year’s estimates yet it is time to look further out and upgrade to BUY with a price target of 64p on the basis of 8x FY 2010/11 earnings.
Hyder Consulting (HYC, 247.25p, £93.42m) Interims to September 2009 saw revenues increase by 3.1% to £156.3m (£151.6m) with underlying PBT of £7.70m (£7.88m), adjusted EPS of 15.0p (16.3p) with an interim DPS of 1.5p (1.35p). The group reports it has an order book of £352m, part of which secures some 60% of the next 12 months forecast revenues. Investors should note that some 72% of revenues are generated overseas – so the group is enhanced by further Sterling weakness. One area not moving in the right direction is net debt that rose to £16.2m from £5.7m at the end of March following redundancy and property provisions of £6m, special pensions contributions of £1m and seasonal working capital movements. The group however has unused banking facilities of some £41.4m, with the first renewal out in April 2012. UK/Europe saw revenues down 7% to £60.6m (£65m) with adjusted operating profits of £1m (£4.2m) as the UK suffered from the downturn in the property and residential markets – offset partially by transportation in both the UK & German transportation and utilities. Asia Pacific saw revenues up 5% to £45m (£42.9m) with adj. Op. profits up 96% to £4.9m (£2.5m) following Australia reducing its cost base and Government stimulus package boosting workloads in the property and transport sectors. Asia saw a boost from projects, such as MTR in the transport sector, though Vietnam was called back and the Chinese operations refocused. The Middle-East saw revenues rise 16% to £50.7m (£43.7m) with adj. op. profits up 3% to £3.7m (£3.6m) though Dubai operations were scaled back and the group has warned that debt collection remains challenging. The group remains happy with market expectations of £14m with 30.5p EPS – putting the group on an 8.1x prospective PER. We remain a BUY with a 300p target price.
Armour Group (AMR, 16p, £10.96m) Finals to June 2009 saw revenues of £51.6m (£54m), PBT of £1.1m (£3.5m), EPS of 1.4p (3.7p), DPS of 0.3p (0.65p) with debt reduced to £4.9m (£8.9m). The group’s key markets of electrical retailing, house building and automotive were some of the hardest hit so this is underlying a good performance. More encouragingly the new year has started well with both revenue and profit is “comfortably” ahead of the previous period. To offset the impact of its markets declining the group cut costs, expanded its operations in Scandinavia, launched a “small office home office” range of furniture and expanded its new products including add-on sound systems for flat screen TVs. Forecasts of £1.8m PBT with 2p EPS put the group on an 8x prospective PER, offering some upside to the 10p, BUY.
Clarity Commerce (CCS, 40p, £15.5m, BUY). The provider of software to the hospitality, retail, leisure and entertainment sectors saw good progress in H1. Revenue up 10% to £8.8m (2008: £8.0m), PBT doubled to £603k (2008: £300k). Of the post balance sheet raise of £2.7m, £1.5m was used to settle part of the deferred earn out which looks to leave around £2m, but this should be broadly covered by remaining cash. The company is H2 weighted and expected to deliver £1.8m of PBT and 4.8p of earnings which is demanding. However, clear benefits of operational gearing are in evidence here. The group grew turnover by 10% but corresponding operating costs increased only 4% and this should have a more geared effect H2 to which the group is weighted (c.54%, FY 2008/9). There was strong performance across Retail with major contract wins (Associated Food Stores, Coop Denmark, London Drugs). Leisure made good progress with existing customers. Entertainment added another 120 automated ticketing machines. Hospitality rolled out of 43 sites for Oxford Hotels and Inns + 17 new sites. The group cites a robust pipeline with several significant pilots running. N.B. we incorrectly stated on 28/09/09 that the group was trading on 11.1x P/E perspective as opposed to 9.4x. The company looks good value in light of the evidence of progress and the shored up balance sheet and we would recommend a BUY up to a target price of 47p, which is 10.5x FY estimates.
Proventec Plc (PROV, 56p, £8.6m, SPEC BUY). The specialist provider of specialist steam cleaning and coatings technologies announces interims to 30 September 2009. Turnover of £8.0 million (2008: £8.2 million). Gross profit maintained at £3.4m, with loss slightly accelerated at £1.0m (2008: loss of £649,000). The company raised £1.5 m through a share placing. The 6 months have been encouraging, despite the current difficult trading conditions and the group is focusing on effective cash management having relocated facilitates under one roof in Rotterdam . The strategic acquisitions are also beginning to show financial benefits. The group warns that the general economic climate and cash constraints may restrict growth and this is certainly evident in the H1 performance. However there remain some potential blockbuster deals in the pipeline. Cryojet, the specialist, industrial cleaning using steam and proprietary dry-ice technology has, in the last two weeks, completed a specific cleaning project now being evaluated by a major petroleum producer in Rotterdam, with a view to recommending the adoption of its cleaning systems on a global basis. With Mexican petroleum authorities also been in attendance it is hoped that success in this trail will be major vindication and lead to a significant market opportunity. OspreyDeepclean is undergoing a fully funded clinical trial with the Durham and Darlington NHS Trust. Proventec is somewhat highly geared and EV/to sales looks to be about 1/1. The company is looking at converting or paying loan notes which are a bit of an overhang at present (£2.8m fall into this year with cash of £4.8m at the period end) and present a real concern. This not inconsiderable issue aside in pure operational cash flow terms the immediate future looks reasonably secure. We maintain our SPECULATIVE BUY on the basis of potentially of large contract wins.
Supporta (SOR, 27p, £23.34m) Interims to September 2009 saw overall revenues grow 1% to £26.13m (£25.91m),pre-tax profits from continuing operations of £1.17m (loss £0.57m) with EPS of 1.6p (0.74p). Supporta Care’s domiciliary care operation has won 3,520 hours of new contracts during the period and has had a 100% retention rate since March 2009. Operating margins have risen to 11.1% (10.6%) with organic growth of 6% on revenues up 2%. Supporta’s Terraquest and Datacare, the land & property consultancy and the records management, has seen Datacare improve profitability to £0.04m and a healthy first half from Terraquest with operating profits up to £0.66m (£0.59m). Talks regarding an offer for the group are on-going – though the management does stress there are no guarantees. The shares have doubled since our Buy recommendation on 23/06/09 and we move the group to a HOLD, noting it is on a 8.4x prospective PER.
Earthport (EPO, 24.5p, £21.69m) Zink Financial has entered a franchise agreement with Earthport and paid non-refundable first year fee of £3.25m for the Central America, South America and Caribbean territories. Final terms will be signed early in 2010. We maintain our HOLD recommendation given 2 years of losses forecast and lack of clarity on funding for that period.
Forbidden Technologies (FBT, 20p, £15.82m) Has announced CTVC is using the on-line editor suite, FORscene, for its ITV shows. We last recommended the shares as a Hold at 26.5p on 10/09/09, but we are moving theshares to a Sell as we see better value elsewhere in the market, SELL to the 10p level.
HB MARKETS DISCLOSURES
- The analyst may have a personal holding of the securities issued by the company, or of derivatives related to such securities.
- HB Markets plc or an affiliate may own more than 5% of the issued capital of the company.
- HB Markets plc or an affiliate may be party to an agreement with the company relating to the provision of corporate broking services, or has been party to such an a greement within the last 12 months. Our corporate broking agreements include a provision that we will prepare and publish research at such times as we consider appropriate.
- HB Markets plc or an affiliate may have been a lead manager or co-lead manager of a publicly disclosed offer of securities for the company within the last 12 months
- HB Markets plc may be a market maker or liquidity provider in the securities issued by the company
Please check with our advisers 020 7382 8384 if you are concened with the above material interests prior to acting upon this information.
RISK WARNING NOTICE
All investments are speculative and prices may change quickly and go down as well as up. Past performance will not necessarily be repeated and is no guarantee of future s uccess. There is an extra risk of losing money when shares are bought in some smaller companies including “penny shares”. There can be a big difference between the buying price and the sel ling price of these shares and if they have to be sold immediately, you may get back much less than you paid for them or in some circumstances, it may be difficult to sell at any price. It may also be difficult for you to obtain reliable information about the value of this investment or the extent of the risks to which it is exposed. Where a company has chosen to borrow money (gearing) as part of its business strategy its share price may become more volatile and subject to sudden and large falls. This investment may not be suitable for all investors, and clients should carefully consider their own personal financial circumstances before dealing in the stock market, particularly those on fixed incomes or approaching retirement age. If you have any doubts you should seek advice from your investment adviser or your broker at this firm.
AIM: The Alternative Investment Market (AIM) is market designed primarily for emerging or smaller companies. The rules of this market are less demanding than those of the official List of the London Stock Exchange and therefore companies quoted on AIM carry a greater risk than a company with a full listing.
MATERIAL INTEREST
We endeavour at all times to ensure that our research is clear, fair and not misleading, however, we do not hold our research out as being impartial and it should not be v iewed as wholly objective since HB Markets plc (including its parent company and its subsidiaries, their directors, officers or employees) may have or previously held a material intere st in the company which is the main subject matter of the research note, or any other company mentioned, and may be providing or have provided within the previous 12 months significant advice or investment services in relation to any company or a related company referred to in this document, or any other associated document. This document has been prepared and issued by HB Markets plc on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst all reasonable care is taken to ensure that the facts stated are accurate and the opinions given are fair and reasonable, neither HB Markets plc nor any director, officer or employee shall in any way be responsible for its contents. This document is intended to provide clients with information and should not be construed as an offer or solicitation to buy or sell securities.
Register here to be notified of future HB Markets articles.
Other HB Markets news
-
12/03/10 HB Markets Daily Smallcap Newsflash including 1PM, Avesco Group, DQ Entertainment, Luminar and others
-
11/03/10 HB Markets Daily Smallcap Newsflash including AFC Energy, EG Solutions, Raymarine, Tikit Group and others
-
10/03/10 HB Markets Daily Smallcap Newsflash including Aminex, Caretech, Regenersis, Vialogy and others
-
09/03/10 HB Markets Daily Smallcap Newsflash including Advanced Medial Solutions, Essenden, Rok Group, St. Ives and others
-
08/03/10 HB Markets Daily Smallcap Newsflash including Avacta, Cryptologic, Renewable Energy Holdings, Straight and others
-
05/03/10 HB Markets Daily Smallcap Newsflash including Boomerang Plus, Eleco, Fiberweb, Media Square and others
-
04/03/10 HB Markets Daily Smallcap Newsflash including AssetCo, Hydrodec, Maintel, Serabi and others
-
03/03/10 HB Markets Daily Smallcap Newsflash including Avacta, Cashbox, Lighthouse Group, Neovia Financial and others
-
02/03/10 HB Markets Daily Smallcap Newsflash including Coms, Cryptologic, Cyril Sweett, Travelzest and others
-
01/03/10 HB Markets Daily Smallcap Newsflash including Abbeycrest, Arena Leisure, E2V, Nexus Management and others