DDD Group (DDD, 32.25p, £35.8m), the 3D software and content company, reports prelims to 31 December 2009 are in line with consensus. Revenues increased by 138% to £1.4m (2008: £0.6m) and pre-tax losses reduced to £0.85m (2008: £1.4m). 2009 has been an eventful year. The January 2010 Consumer Electronics Show confirmed 3D will be a strong focus for most TV and PC makers this year. An increasing number of companies are seeking to incorporate DDD's technology in TV's or set-top boxes. DDD has implemented a tiered licensing strategy to lead to a range of licensees and royalty streams from a number of different 3D products destined for the consumer market. On a fundamental basis, the stock is very expensive. However, 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. The 3D market continues to gain momentum. We anticipate the group will win substantial new orders in the coming year. We retain our SPECULATIVE BUY recommendation.
GB Group (GBG, 26p, £22.24m) Trading update for the year ending March 2010 is encouraging with results expected to be ahead of the already revised expectations last November. Profit before interest, tax and share-based payments is now expected to be flat for the year at £1.2m. Like-for-like revenues will be some £22.2m (£23.5m) with better than expected gross margins at the DataSolutions business and cost controls protecting the profitability. Net cash ended the period at £5.3m (£4.5m). Still a HOLD.
Haynes Publishing Group (HYNS, 257.5p, £18.93m), a worldwide market leader in the production and sale of automotive and motorcycle repair manuals, reports trading in Q3 2010 was in line with the prior year. UK sales of automotive manuals were 10% ahead of the prior year and a strong seasonal publishing programme helped increase revenue in the Haynes Book Division by 21%. In Holland revenues for Vivid was 12% ahead of last year. The US market continues to experience difficulties with sales down 4% on the previous year. The group will continue to benefit from the weak sterling against the US Dollar. Net cash remains at around £2.4m. The outlook for the remainder of the year remains challenging. The market forecasts PBT of £7.1m, EPS of 29.2p and DPS of 15.5p in 2010 and PBT of £7.3m, EPS of 29.83p and DPS of 15.5p in 2011. The stock trades on a prospective 2010 PER of 8.8x and 8.6x in 2011 with a compelling yield of 6%. A dividend cover of 1.9x and net cash of £2.8m suggests the yield is sustainable. Despite the group achieving our target price of 250p from 28/01/10, we retain our BUY recommendation on a yield basis and increase our target price to 290p.
Individual Restaurant (IRC, 13p, £7.75m) Finals to December 2009 saw revenues of £53.3m (£52.5m), maintained gross margins and saw pre-tax profits of £1.3m (£1.8m) and net debt reduce to £12.4m (£15.8m). Trading for the first two months of the new financial year is ahead last year, despite the snow. However the group is seeing promotions led marketing from competitors that can be a threat. With 4 new sites planned for the year, though none in the first half, trading will be challenging. Forecasts around £0.9m PBT are potentially too cautious with the 1.1p EPS putting the group on 11.8x, we rate the group a slightly risky SPECULATIVE BUY.
Kewill (KWL, 97p, £87.11m) Trading statement for the year ending March 2010 is in-line with consensus expectations. The group ended the period with net cash of £17m (£4m) with £7.2m of the increase due to a cash raise during the period. The group remains committed to its acquisition based strategy and the track record suggests the BUY stance is right to be retained.
Mercury Recycling (MRG, 10p, £3.38m) Finals to December 2009 saw a 9% fall in sales to £2.79m (£3.07m) with PBT of £0.33m (£0.53m) and EPS of 0.83p (1.20p). Net debt including finance leases fell to £0.18m (net debt £0.44m). Prime impact was from lower new bulb sales. The group was hit by the bad weather at the start of the year but trading since then has recovered and is showing signs of improvement. Moved to a HOLD due to the rating.
Scott Wilson Group (SWG, 101.5p, £74.7m), has formed a joint venture with AECOM, to provide supervision for design, procurement, and construction management services to the NOMAYG consortium of contractors which is constructing a new suspension bridge across the Izmit Bay in Turkey. The contract is valued at £10m (€15m) to the AECOM-Scott Wilson JV and to Scott Wilson £5m in fees over five years. Scott Wilson is a cyclical business. The outlook for the short term is challenging, but we believe the group is well positioned for a recovery. We continue to believe the stock is undervalued trading on 6.3x in 2011. We reiterate our BUY recommendation with a target price of 139p.
Stanelco (SEO, 0.36p, £11.08m) A Paris court has found in favour of Stanleco in its defence of a patent infringement case brought by Novamont, a competing bioplastics business. There are 2 other cases running in Italy still. HOLD
Volex (VLX, 116.5p, £66.29m) Trading statement for the final quarter and year to the 4th April 2010 is in-line with estimates. The group reported a continued revenue recovery with results slightly ahead of those in Q3. Delays in telecoms infrastructure in India and Chain have been offset by improvements in Telecoms/Datacoms and Healthcare sectors in Europe and North America. The group has achieved our 115p price target so we must now look to the 2011 forecasts – which are some £11.6m PBT withy 13.63p EPS which puts the group on a 8.5x prospective PER. High enough – moved own to a HOLD.
Xaar (XAR, 117.5p, £73.9m), the inkjet printing technology group, reports an IMS covering 1 January 2010 to 31 March 2010 (Q1 2010). Trading and margins for Q1 2010 are in line with management expectations. Sales of Platform 1 (P1) have stabilised and we are encouraged by the strong demand for Platform 3 products. Net cash stood at £9.2m at the end of 31 March 2010. The stock trades on a 2010 and 2011 rating of 23.6x and 14.4x, with a current yield of 2.1%. The share price has rallied following the preliminary results. We believe the stock is now overvalued and reduce our hold recommendation to a SELL with target price of 98p.