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Hoodless Brennan daily smallcap newsflash including Clean Air Power, Media Square, Volex, S&U and others
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Clean Air Power (CAP, 22.5p, £12.42m) The dual-fuel technology company has signed a development deal with Navistar to develop an engine for the North American market. Over the next 10 months CAP will spend some $1.5m and will then, jointly with Navistar, seek US grant funding for full production. Still a SPECULATIVE BUY.
Velosi (VELO, 89.5p, £41.86m) has acquired the Velosi trading name in Malaysia, consideration for £4.34m by the issue of 4.76m new shares, and which will see Velosi receive royalties between 5-7% of revenues generated by Velosi Malaysia. The group believes the deal will be immediately EPS enhancing. The group has confirmed 2009 trading remains in-line with expectations with continued growth anticipated in 2010. The group remains a BUY with an increased price target of 124p.
Media Square (MSQ, 14p, £5.06m) The group has announced the sale of a non-core operation, twentysix NewYork, for an initial consideration of $2.25m, subject to certain conditions. The consideration comprises $1m on completion, $0.25m in 2 instalments in the 6 months following the completion and an estimated $1m from the unwinding of the working capital position. An additional $1,6m is receivable by the group dependent on its performance in the 6 months post completion. In the year to F3bruary 2009 twentysix NewYork had $6.8m turnover with pre-tax operating profits of $0.3m with gross assets of $1.3m. The proceedings will be used to reduce the group’s net debt that stood at £17.4m at December 2009. Forecasts between 1p and 1.5p EPS next year suggest it is still right to maintain our SPECULATIVE BUY.
Kiotech International (KIO, 3.75p, £15.8m) The supplier of high performance natural feed additives for agriculture and aquaculture expects year to Dec 09 results to be in line with market expectations. As anticipated the group expects to report a very strong year, with significant growth from Kiotechagil and the successful acquisition of the Optivite group, adding to Q4 profits. This bodes well with further integration benefits to come having made first steps in consolidating production and purchasing. The group made an exceptional profit generated from the sale of its interest in its IP specific to the sports fishing market. The balance sheet remains robust with net cash increased to £5m at the year end. A very robust statement we maintain our 4p price target. Being within 10% of our price target our recommendation naturally reduces to HOLD.
Volex (VLX, 103.25p, £58.75m) Trading statement for the first 18 weeks of the second half confirms the continued improvement in the underlying demand as highlighted at the time of the interims. Q3 revenues of £58m is 3% up on Q2 - though still 11% down on the same period last year with operating profits up 9% on Q2, down 10% on Q3 2008 – driven by improved gross margins. OEM demand is improving, especially for consumer related power products. The board remains cautious over the short term outlook – but still believes it will meet or exceed its previous guidance to the market. We have long had the group as a Buy, but the group is within 7% of our previous 110p price target. We see further upside as investors focus on next year – where expectations for further modest growth suggest an increase in target price to 115p – or 8,5x PER next year – is sensible – so just maintaining the shares as a BUY.
Geong (GNG, 39p, £14.76m) has announced new contracts or extensions worth RMB 22.8m for delivery over the next 18 months across the banking, telecommunications, automotive and insurance sectors. Geong highlights the insurance sector as an area that potentially offers significant growth. We maintain Geong as a BUY recommendation. Geong was one of our “Thoughts for 2010” share tips.
Patsystems (PTS, 22.5p, £41.7m), reports prelims to 31 December 2009 are in line with consensus. Revenues up 13% to £22.1m (2008: £19.6m), adjusted PBT up 7% to £3.9m (2008: £3.7m) and adjusted EPS up 5% to 2.0p (2008: 1.92p) – an excellent performance in such tough market conditions. Strong cash generation increased net cash to £8.9m (2008: £5.9m) and is proposed to drive a 17% increase in DPS to 0.425p implies the group’s confidence going forward. 82% of sales are on a recurring revenue basis, which provides the group with revenue visibility. For the current financial year, the group has a strong sales pipeline. The group has excellent geographical presence. In 2010, sales focus in the USA and Europe will be on the implementation of risk systems and the provision of hosted services. In the Asian and emerging market, the group will focus on trading system implementations, extending market connectivity and the provision of end-to-end solutions for commodity futures exchanges. There are further opportunities to expand into new territories such as Indonesia, Malaysia, Brazil and Korea. The group anticipate growth organic and acquisitive growth. Patsystems is a solid business with high earnings, cash visibility and good growth prospects. The market forecasts 2010 PBT of £4.87m, EPS of 2.3p and DPS of 0.48p. The stock trades on a 2010 PER of 9.8x with a yield of 2.1%, a discount to the sector. We re-iterate our BUY recommendation with a target price of 30p.
Sarantel (SLG, 2.5p, £8m) The manufacturer of high-performance of antennas for mobile and wireless de vices announced FY year results to 30 September 2009. Revenues grew by more than 50% to £2.8m. The company experienced lower demand from its largest GPS buyers but its client base grew significantly to more than 300 customers helping to diversify revenue streams. The company is still loss making producing a clean EBIT loss of £1.9m and net cash outflow from operating activities of £1.7m (£1.9m). Net cash outflow before financing was £2.2m (£2.2m) and the company completed a placing to raise £2.25m after period end so finances look reasonably robust. The company believes that macrotrends in the GPS market are converging towards its antenna technology with traditional GPS antennas struggling to provide the degree of accuracy needed for new applications. Mobile Satellite Services and military markets continue to grow. A fair indication of progress. We maintain our SPECULATIVE BUY.
Telit (TCM, 22.5p, £16.3m), the wireless communications developer and distributor, expects revenues for 12 months ended 31 December 2009 to be in line with expectations at c.€63m, 7% up on 2008 revenues. The market also anticipates modest losses of -£0.45m PBT and -0.89p EPS. We maintain our HOLD.
Alphameric (ALM, 26p, £58.61m) Final results to November 2009 saw revenues of £39.99m (£35.92m) with underlying pre-tax profits of £7.92m (£3.14m) with 3p (0.8p) EPS. Group net cash grew to £20.8m (£17.8m). The group’s share of AMRAC, it racecourse TV joint venture, revenues rose to £26.1m (£20.6m) and share of profits after management charges rose to £7.1m (£3.4m) and with additional race courses announced since the year end and extended UK exclusivity till 2018 the outlook remains positive. The Point of sale solutions business returned to £0.6m operating profits (loss £0.5m) on lower revenues of £13.9m (£15.3m). The group has declared a final dividend of 0.95p, taking the year total to 1.7p (nil). The results were just marginally below expectations. That said the group is sensibly rated with a 6.5% yield and a yield of 3.6% on the final alone. We move the shares from a Hold to a BUY with a 33p price target.
FFastfill (FFA, 9.125p, £6.22m) has added HSBC as a client of its software as a service trading platform. With the group approaching the year end and Ion Trading acquiring 21% the shares look set for even higher rating, however at 15x PER to March 2011 this is high enough – still a HOLD.
S&U (SUS, 455p, £53.4m), the provider of niche consumer credit and car finance in the UK, reports trading for the year ended 31 January 2010, is in line with market expectations. The Home Credit division has performed well, exceeding expectations in December. The motor finance division has performed strongly in December and January. S&U continue to seek bolt-on acquisitions to enhance earnings. The business continues to have a strong balance sheet, borrowings have been reduced by £5m since the end of last year and gearing is at c.57%. The group anticipate paying a DPS of no less than 32p in FY2010, which puts it on a compelling yield of 7%. S&U is a yield play underpinned by stability of earnings. We re-iterate our BUY recommendation and a target price of 550p from our ‘Thoughts for 2010’ research note.
Ultrasis (ULT, 0.78p, £11.7m), the provider of interactive health care and associated services, has agreed a strategic partnership with Instep Ltd, a New Zealand based behavioural health care company. We retain our HOLD recommendation.
Individual Restaurant (IRC, 13p, £7.8m), the operator of 33 casual dining restaurants throughout the UK under the Piccolino and Bar and Grill brands, reports trading for the year ended 31 December 2009, is ahead of market consensus at PBT level of £1.1m. Cost savings exceeded expectations of £2m and the group have successfully maintained gross margins against the previous year. Net debt at the end of December 2009 was reduced to £12.4m (2008: £15.8m). The Group is financed by a GBP18.5m loan facility of which £6.1m remained unutilised at the year end. Consumer spending will continue to be tight throughout 2010 and we therefore anticipate another challenging year for the group. Trading in January was impacted by the adverse weather conditions, but business has since returned to expected levels. We expect the market to upgrade 2010 PBT and EPS estimates of £1.1m and 1.2p respectively. With NAV of c. £40m, we retain our SPECULATIVE BUY recommendation.
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