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Hoodless Brennan Daily Small Cap News Flash
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Cosalt (CSLT, 41p, £10.83m) Interim results to March for the provider of critical safety and protection services to the oil and marine industries saw revenues of £52.85m (£49.57m) with an underlying pre-tax profit of £0.458m (£2.11m) with 1.24p (6.9p) EPS ahead of £3.8m of one-off cost leading to a reported pre-tax loss of £3.40m. The group has seen temporarily deferred orders fall into H2 and some recovery in the oil price will help the business pipeline, with major tenders expected for offshore contracts in H2 as well.
The volatility in the company’s base markets has forced a cost reduction measure that will save £1m in the current year and £3m on-going annually. At 53p on 26/05/09 we rated the company a SELL to the 45p level due to the dangers of a cash raise. The company has confirmed that a cash raise is underway in the form of a placing and open offer. Although the group has confirmed it has a progressive dividend policy it is not paying an interim dividend.
The pension fund deficit has increased to £7.6m (£6.9m). With a £3m loan payment due in October we guess a minimum cash raise of £3m is inevitable but much greater is probable, leading to additional dilution in excess of 27% - thus we reduce our target price to 35p.
Cello Group (CLL, 33.5p, £19.61m) Trading update for the 6 months ending June 2009 reports that pharmaceutical research and consultancy has performed well but other areas, such as market research, business intelligence and HR research and training units have experienced weakness. Costs saving measures, costing £0.4m in H1, are expected to lead to an impact on their carrying values in the balance sheet as well. Overall gross profits are expected to fall by 10% year on year with a squeeze on operating margins and unhelpful FOREX movements as well. Underlying pre-tax forecasts are for £6.1m with 6.9p EPS to December 2009, putting the group on 4.8x prospective PER. HOLD.
Qonnectis (QTI, 0.3p, £1.18m) The company has confirmed it is still in discussion regarding funding, but that failure to secure such funding would lead to the group being unable to continue trading. We last said SELL at 0.245p on 31/03/09 and repeat the recommendation, based on on-going losses and the unknown dilution from any cash raise.
Trakm8 Holdings (TRAK, 6p, £1.10m) Final results to March 2009 saw revenues of £3.68m (£4.66m) and a pre-tax loss of £0.41m (loss £0.96m) though that is after reorganisation costs of £0.058m and covers a mover from substantial losses in H1 to a loss of just £0.05m in H2. The group is set to move into profit following the contracts successes during the year, such as with energy giant E.ON, and the appointment of South African based Smartsurv. Still a SPECULATIVE BUY.
Bglobal (GGBL, 10.5p, £7.78m) has secured a substantial new source of meter asset funding from Barclays Asset & Sales Finance. The group now has an additional £15m available to provide lease financing for the purchase of its innovative smart meter services that include the data collection and reporting systems. We repeat our SPECULATIVE BUY recommendation, last made on 30/04/09 at 13.5p as this move secures Bglobal’s ability to finance growth.
Fiberweb (FWEB, 69.75p, £85.40m) Trading update for the 6 months ending June 2009 is reassuringly in-line with expectations. H1 has seen continued volume declines offset partially with margin improvement. The H1 benefitted from FOREX translation and lower raw material prices, though the recent rise in oil prices looks certain to damage margins in the second half. Fairly rated and still a HOLD as last recommended on 26/06/09 at the same price.
Worldspreads (WSPR, 70p, £27.55m) The company has confirmed it has received an approach for its Irish Division from certain members of its management. While the group can give no assurances that this may proceed, it does give us reason to move from a Buy to a Hold recommendation. Firstly forecasts have been drifting back from 13p towards 11p – thus our 85p price target so adjusted becomes 72p – and secondly that any management trying to buy out a subsidiary is surely not ensuring it is running as well as it should. HOLD.
Morse (MOR, 17p, £22.08m) In a trading update for the year ending June 2009 the group has updated that it had net cash, excluding customer specific financing, of £12m. The company states that revenue and adjusted EBIT will be at the upper end of the expectations. Numbers around pre-tax profits of £3.4m with EPS of 1.95p are followed by June 2010 forecasts of £7.4m with 4.24p – putting the group on a PER about to go historic of 8.7x and a 2010 PER of 4x – giving plenty of upside, BUY with an initial price target of 25p.
Universe Group (UNG, 2.375p, £2.72m) Trading update for the half year to June 2009 from this retail and loyalty systems group does highlight a move into an operating profits for the period, a distinct improvement on the losses reported last year. However, the economic downturn is forcing major capital projects to be delayed or deferred leading to sales down 10% - a trend that is expected to continue for the year. The expectations are thus being lowered but the group still expects an operating profit ahead of the £0.5m reported to December 2008. Assuming operating profits of £0.75m and financing costs of at least £0.35m gives a best pre-tax profit of £0.4m, pre-reorganisation costs, with 0.25p EPS, putting the group on a 9.5x prospective PER – too high – SELL down to 1.75p.
Zotefoams (ZTF, 55p, £21.06m) Trading statement for the half year to June 2009 has highlighted sales volumes down 20% against H2 2008. Cost cutting measures were implemented during H1 with first benefits expected in H2. Trading is in-line with expectations, following a currency benefit for its Polyolefin foams with stable raw materials and better than expected performance in the high performance polymers. Forecasts of £2.4m pre-tax profits with 4.6p EPS to December 2009, the shares are sitting on a prospective PER of 12x – high enough given the dangers of rising raw material prices and faltering demand from the aerospace division, SELL to the 46p level.
Cybit Holdings (CYH, 33.5p, £9.20m) Final results to March from this telematics business saw revenues of £25.48m (£19.67m), pre-tax profits of £2.14m ( £1.70m) with EPS of 7.06p (4.65p), net cash of £2.02m (£2.43m) and a £14.1m (£12.1m) NAV. The group has applied to cancel its share premium account so it may join the dividend lists in the future.
During the year the group succeeded in signing a 3 year exclusive agreement with Ford to provide aftermarket solutions in the UK, as well as contracts with Homeserve, Stannah Lifts, Northern Ireland Electricity & The Highways Agency. We had been buyers of the group – but the dangers that the lease financing gets harder to find and the return to a normal tax rate, against 10% or so this year as the group utilises established tax losses from acquisitions, encourages us to move from a Buy to a HOLD.
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