Galleon (GON,16p, £22.30m) Has entered into a co-production and distribution agreement with PolyBona Film Distribution, one of China’s largest movie producers and distributors. The groups will co-produce an animated film based on Galleons Sokkaor-442 and PolyBona will handle the South East Asian distribution with Galleon appointing other regional distributors. The positive stream of good news led us to upgrade the recommendation to a BUY on 20/07/09 at 17.4p, which we repeat.
Osmetech (OMH, 2.125p, £24.51m) By mutual agreement the US distribution agreement with Fisher Scientific has been abandoned. Instead the group will distribute through its own dedicated sales channel. Back in April we made the company a Sell at 3.25p. More recently the group had interims that highlighted losses around £5m, H1 usage of £5m and net cash equivalent to another 6 months, so there is no scope for the level of investment in the sales network without yet further recourse to shareholders for funding, a continued SELL ahead of the inevitable dilution.
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Rok (ROK, 53.75p, £96.38m) Has been appointed by Liverpool Victoria, to provide building repair services which could be worth £40m over the next 3 years. We maintain our BUY recommendation, last iterated at 50.5p on 14/09/09, with a 60p price target.
Penna Consulting (PNA, 240p, £61.85m) AGM statement confirms the positive trend in revenues and profits with the Barker’s acquisition integration progressing well. Forecasts to March 2010 have increased to £7.4m PBT with 20.1p EPS and 6.6p DPS, putting the group on 11.9x PER with a 2.8% yield. The sector is sitting on a prospective PER around 15x, giving us a target price which we increase to 300p and so maintain our BUY, last iterated at 167.5p on 29/06/09.
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SciSys (SSY, 50.5p, £14.4m) supplies IT services and bespoke IT systems to meet its clients' operational and business requirements. This morning’s interims for the 6 months ended 30 June 2009 saw turnover up 5% to £20.3m (H108: £19.4m), adjusted operating profit double to £0.6m (H108: £0.3m), but adjusted pre-tax profit fall to £0.54m (H108: £0.79m) as a result of lower interest income. The group reported adjusted EPS of 2.1p (H108: 1.6p). Net cash at the end of June 2009 was £1.3m. The reintroduction of dividend payments with an interim DPS of 0.3p, suggests the group’s confidence in future earnings and cash position. The Government division has performed well with a new contract with the Environment Agency valued at £3.5m over 3 years. As expected the Media and Broadcast division has suffered with further delays in the procurement decisions across its client base. The Space division has seen underlying margins under some pressure following delays in the completion of some projects within the UK. The support division benefits from high repeat business. The group continue to seek improvements in gross margins and strengthen their order book. In conclusion, new contract wins coupled with repeat orders suggest the group is gaining momentum. A solid order book for H209 suggests the group is trading in line with current market estimates of pre-tax profit of £0.2m and EPS of 3.88p. This puts it on a 2009 prospective PER of 13.0x falling to 10.6x. On 28/07/09 when the share price was 44.5p, we reiterated our Buy recommendation with a target price of 50p - this has now been achieved. We reduce our recommendation from a buy to a HOLD. We believe further contract wins will help sustain the share price.
Northamber (NAR.L, 45.5p, £13.2m) reported preliminary results for the year ended 30 June 2009. Revenues fell 22% to £139.3m (2008: £179.7m), pre-tax profit plummeted to £0.047m (2008: £0.63m) and EPS fell to 0.18p (2008: 1.36p). The group have added new franchises in the current financial year, but they do not provide us with any confidence regarding the outlook. Market conditions continue to be challenging. The group is a cash generative business with a very strong balance sheet. Tangible net asset of £25.95m of which £14.1m is net cash, both exceeding the current market capitalisation, is very compelling. Northamber is a clearly asset play, but we would like to remind investors it has a free float of 23%, with the Chairman owning 59% of the company. On 30/04/09 (share price was 30p), we initiated with a speculative buy and a target price of 38p. The stock has exceeded our target price. We retain our SPECULATIVE BUY recommendation, but increase our target price to 80p.
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Group NBT (NBT.L, 270p, £68.4m), the global supplier of domain name management and associated services, reported excellent preliminary results for the year ended 30 June 2009. Revenues up 18% to £41.5m (2008: £35.2m), underlying pre-tax profit up 22% to £6.7m, underlying EPS up 24% to 20.17p and a proposed increase in DPS by 25p to 3p. The group benefited from currency. On a constant currency basis, underlying PBT was up 10%. Net cash at the end of the year rose to £5.2m (2008: £0.7m). The group clearly demonstrated good growth across all divisions. They continue to benefit from the ongoing structural shift towards internet commerce. However, the recession has had an impact on their business. They have seen slower new contract wins for corporate domain names, a higher churn rate in managed hosting, and a slower than anticipated take up of the innovative internet brand protection services of Envisional which we acquired two years. The market growth for domain names has been slowing from 26% to 12% in the past year. Group NBT continue to be innovative with new products to keep ahead of its peers. We believe there is scope for the market to upgrade 2010 estimates – management expect “good growth” in the current financial year. The current 2010 estimates suggest pre-tax profit of £7.5m, EPS of 20.8p and DPS of 3.2p. This puts the stock on 13x, with a yield of 1.2%. On 22/07/09 (share price 223p), we introduced a buy recommendation with a target price of 254p. This has now been achieved. We retain our BUY recommendation.
NWF Group (NWF, 92.5p, £43.41m) AGM statement has updated on progress in Q1 of the year. Food distribution is seeing an improved outlook with a good response to its move towards 24/7 service levels. Animal feeds have been hit by lower ruminant feed requirements due to good forage supplies thanks to a good growing season. Fuel supplies are trading in-line with expectations as demand picks up for autumn. Trading is in-line with expectations. Forecasts around £6.5m-£6.8m give the group EPS of 10p-10.2p, putting the group on 9.3x PER. Back in May we said the 9.8x PER was sensible value at 89.5p, as we move closer to the year end we see the shares offering sensible upside and so move from a Hold to a BUY with a 12x PER (still a discount to the sector on 15x) with a price target of 120p.
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Thorpe (FW) (TFW, 540p, £64.23m) Final results to June 2009 saw revenues of £53.4m (£51.8m) with pre-tax profits of £11.8m (£11.7m) and EPS of 71.4p (73.3p) and dividends of 16.2p (16p) for the year and a special dividend declared of 12p per share. Given the state of the markets this was a strong performance with operating profits rising to £10.7 (£10.5m) with interest received on cash leading to lower PBT. With a general economic improvement happening we see the shares as offering solid value and so move the company from a Hold to a BUY with a price target of 625p.
Stilo International (STL, 1.525p, £1.67m) Interims to June 2009 saw revenues of £1.1m (£1.3m) with a loss before tax of £0.18m (profit £0.14m) and net cash at the period end of £0.52m. The company released the world’s first on-line, pay-as-you-use content conversion service. The group is reporting an uptick in client budgetary processes for the 2010 period. While no major improvement is expected in what remains of the current year investors should note the group has sufficient cash resources and that it is sitting well below the sector average price to sales ratio of 5 times, hence a risky SPECULATIVE BUY.
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Ten Alps (TAL, 29.5p, (£19.08m) Has announced the launch of its business portal. We maintain a BUY recommendation with a 36p price target, last iterated on 03/09/09 at 27.5p.
Inditherm (IDM, 8p, £4.09m) Interims to June 2009, saw sales fall to £0.56m (£0.81m) with a pre-tax loss of £0.56m (profit £0.02m). The group ended the period with £2.59m net cash. The group sees little improvement in the second-half in the medical or industrial sectors. With the group “targeting the fastest route to breakeven” via increasing medical sales we remain cautious. We maintain our recommendation at a SELL with a price of 6p.
Adept Telecommunications (ADT, 24p, £5.06m) The company reports in its AGM statement that despite lower revenues it is maintaining EBITDA levels comparable to last year with strong cash generation and lower overall debt. Existing forecasts are for £0.52m PBT with 6.53p EPS, putting the group on a 3.7x prospective PER, still a BUY.
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SmartFocus (STF, 12.5p, £11.72m) Interims to June 2009 saw revenues grow 13% to £5.6m (£5.0m) with PBT of £0.2m (loss £0.6m) with EPS of 0.11p (loss 0.44p). During the first 6 months the group won 40 customer and partner contracts, giving the group 87% visibility of the planned 2009 revenues by the end of August. Forecast are for PBT of £0.35m with 0.37p EPS followed by £0.64m and 0.69p respectively, putting the group on a Yr1 PER of 33.7x falling to 18.1x. Well up with events even allowing for a probable forecast upgrade. We expect forecasts to increase towards £0.5m this year and £1m next.
S&U (SUS.L, 467.5p, £54.9m), the niche home credit and motor finance provider, reported interims for the 6 months ended 31 July 2009. Pre-tax profit and EPS up 8% to £5.02m (H108: £4.65m) and 30.5p (H108: 28.3p) respectively, despite a 3% fall in sales to £22.1m (H108: £22.7m) as a result of the group improving the quality of debt and tightening its underwriting. Both home credit and motor finance continue to perform well. The business is cash generative with a flat interim DPS of 9p and net debt reduced to £27.9m. The market anticipates DPS of 32p for FY10. Given an interest cover of 8x, we believe this will be achieved. Hence the stock has a yield of 6.8%. Furthermore, there is scope for the market to upgrade 2010 estimates of pre-tax profit of £8.85m and EPS of 54.2p. The stock trades on 2010 PER of 8.6x falling to 8.3x in 2011.
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Maxima Holdings (MXM.L, 101.5p, £25.6m) is an IT business systems and managed services company. The new management team seem to be making good progress. The AGM statement says trading is in line with current market expectations with PBT of £6.2m, EPS of 17.2p and DPS of 4.3p – putting the stock on a prospective PER of 5.9x falling to 5.1x in 2011 and a 2010 yield of 4.2% - a discount to the software and computer services sector which trades on 8.7x. We upgrade our hold recommendation to a BUY, with a one year target price of 120p.
ACTA (ACTA, 18.25p, £7.48m) Interim results to June from the fuel cell/electrolyser development company saw losses reduced to €1.4m from €3.1m and the group ended the period with €5,4m post a €1m usage. The group recently announced the successful testing of a commercial electrolyser for home usage which, unlike ITM’s developments, appears to offer substantial savings on existing price points. The electrolyser is on-track for market testing in 2009 and market acceptance in 2010. Other developments include zinc-air catalysts. ACTA is the forgotten non-platinum jewel in the fuel-cell arena, sitting at a quarter of the ITM Power valuation, we maintain our SPECULATIVE BUY recommendation.
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Burst Media (BRST, 10.25p, £7.24m) Interim results to June 2009 saw revenues of $12.1m ($13.4m) and an underlying loss before tax of $0.6m ($0.2m) though the group did turn EBITDA +ve in Q2. Net cash ended the period at $9.4m ($11.1m). The group states the Q2 trend has continued into Q3 which despite some uncertainty on Q$ outlook, gives the management comfort it will meet current year expectations. With strong net cash backing and improving market conditions we move the share from a Hold to a SPECULATIVE BUY.
Autoclenz (ACZ.L, 45.5p, £4.7m), the UK's leading provider of outsourced vehicle valeting and specialist cleaning services, this morning reported results for the 6 months ended 30 June 2009. Adjusted pre-tax profit and EPS increased by 49% to £0.71m (H108: £0.48m) and 4.9p (H108: 3.3p) respectively, despite a drop in 17% in revenue to £12.0m (H108: £14.5m). An improvement in gross margins coupled with reduced overheads generated earning growth. Net debt was reduced to £2.7m (FY2008: £2.6m). The group will not be issuing an interim dividend. We are cautious about future dividend payments. We believe market conditions will continue to remain tough over the coming year. There are no forecasts in the market. Assuming H1= H2, we would anticipate 9.8p of earnings in 2009. This would put it on a prospective PER of 4.6x, a discount to the support services sector median of 6x. The group have made good progress is cutting costs and increase earnings. Given the latter, we rate this stock as a BUY with a one year target price of 52p.
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Money, Debt and Credit (MDCG.L, 3.75p, £1.5m), the provider of financial solutions to over-indebted individuals who are seeking to manage and reduce their debt burden in a responsible manner, reported interims for the 6 months ended 30 June 2009. Sales are up 58% to £4.0m (H108: £2.5m) and the pre-tax loss was halved to £0.41m (2008: 0.87m). The company is seeking to de-list from AIM. SELL.
Burst Media (BRST.L, 10.25p, £7.2m), an international online advertising services and technology business, reported results for the 6 months ended 30 June 2009. Sales were down 10% to $12.1m (H108: $13.4m) predominately as a result of a 50% drop in adConductor revenue (10% of total revenue). Gross margins improved by 1% to 48%, but the group delivered adjusted pre-losses of $0.99m (H108: £0.55m). Advertisers are reluctant to commit to advance purchases greater than two or three months and withhold orders until very near deadlines. The board expects that the recovery of the adConductor business will be delayed until media companies recommence investing in proprietary ad network businesses. Q109 trading was very slow, with a pickup in trading in Q209. This has continued into Q309. There is little visibility for Q409. The group has a strong balance sheet, with zero debt and net cash of $9.4m (equivalent to £5.9m) from $11.1m. Burst Media are considering acquiring Giant Realm, one of the largest video game networks in the U.S. with exclusive relationships with a number of well-known, high traffic game enthusiast web sites, for $2.1m of cash and 2.5m of shares. The latter will reduce the cash pile. On 5/05/09, when the share price was 5.75p, we had the stock as a speculative buy. Given the share price has gone up 78% since our recommendation and the balance sheet is weaker, we recommend investor to take profit and SELL.
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Superglass (SPGH.L, 36.5p, £21.1m), one of the UK's leading manufacturers of glass mineral fibre insulation products, reported trading for the year ended 31 August 2009 are broadly in line with market expectations of pre-tax profit of £5.5m, EPS of 6.7p and DPS of 2.0p. A yield of 5.4% is attractive. We recommended the stock as a buy on 17/07/09, when the share price was 30p, with a target price of 44p. Given the EPS forecast has fallen slightly since then, we retain our BUY recommendation, but reduce the target price to 40p. We look forward to hearing from the new CEO, when the preliminary results are released on 25 November 2009.
DQ Entertainment (DQE.L, 108p, £38.8m) has announced a co-production agreement with Gruppo Alcuni, the Italian based animation and entertainment Group, to co-produce a fourth season of the animated television series 'And Yet It Moves'. On 27/07/09 (share price was 85p). We reiterated our buy recommendation with a target price of 110p. We retain our BUY recommendation and increase our target price to 129p.
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