blinkx (BLNX, 37.5p, £114.69m) announced a deal with CriticalPast to offer historic video clips with over 50,000 videos to be available. The company is still in land grab mode, this looks a useful addition. SPECULATIVE BUY
China Shoto (CHNS, 337.5p, £78.79m) AGM statement has warned that profits are down 15% in the first 5 months of the year due to lower infrastructure spend from the Chinese telecom operators as well as seeing increased overseas competition. Profit forecasts should slip further as the Yuan is rebased, limiting the competitiveness of Chinese manufactured products. Worst case would be profits around £11m – EPS of 40.8p, putting the group on an 8.3 prospective, we can see further weakness towards the 7.5x – a price target of 306p, just sufficient to SELL.
Driver Group (DRV, 35.5p, £9.36m) Results for the 6 months ending March 2010 saw revenues stabilise H1 2010 on H2 2009 (down just 5%) with total revenues of £8.84m (H1: £11.25m) and a reduced underlying loss before tax of £0.26m (£1.3m). The group ended the period with net debt of £1.17m (net debt £0.16m at the year end) with operational losses, adverse working capital and dividend payments all leading to the cash outflow. The board has warned of significant (£1m) investment and views this year as a year of strategic investment to support a 3 year development plan to develop overseas activities in the industrial, power & energy sectors. However, as a result the group has not declared an interim dividend (1p). The group now expects to make a small loss in H2 as well, due to the continued weak UK construction market, where it had previously expected to make sufficient profits to reverse the H1 loss. It does expect to make a profit for the full year, following reductions in UK fee earners and expansion overseas. We do see further weakness with little to encourage new shareholders to the story yet, SELL to the 32p level.
Entertainment One (ETO, 80p, £121.54m) has won approval for a standard listing on the LSE, which we believe will drive the price as it opens the stock to overseas investors, though it is still subject to a shareholder vote on 15th July. Trading in the first two months of the year remains in-line with expectations. Forecasts of £30.7m with 12.9p EPS put the group on just a 6.2x PER so we raise yet again our target price to 8x – or a price target of 103p, still a BUY.
I-Design Group (IDG, 15p, £2.12m) The ATM advertising operation has won its first contract, via a channel partner, in South Africa. The contract in Ecuador is for deployment across a bank’s 500 ATM machines and will go live in the last quarter of 2010. We have been Holders but the group does appear to have sufficient cash, some £1.41m at the year end, so has an EV of just £0.71m against sales last year of £2.37m. Even allowing for a further £0.4m of cash burn we see upside to above 30p, so we move from Hold to SPECULATIVE BUY.
Infoserve (INFS, 3.75p, £2.22m) Final results to March 2010 showed revenues up 11% to £6.1m, marking a slight recovery in H2, with improved gross profits to £2.28m (£1.54m), gross margins of 37.3% (30%), with lower admin costs of £2.18m (£2.49m) leading to a break-even outcome (loss £1.10m). The group ended the period with net debt of £1.74m (£3.41m), post the conversion of £2m of debt into equity. The vast majority of the debt has been extended to the group by David Hood, a non-executive director. With 88.73% held by directors or senior officers it is hard to recommend the shares, and one questions why the group maintains a costly listing unless it starts to use its listing to make acquisitions. Post the year end the group has signed a joint venture that takes the group into offering combined internet/printed marketing campaigns to its SME base. Although very risk, due to the limited liquidity, the rating does leave upside so we move to a very SPECULATIVE BUY.
James Cropper (CRPR, 129.5p, £21.14m)FY T/O was up 2% to £76.2m (£74.8m); Clean PBT £3.3m (£1.1m) - after the IAS 19 net pension PBT £2.4m (£858k); EBIT of £3.4m (LBIT £310k). EPS of 21.3p (1.0p) someway ahead of the markets c. 18.3p. Increase in FY dividend to 7.5p (5.1p). Borrowings are broadly cancelled out by cash. Sales of Technical Fibre Products were down considerably on the previous year but Specialty Papers traded strongly continuing its recovery. The outlook statement is reasonably robust with TFP's order book increasing significantly over 6 months ago and expected to build strongly in the next 12 months. Movement in pulp prices will impact profitability of Specialty Papers in the short term, price increase will be passed through to customers (currently being negotiated) although there will be a time lag. Looks good value at below 8x and cheap when compared to larger cap comparators Mondi and Cambrian. We raise our recommendation to BUY with a price target of 147p or 7x EPS.
Sinosoft (SFT, 8p, £13.25m) has signed a master strategic partnership with NorthgateArinso, a global human resources software and service provider, which will see Sinosoft develop carbon management and monitoring products to be marketed to both Government and private companies in China. In collaboration with NorthgateArinso Green Oak it expects to start bidding for projects at the municipal Government level. Despite the Yuan being revalued we still see substantial upside in the valuation with the group currently sitting on a 4.8x prospective PER and we maintain our target of 10p. BUY
Software Radio technology (SRT, 24.25p, £23.79m) has signed a strategic distribution agreement with a South Korean company for its automatic identification systems. We maintain the HOLD as the value anticipates a significant surge in revenues and profitability.
Stanelco (SEO, 0.12p, £7.06m) AGM trading update, post the highly dilutive placing that had a theoretical ex-rights price of 0.165p, reports sales at both Bioplastics and RF Technologies are ahead of market expectations. The Biome bioplastics composting trials have successfully completed with a major US supplier to the food processing market and it is now entering the commercial scale-up phase. The group will be renamed Biome Technologies post the admission to AIM around 13 July. Funded for the time being with sales approaching £20m it is right to move the shares back from the Sell to a SPECULATIVE BUY as the indigestion of the new shares eases.
TEG Group (TEG, 39.5p, £29.57m) has won a contract to process mixed waste for Fife Council at its Perth facility. The contract is for an initial 3 years, with the option to extend for another 2 years and to encompass all waste streams. The contract is expected to generate revenues of between £0.7m and £0.9m over the initial 3 year contract. With the volume of waste expected to increase from an initial level of 1,200 tonnes per annum to over 9,000 tonnes per annum it will be hard for Fife not to continue the contract. As such we see most of TEG’s limited life contracts as the first of longer relationships. We maintain our SPECULATIVE BUY recommendation.
Velosi (VELO, 102.5p, £49.59m)provided a positive AGM statement this morning. While underlying markets remain volatile in line with oil and gas pricing. Uncertainty is promoting the need for safety and testing. The company has a strong base with 60% of 2010 forecasted revenues already contracted. The Group is continuing to trade in line with market expectations (PBT of c. £12.12m & EPS of c.14.51p). Significant new contracts wins in the Middle East and Africa include with Qatar Petroleum for c. $5m over 3 years from August & Abu Dhabi Ports estimated to be worth at least $6m over 4 years from January 2010. The group has maintained its strong cash position. Still looks cheap on only 7x FY estimates. We maintain our 135p PT which now looks to place the company on just over 9x consensus. BUY