HB Markets Daily Smallcap Newsflash including: Animalcare Group, Archial, Corero, Iomart and others


Animalcare Group (ANCR, 90.5p, £18.15m) has disposed of the agricultural business, Fearing International and the business and assets of Ritchey Ltd for a cash consideration of £3.25m to Tru-Test Ltd.  The disposal is in line with the group’s strategy and will allow it to focus on the core Animalcare veterinary medicines business. At 30 June 2009, the Agricultural businesses comprised net assets of £4.83m including fixed assets of £1.08m and stock of £0.85m. The division reported revenues of £7.12m and operating profit of £0.57m at the end of June 2009. The use of the funds is still to be decided. We would not be surprised if the group dispose of its loss making Travik Chemicals business.  The restructuring of the business encourages us to reiterate our HOLD. (Amisha Chohan)

Archial (ARL, 1.5p, £3.57m)
Share has been suspended this morning ahead of a meeting tomorrow with the UK’s HMRC regarding tax paid in previous years. We have been sellers for some time and this highlights the danger of substantial future dilution on an adverse outcome – if the company can find sufficient backers. Given it is suspended we maintain a now notional SELL. (Julian Tolley)

CEPS (CEPS, 28.5p, £2.37m) Interims to June 2010 saw revenues grow 5% to £7.9m (£7.5m) though gross profits fell to £0.87m (£0.98m), gross margins of 11% (13.1%), with op profits of £0.26m (£0.38m) and PBT of £0.12m (£0.23m) with EPS of 0.61p (2.14p) post an increased Friedman’s minority stake. Net debt increased from the year end £2.23m to £2.52m, reflecting the build up in inventories ahead of the stronger H2. Davies Odell disappointed slightly – hit by raw material increases forcing price rises though shoe repairs saw some improvement. Friedman’s improved margins by sourcing from the Far East and by growing exports to offset a flat UK market. Sunline kept volumes in polwrap at the expense of margins while in Solutions the group virtually lost its key customer in May. With the group sitting on a rating somewhere between 12x & 15x PER (should H2 not improve) the group appears well up with events and we move the group to a SELL with a 23.75p price target. (Julian Tolley)

Corero (CORO, 33.5p, £10.71m) Interims to 30 June 2010 do not reflect the new strategy and the successfully £6.5m fundraising in August 2010. In the period, the group broke-even at adjusted PBT level (H12010: £0.34m) on a 1.6% increase in revenues to £2.2m. The finance costs of £0.163m in H1 will be eliminated in H2 – the group is now debt free. Corero’s buy and build strategy will develop a Network Security business, to address the network security challenges encountered by mid-market and enterprise organisations as well as telecommunication service providers, alongside the existing Business Systems divisions. Following the sale of the Financial Markets division, conversion of the CULS and the fund-raising, the Group's financial position has been transformed, albeit those additional costs have been added to support the development of the growth strategy. We believe the group may benefit from an increase in school Academies. In our view, the business is overvalued given net cash is estimated to be below £6.5m and the Business Systems division delivered revenues of £1.4m in H1 2010. We reduce our recommendation to a SELL and introduce a target price of 28.5p.  (Amisha Chohan)

Iomart (IOM, 69.5p, £71.94m) has highlighted the continued corporate interest in cloud computing with seven hosting wins worth a total of £2.5m. The group has continued to add 30-40 contracts per month to its user base. However the most optimistic forecasts are for £2.37m PBT (2.43p EPS) followed by £3.9m PBT (3.7p EPS) which put the group on 28.4x PER falling to 19x next year. HOLD (Julian Tolley)

IS Solutions (ISL, 39.5p, £9.75m) Interims to June 2010 reveal revenues up 25% to £6.41m (£5.12m), though gross profits of £1.48m (£1.52m) highlight gross margins falling to 23.2% (29.6%), distribution costs of £0.91m (£0.89m) were offset by admin costs down to £0.40m (£0.50m) leaving op profits at £0.23m (£0.18m), an op margin of 3.6% (3.5%) and PBT at £0.22m (£0.18m) with EPS at 0.79p (0.71p). Net debt ended the period at £0.93m (up from £0.31m at the year end) primarily reflecting a £0.5m trading investment and the group announced a 0.36p interim DPS (0.33p). The group has stated its investment in its Managed Services and high level of repeat revenue (some 64% of gross profits) means it is happy with year forecasts of £0.9m (2.6p EPS) which we feel will be a stretch. Investors however should be focussing on 2011 when the recently announced deal with SAS will begin to benefit the group. The group is sitting on 15x prospective with a 2.5% yield (based on a 1p full year forecast). We still see upside towards 18x this year and rate the group a slightly more cautious BUY with a 47p price target. (Julian Tolley)

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