Tuesday 23 June 2009
Avesco (AVS, 28.5p, £7.13m) Interims to March from the provider of services to the corporate presentation, entertainment and broadcast markets saw revenues of £47.6m (£42m) and a loss before tax of £4.9m (loss £0.5m), the group has not proposed an interim dividend (2.5p). Recorded revenues included a £6.6m currency benefit – consequently on a like for like revenues were down slightly. Borrowings were £25.9m , including a £3.9m adverse currency effect. This year is clearly a write-off but existing shareholders can gain some comfort from knowing the group is exposed to the Winter Olympics 2010 in Vancouver and GFIFA World Cup in South Africa. The company is traditionally second half weighted so losses will probably reduce in H2 – but for the time being HOLD.
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Supporta (SOR, 13.5p, £11.67m) Final results to March 2009 from this domiciliary carer and white collar outsourced services provider saw revenues increase 16% to £53.47m ( £46.23m) and an underlying pre-tax profit of £3.54m (£2.19m), before a goodwill impairment charge and losses from disposed businesses, underlying EPS was 4.25p (2.69p). During the year the group sold the Architecture and Engineering businesses, making a net loss of £9.54m. Supporta ended the year with net borrowings of £17.7m. The group had received a take-over approach that has now lapsed. The group is looking forward to the 2010 year being another year of growth. With order books in the Care operations up 12% and in professional services up 22% with good revenue visibility the company looks set for a further increase in profits this year – towards the £4m at least – suggesting EPS at least of 3.33p on a fully taxed basis – or 5.6p on the likely no tax basis. We rate the company a BUY to the 20p level.
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Pinnacle Telecom (PINN, 0.32p, £5.54m) Interim results from this telecom services provider saw revenues on continuing businesses of £1.08m (£0.73m) and the loss before tax of £0.51m (loss £0.86m), reflecting an improvement over the previous half. Despite the acquisition of Accent in June 2009 it is hard to justify such a bull run, we had recommended the shares as a speculative buy on 11/06/09 at 0.135p. Given the shares are on 1x market cap to sales ratio this is up with events – HOLD.
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ANT (ANTP, 30.5p, £7.41m) Has signed with Kaonmedia, a Korean set-top box manufacturer, for its Galileo client platform. The target products are expected to launch in Q4 2009 and will take advantage of Kaon’s ability to combine cable, terrestrial, IP and Hybrid configurations. We repeat our SPECULATIVE BUY, last iterated on 08/06/09 at the same price.
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Geong International (GNG, 35.5p, £11.2m) Final results to March 2009 saw revenues up £14.7m (£7.6m) and pre-tax profits up 48% to £1.7m (£1.1m) with EPS of 4.3p (3.5p) and net cash in the balance sheet of £3.6m (£2m). The order book is already standing at £10.6m with £5m of recurring revenues. The company reacted to the economic downturn by introducing a partnership marketing programme and by moving towards a Software as a Service (SAAS) model. Key exposures to banking and telecom have proven resilient in China with the automotive market now showing signs of recovery. Forecasts for this year look for pre-tax profits of £3.4m with 6.1p EPS, putting the group on a very attractive 5.8x prospective PER. Investors who can overcome their fear of investing in a business located so far away should be well rewarded. In our recent June update on our 2009 Thoughts document we suggested investors should increase their exposure to China. BUY with a target price of 52p.
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COMS (COMS, 5.75p, £0.81m) Has announced an additional line of £0.5m convertible funding with interest of LIBOR +2% with Jason Drummond, Chairman. Recent interim results showed revenues up 134% to £1.2m with gross profits of £0.32m (£0.20m) and a pre-tax loss of £0.5m. To reach breakeven sales have to reach a run rate of £6m assuming the 27% gross margin. We remain cautious given the additional dilution from the convertible funding route so HOLD.
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Hightex (HTIG, 4p, £5.94m) Final results to December for this supplier of high performance membrane roofing products saw revenues of €16.19m (€12.96m) with a loss before tax of €3.08m (€2.38m). The company has implemented a better targeting of potential contracts, concentrating efforts on high value opportunities. The group has completed 2 high profile membrane roofs in the current years so far, Wimbledon centre court and the Dolce Vita shopping mall in Lisbon, which will lead to some €2.7m of revenues falling into 2010 alone. Other projects underway include Green Point Stadium in Cape Town, worth €5m, and FNB Stadium in Johannesburg, worth some €7m, and the Munich Olympic Hall, worth €8.2m. Consequently revenues appear set to continue their solid growth towards the €23m level. Given the level of sales and the reduced costs of the solar cooling business, following its reduction, the group looks set to make a modest profit this year. The shares are well up with events and we believe will sink back towards the recent placing price of 3p, SELL to 3.3p.
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OMG (OMG, 25p, £16.30m) Interim results to March 2009 saw revenues of £13.6m (£12.7m) and an underlying pre-tax profits of £1.1m (£1.2m), ahead of £0.2m restructuring costs, with 0.96p (1.53p) EPS and net cash of £2.1m. The US revenues were strong for Vicon, the 3D motion capture and analysis business, and for 2d3, the image understanding software. Yotta, the 3D mapping business, was hit by pricing pressures. The first half revenues included £1m from Yotta MVS, the acquisition which uses 3D capture to assess property taxation. Consequently underlying sales were broadly flat. There is an element of caution regarding the economic conditions and longer selling cycles in the statement. Forecasts may drift slightly from the current £2.4m and 2.8p EPS, which puts the group on a prospective PER of 8.9 times. SELL to the 21p level.
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Norcon (NCON, 74p, £30.43m) Pre-close trading statement for the first half of the year ending June has seen the first sales to South Africa, Cell-C SA’s 3rd largest mobile operator, and today the group has announced a strategic partnership with Metro Telworks, an Indian telecom networks specialist, with bid sor potential bids on projects in the Middle East and Asia already underway. The group confirms it is on target for significant growth this year. Forecasts of $11.7m pre-tax profits with US Cents 19.3 EPS put the group on a prospective PER of just 6.1 times. Good value to the 97p level, BUY.
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Focus Solutions (FSG, 36p, £10.61m) Focus has launched a channel agnostic distribution platform for its services, called focus:enterprise, to address the huge market of banks and the need for a single hub for its systems to ease regulation and control of increasingly complex financial institutions. Our Buy recommendation, last iterated on 10/06/09 at 29p, had a price target of 40p, just sufficient to maintain the BUY.
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Lo-Q (LOQ, 67.5p, £10.55m) AGM trading statement reports mixed results from daily sales, but looks forward to the start of the key selling season with some optimism based on an additional 4 parks using the systems and an increasing penetration of its systems in the established parks. Currently the board expects to meet market expectations for the year, which are for pre-tax profits of £2.1m with 12.42p EPS – putting the group on 5.4x prospective PER. We like this business, despite some of its customers having financial problems, and repeat our BUY recommendation last iterated at 77.5p on 29/05/09.
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James Cropper (CRPR, 110p, £9.32m) Final results for the niche paper and materials group saw revenues of £74.8m (£72.7m) with pre-tax profits of £1.1m (£2.0m) and underlying EPS of 5.9p (14.0p). The group has declared a full year dividend of 5.1p (7.3p) with a final dividend of 4p (5.1p). The result marks a good turnaround from H1 when it reported sales of £378.7m with a £0.2m loss. Both divisions, Technical Fibre Products (TFP) and James Cropper Speciality Papers increased sales but the Specialist Papers were hit by increasing raw material and energy costs. The improvement in TFP will be dented in the first half by the restructuring at a major customer, but it remains confident of its long term outlook in aerospace, security and the fuel cell markets. Despite the note of caution regarding a key TFP customer, forecasts in the market of £1.2m with 9.5p EPS look too low given the group made £1.5m profit in the second half of the year. We see forecasts rising, initially to around £1.5m giving EPS of 11.9p, putting the group on a prospective PER of 9.26 times. We can see the price being pushed higher but at 110p, until forecasts firm up, HOLD.
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Creston (CRE, 65.5p, £36.48m) Final results from the communications media group to March 2009 saw revenues up 4% to £83.8m (£80.5m), pre-tax profits up £14.2m (£13.5m) with EPS 18.59p (17.01p). The second half grew, reflecting some substantial contract wins, not least marketing campaigns for high profile customers such as Land Rover and the Government Central Office of Communication “Smokefree” campaign. However the group is paying no final dividend (1.8p) giving a year dividend total of 0.73p (2.77p) DPS, in order to help the group cut net debt of £18.6m (£17.9m) as well as manage the deferred considerations which total £23m and which will be met by loan notes. Forecasts of £12.7m may be too low, but the group does have considerable loans to handle, EPS forecast of 12.95p put the group on a forecasts PER of 5 times, which is probably too low. On 20/04/09 we made the group a BUY at 40p and repeat the recommendation with a price target of 85p. The group would command a higher rating if it were to clear some debt – surely a case of a placing to benefit all shareholders.
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Monday 22 June 2009
Clarity Commerce (CCS, 33.5p, £10.73m) Final results to March for this provider of software to the hospitality, retail, leisure and entertainment sectors saw revenues from continuing operations reach £17.683m (£15.364m) with pre-tax profits of £1.11m (loss £7.15m). A confident statement includes the suggestion that proposed changes to group structure will pave the way for the group joining the dividend list in the future. The group does warn that sales cycles are longer and that the group usually has a second half weighting to its results – so doubling H2 is not the way for forecasts. Forecasts for a further improvement to £1.8m pre-tax profits with 4.36p EPS, putting the group on a prospective PER of 7.7x, we repeat our BUY recommendation with a price target of 39p.
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NetPlay TV (NPT, 26p, £35.42m) Final results to December 2008 saw revenues rise to £19.8m (£9.1m) with underlying pre-tax profits of £0.936m (loss £1.734m). While mobile telephony related income fell to £1.13m (£2.14m) as the group transformed into an on-line business, so the decline was offset by the interactive games and competitions revenues that soared to £18.63m (£6.27m). Since the year end trading has continued at strong levels, boosted by the contract to produce Virgin Media’s Challenge Jackpot and the acquisition of the assets used to produce the programme. NetPlay TV has seen flat trading with a run rate of £10.4m gross bets. The mobile business has seen substantial growth in Q1 with revenues, or gross bets, of £1.6m (£0.3m). Overall Q1 trading has seen revenues of £96m (£63m) and May 2009 saw revenues exceed £39m. With news tha the group is in advanced talks with an international betting shop and a major broadcaster about the distribution of the services we rate the shares a BUY. Forecasts are for pre-tax profits of £3.08m with EPS of 1.91p, putting the group on a prospective PER of 13.6x, we set a price target of 33p.
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TEG (TEG, 46.5p, £22.45m) Has announced the acquisition of Banham Compost, an operator of a TEG unit, for £3.1m. Based in Norfolk, the unit is operating at 55% of the 28,000 tonne capacity and is cheaper than building the equivalent new. The group has the potential of expanding on-site as well. To part fund the acquisition TEG has placed 4.75m shares to raise £1.9m. We repeat our SPECULATIVE BUY, last iterated at 51.5p on 16/06/09, and set a price target of 75p.
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Rurelec (RUR, 9p, £18.49m) Has confirmed its Patagonia power plant has completed its cycle to combined cycle, with the heat from the gas turbines used to make electricity by generating steam. The move will allow the group to complete power purchasing agreements and gain debt refinancing through local funds in Latin America and the United States. We repeat our BUY recommendation, last iterated at 10.75p on 27/04/09.
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Cryptologic (CRP, 400p, £51.31m) The group has extended its exclusive licensing deal with Marvel Entertainment to 2013 that sees Marvel characters used to brand Cryptologic’s on-line games. We repeat our SPECULATIVE BUY recommendation, last iterated at the same price on 15/06/09.
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Sarantel (SLG, 2.875p, £5.46m) Has started shipments of its innovative GPS antenna to General Dynamics for integration into a rugged computer and a tactical radio for the US military. Revenues could materially benefit from 2010 according to the management. Still a HOLD.
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AFC Energy (AFC, 13.25p, £16.92m) Has demonstrated its industrial fuel-cell at the initial target customer, Akzo Nobel. The technology included the demonstration of how easy the design is to service, including the changing of the electrolyte fluid and the electrodes. No mention is made of the power demonstrated, we understand the cells have been operating around 2kW rather than the planned 3kW, but this reconfirms AN’s support – which we never doubted. Still a SPECULATIVE BUY.
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Cashbox (CBOX, 3.625p, £5.24m) In a good move Cashbox has agreed to make all of its ATM machines Wi-Fi connection points with BT. Installed so far in 10 machines, Cashbox intends to make the service available across all 2,500+ ATMs in its fleet. Whether it is worth the 16% rise, an increase of £0.7m in market cap, is debatable however. Still a SPECULATIVE BUY.
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Protonex (PTX, 32.5p, £10.29m) Interim results to March from this developer of portable fuel cell systems showed revenues of $2.61m ($3.16m) with a pre-tax loss of $7.45m (loss $5.48m). Cash dropped from $24.30m to $17.51m – reflecting the losses. Post the year end the group announced its intention to focus its developments on the US Government and military spend, away from the recreational vehicle market, which we regard as common sense. The need for low emission power sources grows with the increasing use of technology in the battle-field and we remain positive that the on-going trials and beta tests will lead to hard contracts eventually. With sufficient cash in the balance sheet, we repeat our SPECULATIVE BUY recommendation last made on 02/06/09 at the same price.
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Zoo Digital (ZOO, 16p, £3.41m) Final results to March from this provider of media services and software to the film industry saw revenues up 100% to £6.6m (£3.3m) and a pre-tax profit of £0.2m (loss £1.9m) giving a 0.95p (loss 15.7p) EPS. The company reports it has had a good start to the year with a strong pipeline of work for its services that typically reduce the costs incurred by the film industry in preparing films for release on DVD/BlueRay and the associated media. The company is sitting on an historic PER of 16.8 and forecast profits between £0.6m and £0.8m giving EPS of 2p-2.66p on a full taxed basis - or a prospective PER of some 6-8 times. BUY to the 20p level.
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Allocate Software (ALL, 56.5p, £25.26m) Trading statement for the year ending May 2009 is extremely positive with a strong finish from contract wins across the Healthcare, Defence to and Maritime sectors. As a result revenues are expected to be around £15.75m (up 36%) and pre-tax profits some 10% higher than the £2.3m market expectations, which implies a profit around £2.5m with 5.28p EPS. Next year forecast of £2.7m look set to increase by a similar amount, from £2.7m towards £2.9m or 6.0p EPS, suggesting a PER about to become prospective around 9.4 times. Given the strong growth we are targeting an 11x prospective PER, implying a target price 66p – BUY.
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Porvair (PRV, 76.5p, £32.19m) Interim results to May 2009 saw revenues up 5% to £27m (£25.6m) and a pre-tax breakeven before exceptional items (profits £1.9m) with net debt of £16m. The group was hit hard by falling demand, especially in the USA where the automotive, aluminium and general industrial demand fell by as much as 50%. The £0.6m exceptional charge relates to significant head-count reduction – primarily in the USA. With some signs of stability in Metal Filtration, the other sectors of Energy, Nuclear Remediation and Industrial Process are doing well and should help the second half. The integration of Seal Analytical, acquired in the first half, has been completed successfully. We last recommended the share as a Hold at 72p on 04/06/09 and the shares have drifted higher. We still like the business but its exposure to the general markets, and indeed some with slow recovery prospects, suggests that the ratings are well up with events. In our June 2009 update 2009 Market Outlook we have moved the shares to a SELL with a price target of 60p.
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Kewill (KWL, 70p, £56.91m) Final results to March 2009 for the trade and logistics solutions and software business saw revenues of £53.3m (£50.9m) with pre-tax profits before the amortisation of intangibles of £6.974m (£6.537m) giving underlying EPS of 9.3p (9.5p), putting the group on an historic 7.5x PER, together with a full year dividend of 1p (0.75p) including a 0.7p final. The group ended the year with £4m of net cash. Investors should note that currency translation did help, but cost cutting, sales growth in Europe led by the German Government and the move to Software as a Service (SAAS) all helped the growth. Forecasts around £8.4m give 10.4p EPS, putting the group on a prospective of 6.7x PER - too cheap, BUY to the 83p level.