Avesco Group (AVS, 20.5p, £5.13m), the provider of services to the corporate presentation, entertainment and broadcast market, reports prelims to 30 September 2009. Revenues fell 5% to £90.2m (2008: £94.8m) and moved into losses with adjusted pre-tax losses of £10.8m and adjusted EPS of -43.6p. Net debt stood at to £21.1m (2008: £19.8m). The group has access to £5.1m of funds in an undrawn facility and the renegotiation of its banking covenants provides it with further headroom. Tangible net assets stood at £37.8m, exceeding the current market capitalisation or £5.1m. Forward revenue viability is low, but the level of enquiries has improved. There are signs of some stability returning, with customers talking more positively about their future plans. The group should benefit from the Vancouver Winter Olympics, FIFA World cup and the World Expo in Shanghai and from the reductions in cost savings in 2010. The market forecasts 2010 PBT of £0.4m and EPS of 1.2p. The stock trades on a 2010 P/E of 17x. On an earnings basis the stock is expensive, but when we take into consideration the strong balance sheet with tangible net asset value exceeding current market capitalisation, we believe it is undervalued. The share price has fallen 25% since our sell recommendation on 1/10/09. Avesco is an asset play stock. Given the tough economic outlook, we do not foresee the share price to increase substantially in the short-term. We upgrade our Sell recommendation to a BUY.
Thorntons (THT, 101p, £69.05m) Trading update for Q2 to 9 January 2010 has confirmed good progress so expects interims ahead of the previous year. Excluding sales related to production of private labels rose 3% which together with lower discounting in stores led to better margins. Overall sales declined 2.4% to £80.7m with own-stores declining by 4.5% to £51.7m (like-for-like down 4.4%), franchise store sales down 18.1% to £5.3m reflecting the failure Birthdays while Thorntons Direct sales rose 10.9% to £4.7m and commercial sales rose 6.5% to £19m. We remain impressed by the management that have handled a truly awful trading environment – we continue to back them and repeat our BUY recommendation, last iterated at 119p on 07/10/09.
Verona Pharma (VRP, 16.25p, £38.80m) Update on developments confirms continued licensing talks on RPL554, the most advanced of its drug compound developments, the filing of 4 new patents relating to new compounds identified under the company’s NAIPs project and is preparing the clinical trial submission for its cough treatment. We moved the shares to a Hold at 19p on 11/09/09 so it is not unreasonable to return the shares to a SPECULATIVE BUY following a successful placing and positive news on the cough treatment.
Radicle Projects (RDP, 3.625p, £1.69m) has announced the completion of the restructuring programme which has seen the reduction in the face value of the Series A Convertible loan notes from £15.1m to £9.06m which will escalate back to their original value to their June 2012 maturity date. The effect is to reduce the interest payable (at 8%) and encourages the group to sell some of their assets to payback debt at the reduced face vale. In addition the group raised £0.82 m by the issue of 27.4m which gives the group time to sell assets in an orderly way and thus not suffer “fire-sale” prices. We maintain our SPECULATIVE BUY recommendation.
Travelzest (TVZ, 9.5p, £13.79m) Finals to October 2009 saw total transaction revenue rise to £189.45m (£179.24m) though the revenues the group derived fell to £38.35m (£44.32m) though better gross margins preserved the gross profit at £22.48m (£22.37m) which with slightly lower expenses saw underlying operating profits rise to £2.69m (£1.30m) and underlying pre-tax profits of £1.356m (£0.03m) ahead of exceptionals and goodwill amortisation that resulted in reported pre-tax profits of £0.72m (loss £4.93m). Net debt ended the period at £9.59m (net debt £10.77m), though the group raised £4.79m during the year so saw a £3.6m cash outflow. With a lower profit expectation for the year together with the 40% dilution from shares issued as part of the restructuring plan in September the outlook is for profits around £4.4m with EPS of 1.67p – putting the group on a prospective PER of 5.7x – appropriate for the time being – HOLD.
Styles & Wood Group (STY, 25.25p, £15.6m), the provider of retail property services to UK retailers, reports trading for the year ended 31 December 2009, is in line with expectations of PBT of 0.3p. The balance sheet has been strengthened following the refinancing, with net cash of £6.3m at 31 October 2009 (£8.7m on 30 June 09), but the company has spent £2.3m in 4 months. The company does not state the net cash position at the end of December, which suggests it is lower than £6.3m. Customers remain cautious with their investment programmes and management maintains a cautious outlook for 2010. However, the group is well placed to take advantage of any market upturn. Consensus estimates for 2010 of PBT of £1.1m and EPS of 1.2p could be downgraded. The stock trades on a 2010 P/E of 21x. On 19/11/09, we initiated with a Sell recommendation and a target price of 25p. Our target price has been achieved and we therefore upgrade our sell recommendation to a HOLD.
Innovise (INNO, 26p, £10.6m) The provider of enterprise service management solutions and IT solutions announced FY results to September 2009 this morning. This was a year of significant change for the company which completed 3 further strategic acquisitions for £7.8m and exited Data Technology Limited on 7 September 2009. Turnover of continuing businesses rose by 59% to £10.1m, largely resultant of the Infrasolve acquisition. Disposed businesses contributed a £2.1m loss to a reported loss of £1.4m and EPS of -3.9p but the group moves forward on a much sounder footing. Adjusted EBIT of continuing businesses was £1.4 m (£1.1 m), adjusted EPS 2.7p (2.6p) and good cash generation financed the entire cash component of acquisitions, leaving net debt unchanged at £2.0m and EBIT cover for interest at 4.8x. The rating looks reasonably good value on over 9.6x historic (on a clean basis ex-goodwill), with further dilution to come from acquisitions. We maintain our BUY on value grounds though we note the potential effect of dilution relating to outstanding consideration for acquisitions.
Bloomsbury Publishing (BMY, 130p, £95.79m) Trading update for the year ending December 2009 confirms “excellent sales” driven by new releases, the release of the Harry potter boxed set and the July acquisition of Tottel Publishing. Bloomsbury highlights the increasing quality of revenues that will arise from the partnership with the Qatar Foundation to publish peer reviewed scientific journals. The group expects period end cash to be around £35m. With trading in-line with expectations we maintain our HOLD recommendation, last iterated on 15/10/09 at 134.75p.
Luminar (LMR, 47.25p, £47.75m) Trading to December 2009 will miss expectations due to the impact of the cold weather and rising youth unemployment which is impacting both average spend and frequency of visits, despite a modest upwards blip in December. Overall sales in the 44 weeks to December will be some 8% below the previous year. Group borrowings continue to fall and were some £96m at the end of December. With forecasts falling around £5.5m to £5.8m followed by a potential halving in the 2011 year the shares rate a SELL to the 35p level.
Hydrogen (HYDG, 86.75p, £20.3m), the provider of professional recruitment services, reports in a trading update for the year ended 31 December 2009, normalised pre-tax losses will be slightly lower than market expectations of £1.7m and net cash has improved to c.£3m (H109: £2.4m). Trading marginally improved in H209 and there are signs the market is stabilising. In the UK market, the contract business continues to perform well, with the permanent business increasing in Q409. The Australian business has delivered a good performance and the group has opened its first office in South East Asia, where the group sees growth potential. The group remains cautious about the outlook. The strong balance sheet encourages the business to pay a second interim dividend of 3.6p per share. Therefore the total DPS for the year will remain flat at 4.1p, which the Board believe is sustainable. A 2009 yield of 4.7% is very compelling. The market believes the group will return to profitability in 2010, delivering PBT of £1.0m and EPS of 3.1p. The group stands on a 2010 PER of 28x, which is expensive, but given the 4.7% yield, we believe this stock is attractive. We upgrade our Hold recommendation to a BUY.
Alexon Group (AXN, 38p, £17.3m), the ladies clothing retailer that owns six womenswear brands, reporting a 14.3% fall in LFL sales for the 23 weeks ended 9 January 2010. The group continue to tighten working capital by minimising excess stock ahead of the new season through increased promotional activity. Gross margins will therefore be 0.8% lower than last year. Trading for H1 2010 is slightly below market expectations below. Net borrowing remains within the group’s current facilities. 2010 will continue to be challenging, but management are pursuing a number of initiatives to accelerate the turnaround. The market forecasts pre-tax losses of £0.5m and EPS of -0.8p in 2010 and PBT of £0.2m and EPS of 0.2p in 2011. We believe there is scope to downgrade 2010 estimates. The share price has fallen 16% since our Sell recommendation 30/09/09. We retain our SELL recommendation.