Northgate (NTG, 110.25p, £77.78m) The update on refinancing the group’s loans has confirmed our fears of a need for further equity issue. The lenders have agreed to extend the June 2009 cut-off date and the group is making progress with its discussions. However the lenders have requested more equity in the business and Northgate has today warned of a cash raise requirement, with more details to follow. We went Sell on 30/04/09 at 144.75p and we maintain the recommendation until the dilution requirement becomes clear.
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STV Group (STVG, 66.5p, £24.42m) Trading update highlights national advertising still down but a modest recovery in regional ad spend from down 19% in Q1 to down 12 % in Q2, together with an increasing market share of the Scottish TV market. One method of reducing costs has been to opt out of the peak rating shows from ITV and substitute with locally orientated programming, thus enhancing viewers as well. The group has won its first commission from the BBC and is awaiting another contract for Taggart. Forecasts for the year to December 2009 are for £5.4m pre-tax profits with 11.77p EPS, putting the company on a prospective PER of 5.6x, too cheap, Buy to the 83p level – though investors should note the danger to the recommendation should the Taggart commission not be received.
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Talent Group ( TTV, 4.5p, £0.75m) Interim results to March 2009 saw revenues of £0.30m (£1.16m) with a loss before tax of £0.34m (loss £0.15m), reflecting the lack of commissions for TV shows. Losses increased partly due to additional spend of £0.11m on new product development. With little to encourage new shareholders we repeat our HOLD recommendation.
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Spaceandpeople (SAL, 65p, £7.566m) Interim results to March 2009 for this shopping centre and other high footfall areas ad agency saw revenues of £1.31m (£1.19m) with pre-tax profits of £0.22m (£0.29m) giving EPS of 1.43p (1.85p). The group ended the year with £1.25m net cash. The UK performed well with profits up 52% offset by the start up costs of £0.06m in Germany which is being hit by the downturn. The group is now reaping the benefits of scale, representing 230 venues in the UK, 65, in Germany, 41 in Hong Kong, and 25 in India. Profits are expected to be impacted by the continued German start-up losses. Forecasts are for £0.7m pre-tax profits with 4.6p EPS - putting the group on a prospective PER of 14 times. High enough, especially given our concern the forecasts require a significant improvement across the group. HOLD.
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Alternative Networks (AN. 99p, £44.15m) Interim results to March 2009 from this B2B telecoms reseller saw flat revenues of £45.59m (£46.09m), pre-tax profits of £4.36m (£5.07m), EPS of 7.3p (7.8p) and a proposed interim dividend of 1.6p (1.5p). The group has reduced group overheads by £2.4m annualised during the period. Cross-selling is building with 39% of customers now purchasing more than 1 product. Mobile sales were flat but within that ARPU’s fell 10% offset by 11% growth in subscriber numbers. Fixed line revenues were down as the number of minutes fell, offset by rentals. Margins generally are under slight pressure as revenues move from higher margin call revenues to rental income. The group is well placed to take advantage of acquisition opportunities with net cash of £5.5m with £12m of unused banking facilities. Forecasts of £9m pre-tax profits with 13.9p EPS and 5.3p DPS put the group on a prospective 7.1x PER with a 5.3% yield. We rate the shares a SPECULATIVE BUY with a price target of 11p which would be a yield of 4.8%.
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Fiberweb (FWEB, 69.75p, £85.4m) Has entered into a conditional agreement with Petrobarto establish a joint-venture to establish the 2nd largest producer of spunbond nonwoven fabrics in the USA. Both parties are injecting assets as well as intending to establish a new production line. Forecasts around £12m for the year suggest EPS of 9p, putting the group on a prospective 7.7x PER. We last commented on 20/03/09 at 34p when the group rated a BUY. Given the rise and sensible rating we drop the recommendation to a HOLD.
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Kedco (KED, 0.22p, £45.64m) Has signed a JV for a project in London. The agreement foresees 3rd party equity investment which has been secured as has the location and feed stock. The supply agreement is for up to 60,000 tonnes per annum and runs for 10 years, which could generate 12MW of electrical power and 10MW of thermal power. However another project in the UK has been delayed and that means this year’s results will be materially below expectations as the project profits will be recognised next year. The rating is well up with events and investors should consider TEG that has established income from composting and recently signed an agreement with UTS, European anaerobic leader. SELL to 0.18p.
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Silverdell (SID, 7.25p, £10.99m) Interim results to March 2008 from the UK supplier of asbestos remediation and consultancy services saw revenues of £29.7m (£27.3m) with a pre-tax loss of £0.34m (loss £1.13m). With the group maintaining sales momentum, with only modest gross margin pressure, new financial facilities and confidence of a return to profitability the shares appear reasonable value. HOLD.
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Garner (GAR, 2.5p, £1.77m) Final results to December showed revenues of £3.3m (£3.1m) with pre-tax profits of £0.35m (£0.49m), EPS of 0.88p (1.06p) and net debt down to £0.3m (£1.2m). During the period the group saw just 3 weeks contribution from the Norman Broadbent acquisition, and excluding that, the like for like sales of £2.68m (£3.12m). The Norman Broadbent acquisition has expanded the group’s client base to in excess of 250 clients. Forecasts of £0.9m with 1.2p EPS, reflect a good deal of caution regarding the outlook for international recruitment, put the group on a 2x PER. Recruitment is highly operationally geared so there is significant volatility in the outlook, nevertheless on a year view the shares rate a SPECULATIVE BUY.
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Sportswinbet (SWB, 10.5p, £5.99m) Final results to December 2008 showed sales of £0.50m (£0.21m) with a pre-tax profit of £0.32m (loss £0.1m). Trials of the Sportswinbet book generated the reported revenues but operational difficulties have been evident again and they threaten future income – which means 2009 could be less than 2008. The group is examining alternative strategies. The group has £1.7m in net cash. It’s hard to see the value here apart from the quote - worth some £0.5m at best and the cash – making a total of £2.2m – giving a SELL recommendation to the 3.9p level. Hopefully the management can find an alternative business and make use of the implied goodwill in the share price.
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Inspired Gaming (INGG, 2.58p, £1.88m) Has agreed the manufacture of its gaming cabinet, the “Storm” with Gauselmann, Germany’s largest machines operator. Swift roll out of this machine is important as it will take advantages of Inspired Gaming’s open server based gaining platform. We last commented on 29/04/09 at 3.175p as a SPECULATIVE BUY which we repeat.
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Forbidden Technologies (FBT, 8p, £6.09m) AGM statement is very encouraging with users finally recognising the advantages of web-based video editing, the FORscene product, that reduce the use of expensive editing suites. The board is “looking forwards to good progress for the 2009 year”. We last commented on 14/05/09 as a SPECULATIVE BUY at 7.25p, which we repeat.
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Nature Group (NGR, 12.5p, £4.86m) Final results to December 2008 from the provider of port facilities and waste water treatment services for the oil, marine and process industries saw revenues up 50% to £3.38m (£2.25m) with pre-tax profits up 30% to £0.51m (£0.39m) and a 36% increase in EPS to 1.754p (1.29p). At the end of the year the group bought the 50% remainder of the Gibraltar port reception facility it did not own. Notes of caution in the statement include the group will have to invest in people during the year and that Gibraltar was hit by storms in the first part of this year. However, despite the storms, trading to date is in-line with expectations and revenues are expected to grow substantially, not least due to the acquisition. The group has net cash of £0.61m and is seeking further opportunities including those that help widen the geographic exposure. The group confirms it is considering joining the dividend list and will update at the time of the interims, towards the end of September. Cautious forecasts for December 2009 are for £0.9m pre-tax profits and 2.6p EPS, putting the group on a prospective PER of 4.8x. The shares should receive a boost when they announce a dividend; will see growing volumes as trade returns to normality; and are too cheap. Buy to the 16p level. Shares are currently suspended at time of writing pending publication of accounts.
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Galleon Holdings (GON, 17.25p, £24.15m) Interim results to March from the media business saW revenues of £15.4m (£5.8m) with underlying pre-tax profits of £0.64m (£0.44m) and 0.4p (0.3p) EPS. The group has continued its roll out of Super Soccer Star programme and the property is now licenced in 47 territories. The success in China should contribute to continued success for the group due to its ability to market properties across a range of media, combined with toy sales and on-line games. Forecasts to September are for £1.3m and 0.68p EPS which may even be light, but they put the group on a prospective PER of 25x, falling to 17.6x in the following year. Given the rating, a HOLD for the time being.
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Cohort (CHRT, 175p, £71.08m) Final results to April 2009 showed revenues of £78.6m (£57.1m) and pre-tax profits of £6.5m (£5.6m) with EPS of 16.1p (14.6p) and a full year dividend of 1.75p (1.45p) with the proposed final dividend of 1.2p. The group saw healthy trading in all 3 divisions, SCS an independent defence consultancy, MASS a specialist defence development business and SEA surveillance systems and software house. Results were slightly below expectations around £7.5m. Forecasts around £8m with 15.4p EPS put the group on 11x prospective PER which is not onerous. Hold.
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Turbo Power Systems (TPS, 1.625p, £5.1m) Has announced it has renegotiated the minimum cash balances required to be retained by the company by the convertible loan holders. Originally the loan holders could demand full repayment if the cash retained fell below £750,000 and that had been reduced to £300,000 in an agreement that would have expired on 24 June 2009. The company states that it does not expect the level to drop below £300,000 but given the contract wins which are moving into full production, increased flexibility on working capital would be useful. In return the loan note holder will be able to demand full repayment at the end of this year if suitable repayment plans were not in place. Investors should be encouraged by this news and a $10m order in-flow. Speculative Buy.
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Petards (PEG, 0.55p, £3.50m) AGM trading statement from the advanced surveillance systems developer confirms trading is in line with management expectations, which includes a weighting towards the second half. The group continues to work developing overseas opportunities for the Transport and Emergency Services sectors and is seeing very encouraging demand levels in defence services. Still a Speculative Buy.
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Osmetech (OMH, 2.875p, £25.64m) Has placed 262,035,353 shares at 2p to raise £5.2m. Theoretical ex-placing price is 2.67p.
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Clinton Cards (CC., 21.75p, £45.01m) Has acquired 196 “Birthdays Ltd” stores from the administrator. Of the total £3.5m consideration, £3.25m will be met by Clinton Cards waiving the £3.25m owed to it by the group. In the year to August 2008 the stores had sales of 74m with a contribution of £2.7m. A sensible expansion of a business that does require a high street presence – and the group believes the acquisition will enhance earnings. Existing forecasts to August 2009 are for pre-tax profits of £1.7m and 0.8p EPS followed by £4.9m with 1.7p EPS in 2010. Even allowing for a major impact on current trading (so assume this year sees halved profits) the acquisition should take forecasts for 2009 to £1.85m with EPS 0.87p and next year towards £5.8m with 2.01p EPS, putting the group on a prospective PER 25x falling to 10.8x next year. Although the share price has moved well since our initial SPECULATIVE BUY recommendation on 21/05/09 at 16.75p, this is a good acquisition at a healthy price – so we continue the recommendation.
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Lavendon (LVD, 125p, £59.12m) Pre-close trading statement for its interim period from this powered access equipment rental operations highlights the first 5 months trading has seen sales down 5% or 13% on a constant currency benefit – though even those comparisons are flattered as last year had just 2 months from the Platform Company acquisition. Costs cutting in the UK is on-target to deliver £8m annualised savings with £6m seen in the 2009 financial year. Overall European operations, including the UK, have suffered while the Middle East has seen 76% growth in Sterling terms (39% in local currencies). Net debt is falling due to cost controls and working capital reductions. Forecasts for the year to December 2009 are for £17m pre-tax profits with 27.5p EPS, putting the group on 4.5x, Given the high levels of debt (£305m at December 2008) we continue to rate the shares a HOLD.
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James Latham (LTHM, 117.5p, £22.61m) Final results to March 2009 from this specialist panel and timber distributor saw revenues fall slightly to £113.094m (£117.188m) with pre-tax profits of £4.172m (£7.124m) with underlying EPS of 18.1p (25.7m) with a total dividend of 6.25p (including a final reduced to 4.25p from 6.1p) and NAV of £41.89m. The first 2 months of the current year have continued the depressed trading seen in the second half, though there are signs that margins are improving, though managing customer credit levels remains difficult given a modest increase in bad debts. With net cash of £9.7m the group has the financial flexibility to take advantage of opportunities. The H2 run rate of profits suggests the existing forecasts around £2.88m are probably too high by around £0.4m, a pre-tax profit outcome of £2.5m would imply 9.1p, putting the group on 12.9x prospective PER. The huge discount to NAV and underlying cash generation would have made this a BUY, however with the Latham family trust controlling 41% a bid is unlikely, SELL down to 10x prospective or the 91p level.
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John Menzies (MNZS, 144p, £86.70m) Interim trading statement highlights the Aviation business remains on –track, though results will be more weighted towards the second half and the Distribution business is trading ahead of last year’s levels. Debt is expected to reduce by £10m due to asset realisations and sale/leasebacks – leading to expectations of net debt between £140m and £150m by the year end. The interims are expected to be higher than the comparable period last year. With underlying H1 2008 pre-tax profits of £11.8m, forecasts look certain to drift up from £20m towards £23.8m with 28.7p EPS, putting the group on a prospective 5x PER. Probably too cheap by some 20% - BUY to the 174p level.
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LPA Group (LPA, 37.5p, £4.29m) Interim results to March from the lighting, power and electronics manufacturer and distributor saw revenues of £7m (£7.7m) and pre-tax profits of £0.079m (£0.173m), 0.54p (1.13p) EPS with an interim dividend of 0.5p (0.25p). The order book at the period end was £12.6m (£6.4m), deliverable over periods up to 3 years, and since the year end the group has received its first major LED order worth £5.7m. With a confident outlook, boosted by the LED technology helping the group penetrate new markets, and a NAV of £4.9m, the short term rating looks almost immaterial. The group is generating modest amounts of cash, but that will improve, BUY to the NAV equivalent – or 43p level.
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DCD Media (DCD, 12.5p, £6.69m) Has won contracts for 4 one-hour human interest documentaries from US cable company TLC. We still remain concerned over the level of debt so HOLD.
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Office2office (OFF, 130p, £47.20m) Pre-close statement for the interims to June 2009 from this managed procurement and business critical services group is healthy with trading ahead of the same period last year. Banner Business Services existing public and private sector customer demand has proven resilient with significant new contracts won. Accord, the mid-market managed procurement business saw some softening in Q1 but that has now stabilised. Business critical services offered by AccessPlus saw some success in cross-selling, partially offset by a decline in lower margin print volumes in Q2. The secure documentation service successfully completed its roll-out to most of the UK’s HMRC’s offices, and that success is leading to additional customers being secured. Forecasts of £12.8m pre-tax profits and 25.6p EPS put the group on a prospective PER of 5.1x, too low, BUY to the 156p level.
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Win (WNN, 54p, £5.48m) AGM trading update highlights the key emphasis is on growing revenues in the managed services and enterprises business, including the full integration of past acquisitions following the completion or earn-out periods. In the first five months gross profits have increased by 11.6% in UK Managed Services, while Pocket group’s Managed Services business’ gross profits rose 19%. New clients include Sun Micro Systems, Fujitsu, GE Money and Quattrocomm. Cost saving will result in an annualised £0.2m reduction in overheads. The New Media division experienced a 30% decline in gross profits, though that rate of decline has halved and new client wins are expected in H2. We retain our BUY recommendation, last iterated at 46p on 01/06/09, with a price target of 65p.
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Driver Group (DRV, 67.5p, £17.81m) Trading statement has highlighted that results for the year ending September 2009 will be comparable with the previous year due to an early settlement of litigation in Oman, the downturn in Northern England commercial building activities, lower numbers of large litigation cases in London and the impact of Sterling strength on translated overseas earnings. 2008 underlying pre-tax profits were £2.1m, which implies a lower EPS due to increased numbers of shares, around 5.7p. The shares are moved from a Buy, last iterated at 75p on 03/06/09, to a HOLD, with some concern that the implied H2 profit run rate is £1.6m – so some upturn is required to avoid a flat 2010 year as well.