Hoodless Brennan Daily Small Cap News Flash


Dawson Holdings (DWN, 7.25p, £4.73m) News International has given notice of its almost immediate cessation of using the Dawson News distribution service. Although this breaks the existing contract there is no information regarding compensation or why NI can break the contract early. The turnover would have been worth some £30m from July 2009. We repeat our SELL recommendation with a lowered price target of 6.5p.


Harvey Nash (HVN, 40.5p, £29.72m) Trading statement for the first part of the year from February to mid June has highlighted excellent result with turnover up a further 3%. While permanent recruitment has been hit by the recession this has been partially offset by demand for off-shoring and outsourcing. Limited cost reductions have taken place. With forecast looking for a sensible £6.3m and 6.2p EPS the company is on a 6.5x prospective PER and will pay the announced final dividend of 1.2p to shareholders on the register at 3rd July, giving a yield of 2.96%. BUY to the 47p level.


Optimisa (OPS, 19.5p, £1.74m) The company has announced its intention to delist from AIM, this triggers an automatic SELL recommendation due to the future lack of liquidity.

Formjet (FMJ, 0.325p, £0.81m)
Has announced the sale of its Panda Software operation for £1.4m cash, including an earn-out of £0.2m. In the final results to December 2008 Panda represented £1.67m of sales and with average margins around 60%, then the company is getting £1.4m cash for an operation that could have been making £1m gross profits a year. However the exclusive licence for the software was expiring in 2010 so this sale merely brings forward the cash. More worrying is the decision the group needs to bring forward the cash and that is compounded by a placing to raise £0.2m at 0.25p.

The placing is with a single person, Andrew Monk, an ex-City CEO, so not a lot of relevance there, who will become CEO. A raft of management changes surprisingly does not include the executive Chairman especially given the destruction of shareholder value. Clearly existing shareholders get diluted again and Andrew Monk is surely certain to change the direction. We move form a HOLD, last iterated on 05/06/09 at 0.3p, to a SELL with an initial price target of 0.25p, though that could fall further once an update on trading is received.


Mavinwood (MVW, 2.25p, £10.48m)
The company has updated on trading – ahead of the EGM on 25 June where it is seeking permission to sell a number of its companies for a total consideration of £19.55m which will reduce the debt. Assuming the sale is approved the group expects net debt to reduce to £17m. A trading update is not particularly good reading with Document Handling expected to have results modestly below the 2007 level, yet there was only a 9 month contribution from the DCS acquisition, so actual decline will be above 10% - impacted by lower retrieval rates.

The Peter Cox business has been separated from the businesses being sold so will incur costs and has fallen into first half losses.

ANSA Building Services is now running off its principal contract with work ending on 31st October – the costs of the contract end will be £1.8m – and surprisingly will be treated as an exceptional cost in the 2009 results. The principal shareholder is underwriting a potential share issue of up to £10m till the end of September. Adding back the £1.8m of exceptional cost to our underlying forecast of £0.4m would give a 2009 forecast of £2.2m pre-tax profits which at 28% tax gives an EPS of 0.3p. With the group on a prospective PER of 7.5 times and the danger of a further dilutive share placing we rate the shares a SELL down to the 1.5p level.


Nexus Management (NXS, 1.155p, £10.86m)
The group has signed 13 new franchise territories in Las Vegas and the Henderson cities of Clark county, Nevada. The franchise signings bring the total to 180, with 25 active already. This confirms continued healthy growth in the franchise model and we repeat our SPECULATIVE BUY recommendation.


GoIndustry-Dovebid (GOI, 2.05p, £9.58m) Final results to December 2008 saw direct profit, generated by its auction/disposal business, of £23.22m (£17.77m) and an underlying loss before tax of £4.34m (Profit £0.65m) before £23.75m exceptional charges, relating to the write-down of goodwill, inventories etc following the February 2008 acquisition of US-based Dovebid. The impact of the downturn occurred in Q4 and the group reduced headcount and overheads in Q1 2009. The short term £3m convertible loan notes have been replaced with £5m of notes which mature in 2011. Trading was poor in Q1 but has recovered in March and since then been satisfactory.

A cautious best guess will be pre-tax profits between around £0.75m to £1m, albeit weighted towards the second half, which implies EPS of 0.11p to 0.15p, putting the group on a Prospective PER around 13 times. With a considerable bounce in future trading a potential, especially in 2010, we rate the company a SPECULATIVE BUY.


Motive Television (MTV, 0.45p, £1.54m)
Final results to December 2008 saw revenues of £4.07m (£3.14m) and a loss before tax of £1.233m (£0.595m) before a goodwill impairment charge of £0.258. Pre-tax losses accelerated from £0.51 in H1 to £0.7m in H2 as revenues fell from £2.17m to £1.36m due to the impact of the credit crunch. The second half of the year’s loss reflected an “unprecedented” contraction in new orders from the key customers, forced by falls in advertising income, as well as the costs of starting 2 new production companies.

The group has formed 2 new divisions, Motive International that will exploit the group’s content and create international product, and Motive Digital that will exploit the opportunities for the provision of digital TV distribution technology, based on technology where the heads of an acquisition agreement have been signed. The company has 5 production houses based throughout the regions, well placed given the increasing emphasis on regionally sourced programmes. Given a recovery will eventually happen in TV advertising and programme makers will see a return of product demand we rate the shares a SPECULATIVE BUY.


Plant Impact (PIM, 33.5p, £8.9m) has commented on its significant price fall and denied chat room speculation over the immediate need for cash. We rated the company a speculative buy at 41.5p on 15/06/09, so there is a very clear short term bounce potential. SPECULATIVE BUY.

Payzone (PAYZ, 1.93p, £8.51m)
Interim results to March 2009 saw revenues of €583.303m (€423.899m) and an underlying pre-tax loss of €8.71m (loss €7.10m), before exceptional items and amortisation. The weakening consumer sentiment across Europe has hit transactional volumes in both mobile phone top-up and the ATM business. In March the company announced it was in discussions with its finance providers and the company states that “Theses discussions are expected to result in changes to the Company’s financing arrangements”. Given the financing situation is unknown, the group still reporting losses, we rate the share a SELL.


Phorm (PHRM, £497.5p, £81.42m) Final results to December 2008 of this innovative on-line marketing and data capture company saw no revenues generated and a pre-tax loss of revenues of $48.022m. The group ended the period with $23.221m having used $41.54m, since the year end the group has raised $24m via a share placing. The group has completed a restructuring which has reduced cash-burn to $1.8m a month, so it appears the group has sufficient cash for the time being. Clearly controversial, the success will be determined by the percentage of users offered the service click to take it. Given the large scale trials are yet to take place we recommend the stock as a SPECULATIVE BUY.


Avon Rubber (AVON, 75p, £21.86m)
Has been awarded a further order for M50 mask filters form the US department of Defence worth $22.3m, for delivery by August 2010. The group also confirmed that deliveries of fuel storage tanks, the initial contract worth $10m has started in March 2009 and that an additional order worth $2.4m has been received as well. The group is returning to profits this year, with forecasts of £3m pre-tax profits with 5.3p EPS to September 2009, putting the group on a prospective PER of 14x. Forecasts to September 2010 are for pre-tax profits of £4.5m and 8.8p EPS - so a rating of 8.5x. On a year view we see the share price rising over 60% to 123p. BUY.


Earthport (EPO, 62.25p, £53.47m) Has issued a trading update, highlighting the appointment of a new Vice-President in the Middle-East operation and since his appointment the group has signed agreements with the Al Ghuair Exchange for Cash-to-Bank service from the UAE to the EU & the UK, with Al Ansari Exchange for the same service between the UAE and South Africa together with other territories later and with LuLu Exchange International for Cash-to-Bank from the UAE to the USA, South Africa, Canada, Japan, Australia, Malaysia and Singapore. As a result the outlook for the Middle-East operations is strong. Earthport has teamed up with 2 consultancy and business process outsourcing companies to use Earthport’s systems within their own operations as well as to sell to their clients. In Asia Redikard has completed the integration and is now operational. Elsewhere Earthport has established operations in Japan and Brazil.


Mulberry (MUL, 69.5p, £39.91m) Final results to March 2009 from this luxury brand retailer were sales of £58.6m (£51.2m) with pre-tax profits of £4.2m (£5.2m) with EPS of 4.5p (6p), well ahead of market expectations. The group has proposed a final dividend of 2p, taking the full payment to 4p. The group ended the period with net cash of £3.7m. Like-for-like UK sales grew 2% and overall UK sales grew 15%, wholesale sales grew 15%. The current year has started well with the first 10 weeks sales up 21% on a like-for-like basis. Current forecasts are for a substantial decline in profits to £1.8m and 2.2p EPS but the statement suggests that although the group remains cautious, the outcome will be ahead of these bleak forecasts. Assuming a flat year of £4.2m pre-tax would put the company of a prospective PER of 14.4 times. There may be some upside but in our view it’s fairly rated so HOLD.


Hartest (HTH, 20.5p, £1.76m)
Final results to March 2009 from this supplier of specialist instrumentation and medical equipment saw revenues of £20.7m (£21.7m) and an underlying pre-tax profit of £0.252m (profit £0.884m) before exceptional costs of £1.117m. The group has decided not to pay a dividend for the year. The exceptional costs were incurred towards the end of the year and will benefit the current year. A further £0.4m exceptional is anticipated this year relating to business relocation. Despite caution going forwards the group made £0.011m profits in H1 followed by an improved £0.241m in H2. An extremely cautious forecast of £0.35m would imply 2.8p EPS, putting the group on a prospective PER of 7.3x, sufficient to make the recommendation a BUY with a 23.5p price target.


Dialight (DIA, 130p, £40.61m) Has won commitments for its LED based strobe lighting to protect US telecommunications towers, worth some $12m over the next 24 months. The agreement covers just 5% of the total potential market. LEDs have a major advantage that they rarely require replacing – although that of course implies limited repeat revenue potential. Forecasts for December 2009 are for pre-tax profits of £4.2m and 8.31p EPS, putting the company on 15.6 times. Given the substantial market for LED lighting developing due to energy efficiency and reliability we see the shares as still having substantial upside and recommend the shares as a BUY with a price target of 166p.


Finsbury Food (FIF, 21p, £10.8m) Has announced the acquisition of Goswell Enterprises, a manufacturer of branded speciality breads for an initial £0.5m with the remaining £1.7m paid in instalments over the next 4 years, giving a total consideration of £2.2m cash. Goswell had sales of £5.4m and pro-forma EBIT of £0.4m in the year ending October. Although the structure will inevitably mean the acquisition effectively pays for its earn-outs, the totals consideration payable implies a PER of 7 times (though 1.8 times on the initial consideration) against a current PER for Finsbury of 3x to June 2009 and 2.5 times to June 2010. The low rating is due to the huge levels of debt carried by the company, but it appears able to service the debt but does require the continued support of the banks. With the banking caveat we rate the share a SPECULATIVE BUY.



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