Monday 22 June 2009
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.
ADDLINKHERE
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.
ADDLINKHERE
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.
ADDLINKHERE
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.
ADDLINKHERE
Friday 19 June 2009
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.
ADDLINKHERE
Sarantel (SLG, 2.25p, £4.27m) Has started shipments to Thales for its GPS antenna for retrofitting into existing military radios. There are currently some 100,000 units in the field with 1/3 with the US Army. Still a HOLD.
ADDLINKHERE
DQ Entertainment (DQE, 82.5p, £29.67m) Has released a trading update for the year ending March stating it will meet market expectations and that 2010 is expected to be another year of growth. With 2009 forecasts of £3.84m with 10.26p EPS and 2010 forecasts around £6.9m pre-tax profits and 18.42p EPS we repeat our BUY recommendation, last made on 18/05/09 at 62.5p and raise our price target from 80p to 110p.
ADDLINKHERE
Xploite (XPT, 49.5p £19.56m) Interim results to April for the operator and aggregator of strategic and high growth IT reported healthy growth in the Anite Group to sales of £21.3m (£21.6m) and profits of £2m (1.7m) with EPS of 1.65p (loss 0.54p). It is the hardware business that the group has sold post the interim period for £28.5m cash. The group has formed a separate storage software division to focus on the Storage Resource Analysis (SRA) product. However to date the take-up has been slower than expected. Given this implies a probable loss before tax or at best H2 breakeven then the outlook is for profits around £2m, well below existing forecasts around £3.1m. The net debt of £10.9m at the interims has become a cash pile of £17.6m, implying an EV of just £1.96m – probably right given opportunities for acquisitions at the bottom of the market. As such the group commands a SPECULATIVE BUY as the management has a proven a demonstrable record of buying and building, though investors must be aware the share-price is only as good as the next acquisition.
ADDLINKHERE
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.
ADDLINKHERE
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.
ADDLINKHERE
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.
ADDLINKHERE
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.