Rok (ROK, 48.75p, £87.41m) Has been awarded preferred bidder status as part of the consortium in Oldham Housing Project which is worth a total of some £130m. We maintain our BUY recommendation, last iterated on 24/09/09 at 53.75p, with the same 60p price target.
Aminex (AEX, 8.8p, £36.7m). The Aminex Q3 statement looks fairly neutral and does not add greatly to the interim announcement. The group is trading broadly in line with expectations. The US business is largely performing with continuing development of small reserves to capitalise on the recovery of oil price. The company is seeking partners to share the risk of deep exploration drilling at Shoats Creek (100% Aminex, so plenty of ability to farm down) where it believes there could be a significant resource. However we are waiting two major pieces of news flow. The first relates to the protracted talks on approval for the pipeline operator to expand its gas treatment plant which would enable it to accept Kiliwani North Tanzania gas (the discovery which tested at 40m cubic feet per day in 2008 (50% Aminex). Of course the second piece of newsflow relates to the Ruvuma well to be drilled in the next couple of months by Tullow (37.5% Aminex following farm down to Solo). Cashflow has been shored up by the recent boost from the Ruvuma farm out. SPECULATIVE BUY.
GTL Resources (GTL, 58p, £18.5m). GTL the renewable fuel company specialising in bio ethanol production reported upbeat results H1 this morning which hasten a quicker than expected return to profitability. Partly this was the result of substantially improved market commodity margins, ($0.53/gallon versus $0.31/gallon for the same period last year) and also resultant of increased output with ethanol production reached 53 million gallons for the period, the plant averaged a run rate 6% above its 100m gallon per annum capacity. The outlook for positive market margins is expected o continue as the US Renewable Fuels Standard (RFS) calls for higher levels of ethanol to be blended into the fuel stock while the stronger oil price encourages blending. A reduction in supply form Brazil where producers have switched a portion of their ethanol output back to sugar in light of favourable sugar pricing) has resulted in relatively high levels in recent weeks. If this performance continues the group is extremely cheap on a 2010 view at only around 3.3x earnings reflecting the uncertainty. This performance should go some way to restoring confidence. SPECULATIVE BUY.
Entertainment One (ETO, 39p, £50.83m) Interims to 30 September 2009 are in line with full year market expectations. Revenues up 25% to £163.6m (H1 2009: £131.1m), but a 76% increase in printing and advertising costs, to support the increase theatrical releases, led to adjusted pre-tax profit of £2.8m (H1 2009: £4.1m) and adjusted EPS of 1.0p (H1 2009: 2.1p). Theatrical box office revenues remains robust and H2 will see around 72 releases planned including a number of high profile movies such as The Twilight Saga: New Moon. The TV business has secured new productions and renewed existing shows will benefit H2 2010 and H1 2011. E1 Kids continues to deliver strong results whilst the North American distribution business continues to be in line with expectations and the IS music business has stabilised. The group’s film, television and music library as at 31 March 2009 is valued in excess of US$220m (2008: US$170m), but net debt has risen by 23% to £110.9m (FY09: £89.8m). Brokers 2010 pre-tax profit forecasts range from £16.6m - £20.4m, EPS of 8p-10.9p and in 2011 pre-tax profit of £24m-£28m and EPS of 11.4-14.1p. If we assume the most prudent earnings estimates, the group trades on a prospective 2010 PER of 4.9x falling to 3.4x – a discount to the media sector which trades on c.6x. We retain our SPECULATIVE BUY recommendation with a one year target price of 48p.
Trafficmaster (TFC, 31.5p, £43.05m) Trading in the second half, from June to 17 November, states the group is on track to deliver the same level of profitability as last year. However last year the group period £4.9m PBT and with forecasts around £5.3m this represents a downgrade of some 8%. In the USA larger fleet tracking accounts have made progresses, while smaller accounts remain depressed. In the UK fleet tracking the group has won a number of notable contracts. Overall Business (fleet) services revenues are up 20% year on year. Consumer Services has been impacted by the decline in new car sales – though the division remains profitable. Overall the group is reporting a growing sales pipe-line, but does warn that visibility is limited by lengthening sales cycles. We last commented on 16/07/09 at 29p when we set a price target of 32.5p – with the lowered expectations for the year we move the share down to a HOLD.
UTV Media (UTV, 112.5p, £107.89m) Trading statement for the 10 months to the end of October reports that revenues have shrunk some 8%, 12% on a like-for-like basis excluding the benefit of the FM104 and Tibus acquisitions and the launch of Sport Magazine that was first published in June. Radio GB is down some 10%, believed to be ahead of the UK market down 13%, with further improvement expected in the remaining part of the year. Radio Ireland grew 1%, though like-for-like was down 19% offset by Sterling translation and the acquisition of FM104 with November and December expected to be down some 8% on a like-for-like basis. Television revenues fell 21%, dragged down by a 25% decline from Ireland with November expected to be down 10% and just 3% in December. While the group will achieve £6m cost savings in 2009 it does expect some additional costs in 2010 to take advantage of opportunities, such as the World Cup. The group expects results broadly in line with expectations - but does warn visibility is limited – offset by the hopes of a better next year. Forecasts around £17.5m PBT with 14p EPS with some 4-5% growth next year put the group on an 8x prospective PER falling to 7.6x. This is reasonable value and thus we move from our too cautious Sell, last iterated on 27/08/09 at 74.5p to a HOLD.
Optare (OPE.L, 7.25p, £16.9m) has entered in to a £2.5 million overdraft facility to replace the group's existing facility. The group's Rotherham site is up for sale and the proceeds of the sale will be used to pay down the mortgage loan. The renewal of the banking facilities confirms our views that the group will survive the downturn. As expected, the market did downgrade 2009 estimates to pre-tax losses of £2.0m (previously profit £1.9m) and EPS of -1.4p. In 2010, the market forecasts pre-tax profits of £3.5m and EPS of 1.1p, which seems bullish at this stage. Since our sell recommendation on the 21/09/09, the share price has fallen by 28%. We therefore upgrade our recommendation to a HOLD.
Litho Supplies (LTS, 4.5p, £1.00m) reports in an IMS that the printing market remains challenging. The group continues to suffer from delays in funding for customers, reductions in printing services and deferrals of new marketing campaigns have slowed down sales. The weak sterling will continue to put on pressure on margins. However, Litho has seen an upturn in the last quarter which is an encouraging sign. H2 sales are expected to be slightly lower than H1’s £18.9m. Further cost cuttings and tighter working capital will allow the group to report a significantly improved overall performance in H2 – we anticipate a reduction in pre-tax losses from H1’s £1.3m. Net debt stood at £3.1m at the end of June 2009. The group may require funding in the near future. On 29/08/09, we rated the stock as a sell. Since then the share price has fallen 45%, we therefore move our recommendation to a HOLD.
Software Radio Technology (SRT, 10.5p, £10.27m) Interims to September showed revenues up 122% to £2.09m (£0.94m) with an underlying break-even (pre-tax loss of £0.38m). The group ended the period with £0.71m of net cash up from £0.54m at the year end – reflecting favourable working capital movements that offset a £0.20m operating loss. With losses expected for the following year as well we see the shares well up with events, HOLD, last iterated at 7p on 03/09/09.
Corin Group (CRG, 72p, £30.81m) Trading in the second half, from end of June to 17 November, has highlighted underlying constant currency sales growth of 10% - withy a similar level expected for the remainder of the year. Margins have been adversely affected by the currency move from £:$ 1.49 average in H1 to 1.63 in H2. Forecasts around £1.59m with 2.1p EPS put the group on a heady 34x prospective PER. We maintain our SELL recommendation, last iterated at 52p on 30/03/09.
Hasgrove Plc (HGV, 59p, £14m, SELL). Hasgrove is a pan European marketing and communications group operating 2 divisions; Digital and Communication Services and Public Affairs and Strategic Communications. The year end update was mixed with relatively upbeat news in a number of contract wins including for Coca Cola, GSK, ISPO and EDF Belgium. The annualised value of new projects exceeds £1m but some project decisions are still being deferred into 2010 including two significant assignments that were expected in the third quarter. The statement also warns that the impact of new contracts will predominantly be in 2010 and strictly speaking this is a profits warning albeit with a significant silver lining. The change in focus to Association Management and Digital and this has resulted in one off recruitment costs of £250,000. ‘Unprecedented’ pre-sales activity has added additional costs of £700,000 though these may not be exceptional costs the company expects to trend back to more normal levels in 2010. The net effect of these exceptional and other costs us that the group expects PBT to be in the order of £2.6m. This looks around £1m shy of the markets estimate of £4.4m PBT marginally behind on an underlying basis if we consider the additional marketing and recruitments costs as one offs. While the company still looks reasonable value with good prospects we would expect the shares to come off today. Short term SELL down to 45p.