Discover Leisure (DISL, 1.225p, £1.90m) Final results to August 2009 saw revenues of £84.44m (£135.77m) with an underlying pre-tax loss of £7.89m (loss £0.24m), before inventory provisions, goodwill impairment, a gain arising from a company voluntary agreement, property and plant impairments, restructuring costs, receivable provisions and share payments that hit profits by a further £8.83m (£3.48m). The group ended the period with net debt of £14.35m (net debt of £22.62m) and net assets of £9.60m – though that figure does include £9.95m of intangible assets. The group was hit hard by the fall in the market for recreational vehicles (caravans and motor homes) which hit sales and potential margins on inventories held. The group shrank its retail outlets from 16 to 5 based on freehold sites and has resulted in a £6.4m reduction in overheads if the September and October 2009 results are annualised. Further cost reductions are forecast for Q1 of the 2010 year. With the group now entering the traditionally quieter trading period we rate the company a Hold, noting the potential of the group reaching breakeven this year and its better positioning to make profits in a volume upturn. Moved from a Sell, last iterated on 29/05/09 at 0.875p, to a HOLD.
Cove Energy (COV, 20p, £53.6m) gave a drilling update on Rovuma, Mozambique operated by Anadarko, where it holds a conditional 8.5% offshore & a conditional 10% onshore. The fully funded 4 well offshore drilling programme is set to commence in the next few days using the Belford Dolphin drillship. It will set surface casing for the Collier well, move to the drill the Windjammer prospect before returning to complete Collier. The Medusa 1 commitment well onshore Mozambique encountered hydrocarbon shows but has been plugged and abandoned as evaluation continues which is not good but fairly neutral news. On Thursday the company announced that non exec Ivan Murphy left the Board with immediate effect to be replaced by Frank Moxon an experienced financial and strategic adviser specialising in resources. As a non exec directorate change this does not have too many connotations from an operational standpoint but as Mr Murphy was the representative from Gazprombank this does introduce some uncertainty given investors introduced by the latter. However, given the proximity of drilling we would be surprised to see any significant shareholder movements at this very exciting stage. SPECULATIVE BUY
Renewable Energy Generation (RWE, 68p, £70.21m) has won a 5 year contract with the Port of Dover for a 150kW Volvo diesel gen-set that will run on recovered cooking fat and generate both power and heat, partially fulfilling the Port’s 6-8MW of annual energy consumption. Still a SPECULATIVE BUY.
Sanderson Group (SND, 19.5p, £8.46m) Finals to September 2009 saw revenues down to £24.90m (£27.55m) and underlying PBT down to £1.07m (£3.22m), EPS of 4.0p (9.6p) and total DPS of 0.4p (1.4p) for the year. The results reflect a strong return to underlying profitability (just less than £1m in H2) following a recovery in the underlying markets and cost cutting measures in H1. Recurring revenues of £13.56m (£13.45m) representing 55% (49%) of total revenues. H2 was boosted by customer wins which should continue to benefit 2010. Net debt fell to £9.96m (net debt £10.66m). This was a strong performance in poor market conditions. With forecasts of £2.1m PBT with 4.57p EPS and a DPS around 0.5p, the group is on a 4.3x prospective PER with a potential yield of 2.6%, we maintain our BUY to 30p recommendation, last iterated on 02/11/09 at 18.5p.
Plant Impact (PIM, 32p, £10.06m) Interims to September 2009 saw revenues £0.97m (£0.23m) with a reduced loss of £0.89m (loss £1.25m). Gross cash of £1.58m (£1.85m) and net cash of £0.82m (£0.51m) represented a net cash usage of £1.73m, offset by the cash raise during the period. The cash reflects the first milestone payment from the Arysta BugOil agreement. Since the period end the group has received an EU grant towards its development of Nematicide technology. The sales increase reflected increased sales of nutriments in the USA and the Arysta payment.
smartFOCUS Group (STF, 11.5p, £10.8m), the provider of multi-channel marketing software, has been selected by LV= (Liverpool Victoria), to streamline and simplify its entire marketing strategy. The value of the contract has not been disclosed. The market forecasts 2009 EPS of 0.38p growing by 66% to 0.63p in 2010. The stock trades on a 2009 PER of 30x falling to 18x in 2010 – a substantial premium to the market.
Tracsis (TRCS, 51.5p, £10.0m) has entered into an agreement to acquire Safety Information Systems (SIS), a provider of data analysis, process control and management reporting software, for a total consideration of £0.515m. The acquisition is financed by an initial sum of £0.415m in cash and £0.05m in shares. An additional payment of £0.05m will paid if targets are achieved in 2010. For the year ended December 2008, SIS reported sales of £0.33m and operating profit of £0.19m. On the basis of the reported figures, the group is paying around 2.7x historic operating profit for the acquisition. SIS operates predominantly within the UK rail sector, with some clients in the marine and energy generation sectors. The acquisition will generate synergies, broaden the group’s customer base and offer cross selling opportunities. We retain our SPECULATIVE BUY recommendation.
Prologic (PGC, 37.5, £3.75m) the provider of software, services and consultancy to the fashion & lifestyle sector announced interims to 30 September 2009. Revenue was down 4% to £4.8m (2008: £5m) showing some resilience, recurring revenue increased slightly to 54% of total (52%), gross margins fell slightly to 37.5% (40%) but admin expenses also reduced by 12% to £1.79m (£2m) producing a marginal EBIT of £14k (£26k) while EPS were 1.5p (0.6p). Net cash was £1.19m (£1.75m). The group was awarded a £0.75m contract from Go Outdoors, £0.2m from Dune and after period end Ted Baker launched new website - the first to be based on Prologic's eCommerce solution. There was also the fast track roll out of 442 tills into 160 stores for Internacionale Retail. The group warns that the delay of its eCommerce roll out is expected to push some opportunities into next year and together with a lengthening sales cycle likely to impact revenue for the full year. The group has good gross margins and has reduced operating costs whilst maintaining sales which suggests that it could benefit from leverage particularly if it gains traction in its eCommerce offering, it trades a t little over double its cash and at a reasonable 7.8x FY rating, though this will probably rise given the warning over H2 - we will keep a watching brief but maintain our HOLD for now.
Treatt (TET, 271.5p, £28.46m) Finals to September 2009 saw revenues rise 13% to £56.31m (£49.64m) with PBT 14% higher at £3.50m (£3.06m), EPS up 26% to 24.5p (19.4p) and DPS up 7% to 12p (11.2p). A strong operational cashflow enabled net debt to fall from £16.46m to £9.57m. Overall strong performances were seen from the UK operation (RC Treatt up 6%) and the fair trade business, Earthoil, (up 42% in the first year of full ownership) while the US was impacted by the economic downturn and the absence of supra-normal profits on lemon oil sales (sales down 6%). The group has warned that it sees 2010 as a year of consolidation, order books are lower than last year and the new year has started with sales and margins lower. While the group reminds us that it is exposed to the world recovery and the seasonally important Q2 and Q3 are still to come, we see some caution in the numbers going forward. Forecasts around £3.1m PBT and 19.5p to September 2010 puts the group on 13.9x – appropriate. After a long bull run, we move the shares from a Buy which was last iterated on 21/07/09 at 227.5p, to a HOLD.
Watermark Global (WET, 0.875p, £6.01m) has signed a co-operation agreement with the Industrial Development Corporation (IDC) of South Africa Limited for its acid mine drainage project. The agreement will see an additional R5m (some £0.4m) for the completion of the Environmental Impact Assessment, off-take agreements and additional engineering work when required by IDC. As part of the agreement IDC has the right to fund up to 10% of the project. We maintain our SPECULATIVE BUY recommendation.
Amino Technologies (AMO, 27p, £15.6m) still anticipates a material operating loss in H209 (ended 30 November 09) following order slippages and component shortages. However, the group reports a strong order intake in H209 with c. 280k units (H208: 239k units, H109: 167k units), representing c. £20 million of revenue. 115k units (FY2008: 4k units) are due for delivery in 2010. 71% of the units and 79% of the revenue booked in H2 related to higher specification MPEG-4 and HD product lines. The strong order book for 2010 combined with the cost savings (£11m annualised) provides the group with some confidence. The share price has fallen 38% since our sell recommendation on 3/11/09. The market has downgraded estimates, now forecasting 2009 pre-tax loss of £5.8m and EPS of -10.25p. In 2010, the market forecasts PBT of £0.19m and 0.13p – which puts the stock on 208x. The strong balance sheet with net cash of £9.0m at the end of November 2009 combined with the fall in the share price encourages us to upgrade our Sell recommendation to a HOLD.
AssetCo (ASTO, 71.5p, £64.9m) reports interims to 30 September 2009. Sales fell 4% to £27.9m (H109: £28.9m), but adjusted pre-tax profit went up 15% to £5.4m (H109:£4.7m). Net debt stood at £74.2m. The group is trading in line with 2010 expectations of PBT of £10m and EPS of 9.5p, which puts it on 7.5x in 2010. A suggest DPS of 2p, provides investors with a 2.8% yield. We like this stock. On 5 October 2009, we initiated with a Buy recommendation. Since then, the share price has gone up 44% and exceeded our target price of 70p. Given the revenue visibility from the PFI contracts, we retain our BUY recommendation and upgrade our target price to 90p.
Blinkx (BLNX, 16p, £48.9m) The world's largest and video search engine will be partnering with the WWF's Inside COP15 between December 7th and 19th to show up-to-the-minute footage from the Copenhagen Climate Summit. Blinkx will place ‘contextually relevant’ advertising against these videos and share resulting advertising revenue with Inside COP15. Difficult to gage the commerciality of this deal as this is obviously subject to advertising take up but a as high profile event this looks like a reasonable and vogue profile raiser for Blinkx which at this stage of its development is probably of equal impotence. SPECULATIVE BUY
Rotala (ROL, 50p, £16.4m) announced an upbeat trading update for 12 months to 30 November in line with market expectations (Fidessa reads £2m PBT, 7.2p EPS). The company will also pay a dividend which looks contrary to market expectations - a major positive. We previously flagged how difficulties faced by other operators could play into the smaller company’s hands and Rotala has continued to win new contracts and expand with new bus operations in Bath, Birmingham and Worcester. Customer retention is also a positive; the Heathrow operations were renewed to February 2015 while the group extended contracts with Qantas for an additional 3 years and Cathay Pacific. With this years earnings looking secure with a rating of >7x we can begin to look to 2010 where the rating falls to 4.3x and looks very good value. BUY