The FTSE 100 closed up 1.9% on the week supported by Quantitative Easing (QE) which was increased by £25b, while the AIM All Share fell to 691.1. The raise in US Unemployment to 10.2% suggesting a jobless recovery and with gold to over $1,100 gives mixed messages of no increase in interest rates against inflation pressure/ further $ weakness.
UK Unemployment figures will be on Wednesday showing a run rate of 8%. Also on Wednesday will be BOE Inflation Report confirming that recession is lasting longer than previous thought. The report forms the thinking for further QE initiatives and whether there is room for some ‘non-inflationary’, consumer spending/tax incentives.
Education Development International (EDD) – £72m@1260 – Qualifications provider
Consistently beating estimates has been one of the key reasons behind the rise in the share price. Other AIM companies should take note. Many company directors like to whinge that their share prices are far too low while conveniently forgetting that they have consistently failed to meet forecasts. Companies tend to be rewarded for positive surprises but if they consistently fail to meet expectations it can take a long time to recover investor confidence.
EDI had an exceptionally strong year to September 2009. It is on course to report a jump in profits from £3.4m to £8m, albeit helped along by favourable currency movements.
This begs the question can EDI continue to grow rapidly? The truth is that it will not be regularly repeating the growth experienced last year. There are good reasons why EDI should continue to grow and profits of £9m are forecast for 2009-10. That is still a good growth rate.
EDI has a strong international brand in the form of the London Chamber of Commerce and Industry. EDI can expand internationally and it has a relatively modest market share. There is also scope for gaining market share in the UK. Government funding for training is significant and chief executive Nigel Snook believes that a Conservative government would save money by ditching education quangos rather than cutting back on vocational training.
Look out for the full year results on 24 November.
There is around £8m of cash in the bank and EDI pays a dividend.
Charteris (CAE) – £firstname.lastname@example.org – Business and technology consultancy
Charteris reported sharply lower profits in the year to July 2009 but it has cut its overhead base.
The business and IT consultancy will see the full benefits of the cost reductions this year. Even so house broker Oriel forecasts breakeven for the year to July 2010. That is broadly in line with the company’s own assessment that trading will continue in line with the second half of last year. Clients remain cautious so the timing of contracts is difficult to predict.
Revenues declined from £23.4m to £20.3m in the year to July 2009 but that included a 10-month contribution from SIG Consulting of £3.3m. The underlying decline in like-for-like revenues was £6.4m. There were redundancy costs of £617,000 and a goodwill writ-off of £1m. Excluding those, pre-tax profits fell from £1.39m to £438,000.
The acquisition of SIG Consulting moved Charteris into a net debt position of £746,000 at the end of July 2009. Charteris is reducing its dividend from 0.5p to 0.2p a share.
Metrodome(MRM) – £3.7m@2p – Film.DVD entertainment group with an emphasis on the ownership of media rights
Momentum seems to be building since the appointment of Mark Weller, an M&A specialist and 12% shareholder this week as Executive Chairman.
Metrodome release around 12 films a year; last month it was American Virgin (October) – starring Rob Schneider and this month it is the Other Man – starring Liam Neeson releases are followed up with DVD sales and there is also a classic range of budget films. The interims to June, reported in August, showed a 30% increase in turnover to £4.5m and a £159k profit. The first half was boosted by the Warlords which was released on DVD and Blu-Ray in March, following its theatrical release in the second half of last year, and outperformed all expectations. Mark has a strong track record of working with growing companies and is specifically experience in the M & A arena which is a principal focus for the group in the coming. The 53% shareholder certainly would have deep enough pockets to support a deal, which could be a library or following the lead company strategy, production or sporting events. Excluding the effect of The Warlords, total revenues showed an increase of 9% on the same period last year. Roughly worked, the full year profit could be in the region of £275k implying a non demanding P/E of 14ish given the prospects for accelerated growth.
The company around £600k cash at the interim and a credit facility for £1.9m so does not need fund for organic growth
Online (ONL) – £1.6m@21p – Holding Company
Despite the finals showing a strong improvement to an EBITDA profit of £641k, from a loss last time of £48k, however results will pulled back by a £298k write down on Smoking Gun so they still lost £535k compared to the £882k loss last year.
Online have a number of incubator type investments the largest of which is the 18% of ADVFN which is worth £4m at current price. ADVFN is a financial website for traders and seem to have benefited from the financial meltdown and stock market recovery. The main shareholders are Clem Chambers (who just increased his holding by 25k shares at 20p) and Michael Hodges. Interestingly they were joined, in August by a new shareholder, when Ron Izaki announced a holding of around 3.3%. This is clearly loose change as one of Ron’s companies, made around $320m, an estimated 2000% uplift when QXL was sold to a South African media company Naspers for $1.9bn in late 07. Ron is currently the major shareholder in Atlas Estate a £28m an Aim listed Real Estate company.
Administration costs were a mere £95k it would be hard to run it for less and there is around £56k in cash.
Red 24 (REDT) – £1.9m @5.9p – red24 is a provider of a range of security risk management services. Interims to the 30th of September showed a 16% increase in both revenue and profits. Revenue improved to £1.9m with PBT at £231k, a 12 % margin. Where it not for the adverse exchange rate movement this international business, with a data centre in South Africa, profits would have been around 15% higher.
The range of insurance and information services is mainly channelled down HSBC and AIG Travel Assist. HSBC continue to provide red24 services as part of its Premier and Plus banking offerings and this half year have added red24 to the First Directory account offered by its First Direct subsidiary. The contract with AIG Travel was extend five years and services will be offered to its customers in America and Asia on an exclusive basis. Red 24, over the years have spent time and great deal of effort with HSBC in product familiarisation and the service is now imbedded into their premier account offerings.
Ahead of the 2010 World Cup a contract has been signed with HRG Rennies, a corporate travel company specialising in South Africa and Red 24 are in place to benefit. Business can be expanded with insurance underwriters on aspects of their special risk business. It would seem that profits and earning are growing and if a similar second half is assumed the prospective PE would be 7x with a dividend yield of 5%.
Cash flow is positive and a loan of £125,000 was repaid and it is anticipated that all external debt will be repaid by the year end. The management confidence is illustrated by the payment of an 0.15p interim dividend.
Boomerang Plus (BOOM) – £8.3m@94p – TV programme producer
Boomerang Plus benefits from its regional strength but profits still fell in the year to May 2009. Boomerang had warned that full year profits would be disappointing but it has already secured contracts worth £16.9m for this financial year. Revenues were reported to be down from £20.9m to £19.8m in the year to May 2009, so it has already secured 2009-10 revenues that are within £3m of last year’s figure and there are still seven months to go in this financial year.
Stripping out the effect of the £642,000 of AIM flotation expenses in the previous year, Boomerang’s profit fell from £1.95m to £1.09m. Nearly all the latest profit was made in the first half. S4C is still a key customer although the recent purchase of Indus Films will dilute the Welsh language broadcaster’s importance to the group. Increasing volumes are off-setting the lower prices being paid for programming. Advertiser funded programming is set to become more important.
The cash position was weaker due to the timing of production payments. The cash in the bank more than halved to £3.03m at the end of May 2009. Net debt was £2.45m.
Boomerang has spent in £1.6m since the end of the financial year on two acquisitions and setting up an events joint venture. Most of this was spent on Indus and there is up to £1.295m of deferred consideration payable on that deal over the next three years.
Getech (GTC) – £email@example.com – Oil exploration information services
GETECH Group hopes that it will benefit from higher exploration spending by oil and gas but Nomura believes that the explorers may cut budgets.
The geological data and studies provider fell into loss in the year to July 2009 as oil companies cut back on non-essential spending.
Revenues slumped by one-fifth to £3.31m even though the US-based Lisle Gravity business was acquired during the period. A profit of £900,000 was turned into a loss of £628,000.
GETECH reckons that a relatively stable oil price of around $70/barrel will help confidence to return to the market. The company is already seeing signs of improving sentiment.
Broker Nomura believes that the major oil companies will not want to cut dividends so they will need to cut capital spending and sell assets in order to balance their books. Royal Dutch Shell has already announced an 8% budget reduction. Nomura argues that the other major oil companies do not have as strong balance sheets so they will need to cut capital spending by at least 10%. Nomura thinks that the gas sides of the businesses will be hardest hit.
If that happens it could mean that the oil companies will have less money to spend on the type of geological studies provided by GETECH. They tend to be bought at an early stage of exploration when potential targets are being identified. On the plus side, the companies may outsource more work to companies such as GETECH.
House broker WH Ireland believes that GETECH could break-even this year. However, it is difficult to predict what will happen because the 2010 exploration budgets will not be known until the end of 2009. There is also a chance that there will be money in the 2009 budget that has to be spent before the end of the year.
There was £580,000 in the bank at the end of July 2009. There is potential deferred consideration for Lisle Gravity. That should be paid for through the performance of that business. No final dividend is being paid.