The FTSE 100 was coasting along well until Dubai’s debt sand castle starting sinking, after the initial shock it recovered to closed the week down -0.1% at 5245.7. The Aim All Share also finished the week marginally lower at 649.5. The prospects of the pace of the UK economic recovery is likely to be reduced as the Chancellor’s new estimate, ahead on the Pre-Budget Report on December 9th, GDP in 2009 is for the fall to be revised upwards to 4.75%. The US recovery with unemployment running at over 10%, is delicate. So although the Dubai situation is containable financial markets are in high alert to any further debt defaulters.


Gladstone (GLD)- £14.2m@29p – Healthcare & Leisure Software Solutions
The contested takeover bid during the year did little, it seems, to upset the finals as sales improved 2% to £9.73m and underlying operating profits increased 14% to £1.93m. There was however, a cost of £0.7m for defending the opportunistic and hostile offer from Constellation at 25p a share. The inherent robustness of Gladstone’s operations and products ability to improve its customers’ performance have enabled the Company to more effectively mitigate against the adverse impacts of the economic downturn. The focus is on long-term growth and £0.8m has been invested in developing the product range as the company continues to expanding its solutions beyond the UK health & leisure market, into complementary vertical markets and other geographies. As Gladstone has now reached an inflexion point in its growth, the Company is now looking to further broaden its Board as it seeks opportunities. The historic P/E of 10x is hardly demanding and the company are looking to change its share structure to enable it to pay a dividend.

The cash generated form operating activities increased 86% to £2.3m and year end cash in the bank increased 19% to £5.4m with net tangible assets of £7.1m

Armour (AMR) – £11m@15.75p – Home and automotive electronics
Armour Group produced better than expected profits for the year to August 2009.

The consumer electronic products supplier did well to continue to be profitable especially as the automotive-related business was tough.

The majority of the profits come from the home electronics market with the automotive division making a small contribution. The television stands business is becoming increasingly important to the company and the home office furniture range is starting to generate significant revenues.

Overall revenues fell 4% to £51.6m in the year to August 2009. Profits fell more sharply from £3.49m to £1.12m.

Armour has significant buying and sourcing expertise. Chief executive George Dexter reckons that Armour can still buy many items 20% cheaper than Tesco. This helps Armour to maintain healthy margins.

House broker FinnCap forecasts profits of £1.9m in the year to August 2010, which values Armour at just over 7x prospective 2009-10 earnings.

Net debt was reduced from £8.87m to £4.89m at the end of August 2009. The profits were turned into cash and there was a sharp reduction in working capital. Armour still managed to capitalise £1.85m on developing new products during the year. The dividend has been reduced from 0.65p to 0.3p a share.

I-Design (IDG) – £3.1m@23.5p – Market leading ATM advertising solution
The concept of I-Design is becoming established as it software product, atmAd, is licensed to approximately 12,000 ATMs and has been installed across some 6,400 ATMs in the UK and over 300 in Europe. These 12,000 ATMs account for just over one-third of all UK ATMs operated by financial institutions. The difficult banking sector environment has impacted on sales of new atmAd licensees. The Company, however remains the only provider both in the UK and overseas, with the ability to facilitate ATM advertising, deliver third party advertisers and run multi-network advertising campaigns.

Recent Finals showed a 14% increase in turnover to £2.37m but a operating losses increased 83% to £1.143m as there is continued investment in staff and infrastucture. The business model has yet to be proved. The current year is critical as this advertising solution is rolled out over further ATM networks on a profitable basis.

There is no immediate cash need as there is net cash is £1.7m.

ASOS (ASC) – £325m@445p – Online fashion retailer
The online retailer met expectations but third quarter growth has been relatively disappointing. Profits rose 9% to £4.4m on sales growth of 47%. Part of the reason behind the fall in margins is the widening range of products sold. Overseas sales are building up strongly – 161% ahead during the period – but the UK remains the core contributor. UK sales rose 23% in the first seven weeks of the third quarter. The comparative period was strong so it will be difficult for ASOS to grow much faster even though it has been used to higher growth rates in the past. ASOS tries to differentiate itself from other online retailers by offering better service, such as same day delivery and a money back guarantee on returns. This has also held back margins and to justify the premium rating or 24x March 2010 PBT of £20.1m it may need to find the ‘next thing’.

KBC Peel Hunt expects the cash pile to grow from £13.6m to £18.6m in the year to March 2010 even though capital expenditure is forecast to increase from £8.4m to £11m.

Byotrol (BYOT) – £25.5m@30.5p – Anti-microbial technology
Anti-microbial technology developer Byotrol reported strong revenue growth in the six months to September 2009 but this rate of growth will be difficult to maintain. Revenues jumped from £388,000 to £2m – more than double the level for the previous 12 months. Publicity about swine flu and other infections has undoubtedly helped and there was one big order from distributor Bunzl. The timing of orders is difficult to predict.

House broker Charles Stanley is sticking to its full year revenue forecast of £2.7m until there is more indication of second half trading levels.

The interim loss was reduced from £1.46m to £590,000. The higher revenues led to an increased working capital requirement. Byotrol hopes that its deal with Synergy Healthcare, which has taken a long time to generate serious sales, is finally getting into gear. Synergy has the distribution rights to Byotrol products in UK hospitals and has been slow off the mark in exploiting them.

The latest deal is with Boots which will increase the credibility of the Byotrol brand. This will also help to get the Byotrol name into the minds of consumers although other parts of the business have much more long-term potential. Although loss making Directors recent acquired £130K of shares at 31p.

There is still £1.68m in the bank after a £1.19m cash outflow. The working capital should partly unwind in the second half but a further cash outflow is expected.

Diploma (DPLM) – £191m@169p – Medical and engineering products distributor
Diploma continues to perform well even though its markets are tough and the divisions are exposed to North America and Europe rather than Asian markets. Underlying profits fell from £21.8m to £20.5m in the year to September 2009. Revenues rose 2% to £160m but this was flattered by currency movements. Life sciences reported an improved profit helped by acquisitions. Seals and controls both reported lower profits.

Diploma is selling the Anachem manual liquid handling business for up to £8.6m. Even though it generated a £1.2m profit, Diploma’s management believes it is a good price for such a mature business. The prospective September 2010 P/E of 11x is assuming profits of £25.8m.

The balance sheet remains strong. Cash generation increased net cash to £21.3m. The dividend was increased by 4% to 7.8p a share.

Diploma says that it has not found any good businesses to buy in recent months. It does believe that there could be an opportunity to make acquisitions at this point but finding ones that are worthwhile is the problem.

Avacta (AVCT) – £23.4m@1.875p – Diagnostics
Diagnostic equipment provider Avacta Group is starting to sell its Optim bench top analyser. Optim can analyse a range of things using biological samples as small as 1 microlitre. This can help pharma companies choose to concentrate on the best potential drugs. Three Optims have been sold so far but these sales were delayed until after the July year end. Each Optim sale could generate £75,000 plus around £12,000 a year from servicing and consumables. Avacta hopes to sell 15 Optim’s this year – so there are 12 more to go before reaching that target next July. Revenues more than doubled from £466,000 to £944,000 last year. The acquisition of the rebranded Avacta Animal Health business was behind most of the growth. The loss increased from £1.57m to £2.84m. That is after £905,000 of non-recurring admin costs relating to the integration of acquisitions.

The all share acquisition of personalised medicine company Curidium Medica in March 2009 was effectively a fundraising for Avacta. Curidium brought with it £2.41m in cash after expenses. The non-recurring admin expenses predominantly relate to former research projects undertaken by Curidium.

Curidium still undertakes contract work and there is potential upside from the work being supported by Takeda Pharmaceutical in Japan. Results of this work should be known within six months and they will determine whether this is worth progressing.

Avacta plans to launch a bench top system for vets early next year. Midas will sell for £3,000 with additional revenues from servicing and consumables. So far, one test – for canine immunity – has been developed but more are in the pipeline. Daniel Stewart forecasts a loss of £1m this year but a move into profit in 2010-11.

Net cash was £849,000 at the end of July 2009. Since then £2m has been raised at 1.5p a share.

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