LAST WEEK/ THIS WEEK
The FTSE 100 closed up 1.5% on the week helped by better than expected US jobs were unemployment fall to 10% in November. The Aim All Share also improve 0.8% to 654.9.
This week the Chancellor of the Exchequer will start his pre-budget report at 12.30pm on Wednesday. On Thursday the Bank of England announces its interest rate decision and no changes are expected. If there are any bankers about to be embarrassed by a super-tax on a well earned bonus – it could be worth considering an EIS Fund.
Clarity Commerce (CCS) – – £email@example.comRetail and leisure software
Software provider Clarity Commerce Solutions doubled its profits last year. Pre-amortisation profits improved from £300,000 to £603,000 in the year to September 2009. Revenues rose 10% to £8.84m. Support revenues account for nearly one-third of the total, with around one-quarter coming from additional business from existing customers. Clarity has integrated its different pieces of software into one product suite called ClarityLive. This covers retail, hospitality, entertainment and leisure sectors. Clarity continues to spend on developing software and it is partnering with other companies with mobile phone and social networking software. House broker Arbuthnot forecasts profits of £1.8m in the year to September 2010 which gives a prospective P/E of 8.4x.
Net cash was £227,000 at the end of September 2009. Bank facilities have been renegotiated. There was also potential deferred consideration of £3.54. Since then £2.7m has been raised through a placing at 40p a share. This has helped pay £1.5m of deferred consideration.
Clarity is looking at potential acquisitions that would fit in with the product set.
Hamworthy (HMY) – £124m@273p – Marine engineering equipment
Hamworthy’s revenue and profit fell in the first half and it is likely to continue to decline until 2011. The order book is 25% lower at £196m. Cost savings of £11.1m have been made are there is more to come. Hamworthy is still on course to make a full year profit of £19m, against £24.5m last year giving EPS of 34p so a prospective P/E of 8x while yielding 3%
Net cash increased to £63.9m. The interim dividend was edged up 5% to 3.2p a share. Hamworthy wants to maintain is progressive dividend policy.
Hamworthy continues to look for specialist environmental businesses with products that can be added to the range and where demand will be boosted by legislation.
Plastics Capital (PLA) – £11.6m@43p – Plastic products manufacturer
Plastics Capital appears to be through the worst and the figures for the six months to September 2009 showed some improvement on the previous six month period. Volumes are recovering but are still well down on 18 months ago. Management expects a long, slow recovery. Revenues still fell 19% to £12.1m – first half-on-first half. Raw material prices have also fallen and exchange rate movements have been more in favour of the company. Interim profits fell from £1.7m to £1.5m but this is much better than the £300,000 in the second half of last year. The print and packaging consumables and hose mandrels businesses were relatively strong.
Full year underlying profits are expected to improve from £2m to £3m, which gives EPS 9p and a prospective P/E of 5x.
Net debt was £18.2m at the end of September 2009. The company can cut debt by around £2m-£3m a year from cash flows.
Management says that it is unlikely that any decent businesses will be for sale for another year.
Focus Solutions (FSG) – £11m@37p – Financial services software
Focus Solutions had a tough first half with many contracts delayed but management still believes that it is on course to achieve full year expectations. Since the end of the first half the financial services software provider has won a contract with IFA network Tenet Group, which is worth £2m over five years. Other contracts are expected in the second half. Interim revenues declined from £4.9m to £4.3m in the six months to September 2009. That meant that pre-tax profit slumped from £740,000 to £150,000. Focus is moving towards transactional revenues.
House broker Daniel Stewart forecasts an improvement in full year profit from £1.9m to £2.4m in the year to March 2010. The shares are trading on 7x prospective earnings for 2009-10, falling to 6 in 2010-11.
One of the things that has hampered progress is the uncertainty over the Retail Distribution Review for financial advisers. Clarification is required on particular points. IFAs will have to comply with the changes by 2012 and they need to allow at least 12 months to have everything up and running.
There is currently £2.51m in the bank but Daniel Stewart estimates that net cash will be £3.6m by the end of March 2010.
Focus is still looking for software operations that will fit with its business by adding products or new markets but is unlikely to do anything with the share price at this level.
Zoo Digital (ZOO) – £firstname.lastname@example.org – Video post-production technology
Sheffield-based Zoo has developed software that speeds up the production and translation of DVDs and their packaging. This helps the film studios to save money. The latest software is a translation management system for the development and approval of art work. Zoo has also won a £350,000 grant to develop video restoration technology over the next three years in conjunction with the British Film Institute. Management is confident that this will become a product that can be sold around the world.
Zoo has changed its reporting currency from pounds to dollars because that is the currency of nearly all of its revenues. This gets rid of the previous foreign exchange translation gains and losses but it introduces a new translation gain or loss in the form of the value of the company’s sterling-denominated convertible loan notes. There was a $615,000 loss on translation in the latest interims.
Stripping out all the foreign exchange adjustments, Zoo moved from a loss of $489,000 to a profit of $387,000. Revenues increased 31% to $8.12m in the six months to September 2009.
The first half is the strongest part of the year. House broker FinnCap forecasts an underlying loss before foreign exchange of $300,000 in the year to March 2010.
Net debt was $5.42m at the end of September 2009. There was positive cash flow from operations but investment in intangibles and the foreign exchange movement meant that net debt increased.
Chamberlin (CMH) – £email@example.com – Engineer
Castings maker and engineer Chamberlin endured a tough first half but there are signs of recovery.
Chamberlin swung from an interim profit of £803,000 to a loss of £809,000 in the six months to September 2009. This was mainly down to the foundry business moving into loss. The engineering business, which makes security products and covers for hazardous electrical products, made a lower profit. Revenues fell from £23.5m to £14.2m.
Chamberlin has a wide range of customers. One of the fastest growing is the hydraulics sector. Chamberlin has won an important contract to supply turbocharger castings to a German car maker. This will start generating revenues in the fourth quarter of the financial year. It will be worth £3m a year in revenues by 2011-12.
At 52.5p a share, Chamberlin is valued at £3.9m. That is roughly one-half of the net asset value of Chamberlin. Even if intangibles are excluded the NAV is £7.42m.
Charles Stanley forecasts a full year loss of £1.3m, compared with a profit of £300,000 the previous year. The broker expects Chamberlin to return to profit in the year to March 2011.
Despite the loss reported, Chamberlin generated £100,000 in cash from operations. Net debt was £3.53m at the end of September 2009. There is a pension scheme deficit of £2.84m.
The recession delayed the search for acquisitions but Chamberlin is looking again. Acquisitions are unlikely to be in the foundry sector and management has also decided against aerospace and direct automotive suppliers.
The acquisitions should be in a different, niche sector of engineering and have an experienced management. The first is likely to be in the UK but Chamberlin will consider European acquisitions later on.