LAST WEEK/ THIS WEEK
The FTSE 100 closed down 1.1% over the week at 5261.6 while the Aim All Share closed at 641.1 a fall of 2.0%.
The uninspired Pre-Budget may have set the scene for an early election in March as who knows what the economy will be doing by May particularly it seems not the chancellor.
Clearly as we enter the silly season volumes will reduce until Friday where there is a triple witching when stock options, futures expire , could this trigger some volatity? We will be around next week to report.
Bango (BGO) – £13.6m@47p – Mobile telecoms services
Bango reduced its loss in the six months to September 2009 thanks to strong growth in the US. Bango‘s technology enables content providers to market and deliver content over mobile phones using mobile internet. Revenues jumped 83% to £12.3m, while the pre-tax loss declined from £592,000 to £242,000. Revenues from Europe and the rest of the world declined, whereas revenues from North America almost quadrupled to £9.38m. Bango is about to sign Verizon up to its services. Verizon is the number one mobile network in the US. This means that Bango will be servicing all the top five mobile networks and provides scope for further growth. Profits of £220k are forecast on revenue of £3.1m giving EPS of 0.58p and a prospective P/E of 79x.
There was a cash outflow exacerbated by £371,000 of capitalised development spending. Net cash has fallen from £682,000 to £144,000 in the six month period.
Silverdell (SID) – £firstname.lastname@example.org – Asbestos removal
Asbestos removal and consultancy group Silverdell is starting to benefit from the strategic review by management. Revenues fell from £61.4m to £59.5m in the year to September 2009 and there was an even bigger decline in the second half. Underlying operating profits fell from £1.6m to £1.5m but this represents an improvement in the second half.
The order book is worth £45m, with £28m of that due for delivery in 2009-10.
This is a legislation driven business with scope to expand into related areas. Margins are still coming under pressure but Silverdell accounts for around one-fifth of a £300m market so it is in a strong position.
Chief executive Sean Nutley has acquired 127,000 shares at 11.75p each, which takes his stake to 2.26%. The shares are trading on 9x forecast earnings for 2009-10.
Net debt was £4.7m at the end of September 2009. Earlier in the year, Silverdell raised £5.5m at 5p a share and cash generation was strong.
Datong (DTE) – £4.91m@35p – Surveillance products
Surveillance technology developer Datong’s order intake is stronger than expected. The order intake for the first six months of the year was £4.91m and this has increased 79% to £7.8m since then. There are £800,000 worth of orders subject to export licence approval. Most of these orders are deliverable before the end of March 2010 so they should be included in the twelve month figures. Revenues grew 86% to £2.81m in the six months to September 2009. Much of that revenue growth has come from America. The pre-tax loss declined from £1.62m to £1.31m and the CEO stated that he expected the second half to be “very profitable”. Full year expectation is for PBT of £200kon turnover of £12m for a prospective P/E of27.3x
Although there are worries about government spending levels Datong reckons savings will come from the budget for large capital equipment rather than intelligence gathering equipment. New products should help to increase sales and there are prospects in the Middle East and Asia.
The yearend has changed to September so the next full financial period will be the 18 months to September 2010. There was net cash of £1.67m at the end of September 2009.
Datong would like to acquire businesses with surveillance products that will broaden the technology portfolio.
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 for an EPS of 5.4p giving a prospective P/E of 6.8x
One of the issues 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.
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.
Geong (GNG) – £email@example.com – Enterprise content software
Enterprise content management software provider Geong International Ltd reported a sharp rise in profits in the six months to September 2009. Revenues increased 26% to £6.5m, while profits improved from £388,000 to £1.08m. The current order book is £14m which provides some reassurance that Geong can continue to grow. Geong is moving into new sectors, such as energy, and hopes that banking and telecoms will provide further growth. A move to a Software-as-a-Service model will increase recurring revenues. Profits of £2m are forecast for the March 2010 year end which would give a EPS of 5.5p and a prospective P/E of 6.8x.
There was net cash of £2.38m at the end of September 2009 and Geong has subsequently raised £2.2m in a placing at 38p a share. The cash will help to finance higher working capital. Trade receivables are high partly because Geong undertakes work that is not invoiced until the job is completed. That is why accruals are a significant figure. Cash flow tends to be better in the second half.
(TEG) – £21.2m@40p – Waste composting technology
Composting plants installer and operator TEG says that it is on course to achieve forecast profits this year. This year’s figures are underpinned by plants supplied to the Greater Manchester waste PFI run by Costain. Up until now the majority of revenues have been coming from selling plants but TEG plans to become operator of more plants so that it can build up its recurring revenues. TEG currently operates four plants and is involved in a project in Wales, which will be the first TEG project to combine compositing and waste to energy technology.
There is likely to be plenty of demand for TEG-style plants because local authorities have to cut the amount of waste going to landfill. Demand is expected to peak in 2013-14 – that could be equivalent to thirty or more plants.
TEG expects to have cash of £6m at the end of 2009
Telford Homes (TEF) – £firstname.lastname@example.org – House builder
The housing market in east London appears to be recovering but don’t expect other parts of the country to be doing as well. Telford Homes chief executive Andrew Wiseman reckons that there is “rock solid demand in east London” and an ongoing shortage of homes. The 2012 Olympics should mean that will continue.
Telford had a bumper first half. Sales of 224 homes were completed in the six months to September 2009. Most of these were homes sold off-plan a couple of years ago. Mortgages can still be difficult to obtain but most buyers are getting them eventually. When these pre-sales are not completed Telford retains the 10% deposit and can sell the homes for nearly 90% of the original sales price, thereby generating nearly as much as originally expected. That means failed completions are not a significant problem.
In the first half, Telford has sold more than three-quarters of the homes it expected to this year. Revenues jumped from £35.6m to £85.9m in the six months to September 2009 but second half sales will be much lower. Full year pre-tax profits are not likely to be much higher than the £5.74m made in the first half, which gives a Prospective P/E of 4x.
There will be a greater proportion of social housing in the sales mix over the coming years. Telford has already started drawing down its £73m HCA grant for affordable housing.
Net debt has been cut from £107m to £71.3m by the end of September 2009. Telford is returning to the dividend list with an interim of 0.75p a share. Management intends to have a progressive dividend policy that smooths out any ups and downs in annual figures.
Telford is still selling homes that went into construction at the tail end of the boom. The reduced development levels since then mean that there will be less available to sell in the next two years.