LAST WEEK/ THIS WEEK

The FTSE 100 finished the week 1.2% lower at 5196.81 while the Aim All Share was virtually unchanged at 640.3.


As it is the silly season it seems premature to start to discount the potential for pundits giving bleak outlooks for 2010 where a number of ghosts (Inflation, interest rates, higher taxes, Government spending cuts, weak US consumer demand) could come to scare off further support for the market recovery.


If we did make forecasts for 2010 it would bit bearish then improving with strong bullish inclinations to cash positive small caps stocks in technology, media and support services with an emphasis on emerging markets.


COMPANY REPORTS


Sanderson (SND) – £8.46m@19.5pEnterprise software
Enterprise software provider Sanderson says that trading is showing signs of improvement. Recurring revenues accounted for 55% of revenues of £24.9m in the year to September 2009 – the previous year‘s revenues were £27.6m. Underlying profits fell from £3.2m to £1.4m. Activity levels are improving but most of the deals are falling into this financial year. Admin expenses have been reduced to just over £14m a year, against just under £15.6m last year. The contributions of both the manufacturing and multi-channel retail divisions were lower. The latter contributes more than two-thirds of profits and new products will be launched in 2010. Food is increasing in importance to the manufacturing division.


Charles Stanley forecasts a recovery in underlying pre-tax profits to £1.9m in the year to September 2010. The shares are trading on less than 5x 2009-10 prospective earnings, falling to less than 4Xin 2010-11. These are based on a nil tax charge.


Finance
The final dividend is unchanged at 0.2p a share, although the total for the year is down from 1.4p a share to 0.4p a share. Despite the slump in profit Sanderson still managed to cut net debt by £700,000 to £9.96m in the year to September 2009. Charles Stanley believes the net debt could be cut to £5m by the end of September 2012. The bank facility was renegotiated in July.


Advanced Power Components (APC) – £1.55m@6.5p – Electronic components distributor
Advanced Power Components slumped into loss in the year to August 2009 but that was mainly down to the exchange rate loss in the first half. APC went from a profit of £732,000 to a loss of £491,000. That included a £330,000 exchange loss and reorganisation costs of £140,000. Revenues improved from £12.2m to £14.1m. Managing director Mark Robinson says that the fourth quarter was strong and trading has been reasonably good since then. It is difficult to get long-term deals signed off. The sales team is being refocused and Robinson says that he believes that the company can win market share. A new range of energy saving products will begin to contribute this year but it may take another year before it becomes significant. Cost savings will help APC to return to profit even though revenues are expected to decline. Pre-tax profits of £300,000 are forecast for the year to August 2010.


Finance
APC has gone from a small net cash position to net debt of £2.6m at the end of August 2009. Strong fourth quarter trading meant that the debtors were much higher than previously.


IS Pharma (ISPH) – £24.5m@79.5p – Pharma
Although revenues look flat in the first half that is down to a one-off payment in the corresponding period last year. Underlying revenues grew 16%. The fall in profits from £1.5m to £1m is mainly due to that lack of one-off revenues and the investment in getting approvals for Variquel. The consequent revenues are starting to come through.


Finance
Net debt is £9.5m. There is still £4.5m of the £8m debt facility available for acquisitions.
M&A
Having invested time in securing approvals for Variquel, IS is ready to look for other drugs to acquire. It is looking for drugs that have been developed or are already on the market.


Daisy Group (DAY) – £250.5m@96.5p – Telecoms services
Daisy Group, a consolidator in the market for the provision of telecoms services for small and medium sized companies, wasted little time in pushing ahead with its strategy after reversing into Freedom4. Daisy had pro forma net cash of £31.5m after the reversal. Chief executive Matthew Riley was negotiating the acquisition of Eurotel when AIM-quoted AT Communications went bust. Riley says that he had been tracking AT for about six months but it “wasn’t ideal timing”. Having the cash in the bank enabled Riley to act quickly. Riley says that there were three other parties interested in the AT businesses. AT’s maintenance and engineering operations were particularly attractive. They fitted well with Eurotel’s operations. The Eurotel acquisition was competed at the same time in August and the two have been rationalised. Daisy was also talking to Redstone at around this time and acquired its telecoms division a few days later for £17m. Riley says that Daisy is already enjoying the integration benefits of the acquisitions. Cross-selling services is another important part of the strategy and the benefits should start to show through in the future. There are no forecast earnings forecasts in the market.


Finance
Net cash is £9.4m and the sale of the group’s WiMAX business could generate £20m. Riley also plans to negotiate additional bank facilities to finance further acquisitions.
M&A
Daisy has the finances to make further acquisitions in the telecoms sector.

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