22nd March 2010

Last week
The FTSE 100 closed up at 5650.13 which was a 0.4% increase. Ignoring the devil in the detail; unemployment at just 7.8% and the Public Sector Net Borrowing at £12.36 billion were ‘helpfully’ reported to be ‘far’ less severe than some expectations. The AIM All Share Index at 699.8 has improved 1.3%.

This week
The Budget is at 12.30 on Wednesday which has difficult task of trying to please different audiences. On Tuesday the UK CPI and Retail Sales figures will be reported and could show a recovering economy as well as inflation falling back from the 3.5% reached in January, perhaps easing worries of interest rate rises just before evidence of a double dip recession emerge. Also on Wedneday there are European Statistics which may remind the markets of trouble in Greece, etc.

Pause for thought
Apparently, a democracy is a place where elections are held at great cost without issues and with interchangeable candidates.
Gore Vidal

Company Reports

Netcall (NET) – £10.7m@16.75p
Telephony software providerNetcall had a tough first half but the second half should be better. The telecoms call-back and auto-messaging software provider reported a decline in first half revenues from £2.01m to £1.86m. Underlying profits fell from £539,000 to £345,000 in the six months to December 2009.

Last October’s acquisition Q-Max contributed revenues of £300,000 and boosted recurring revenues. Total recurring revenues were £1.6m, which is more than operating costs. Cost savings have been better than expected and there is scope for cross-selling software to clients.

There were some delays in orders and they should come through in the second half. House broker Evolution forecasts a rise in full year profits from £980,000 to £1.06m in the year to June 2010. The shares are trading on 10 times prospective 2009-10 earnings.

There is still £1.9m of cash in the bank after the £2.5m spent on Q-Max.
Netcall is looking for more bolt-on acquisitions like Q-Max.

Inland (INL) – £8.8m@20.25p
Inland is an AIM listed developer of urban regeneration projects around Southern England and reported interim profits before tax today for the six months to December. An achievement after last years loss of £4.2m, which included a £3 million exceptional cost, the management strategic response to batten down the hatches and reduce costs has produced a profit of £107,000 on turnover of £5.29m. The NAV is reported at 23.95p, gearing at a non-threatening 21% and the bank facility of £9.3m now renewed for 15 months giving plenty of scope for £4m to be repaid from cash flow.

Inland finds and buys Brownfield/ex-MOD sites with the objective of adding value by securing planning permission and selling the assets on to developers and residential homebuilders. Although not a core activity Inland are building on some sites producing cash flow and profits while the commercial property market recovers. The credit crunch, which has turned the lights off at some developers is showing evidence of receding. Inland reported that the larger house builders are showing significantly more interest in buying land to replenish land banks. Inland’s diversified development portfolio contains three significant projects; A joint venture at West Drayton, where planning permission is due to be granted on 775 and 55,000sqft of employment and community use representing a build out value of some £420m. The development timing of this flagship project could significantly impact on our forecast for 2011 and beyond. Poole Harbour is a 9.5 acre site and is one of the largest regeneration projects in the south west and planning permission for 500 homes is likely to be submitted. Queensgate, which was acquired on 11th August 2007 is much further advanced with planning consent granted for 399 residential units and more than 100,000 square feet of commercial use development. A planning application has also been submitted for an 80-bed nursing home and plots are currently being sold.

The property market is still awkward as banks continue to reduce exposure which makes Inland’s recovery more remarkable and is evidence of the strength of the management team. Profits are upgrade from a loss of £300,000 to a profit of £200,000 and the real significance is that this perhaps signals the restart of Inlands growth. June 2011 forecast are unchanged with a conservative estimated NAV of 26.8p if West Drayton is included the NAV would be more like 31p.

Advanced Medical Solutions (AMS) – £56.2m @ 38.75p
Offer talks from Consort Medical were termintaed at this wound care group whose finals showed that stripping out the £1.7m of abortive acquisition and site moving costs, AMS increased its profit from £2.7m to £4.1m in 2009. Revenues grew from £20.3m to £24.1m. The growth in profit came from the wound care side but that was mainly due to higher research and development spending in the wound closure division. The current order book is ahead of last year. There is a strong pipeline of new products and the LiquiBand sealant is being introduced in the US. Profits of £4.97m give an EPS of 3.4p and a prospective P/E of 11.4x.

AMS reorganised its capital structure in 2007 so that it could pay a dividend when it felt that it was suitable. The board has decided that it will pay a dividend for 2010. This will be announced with the 2010 figures in March 2011. Even after the investment in moving to new premises, AMS still has net cash of £1.7m. This should start to rise again because capital spending will drop back from last year’s unusually high level of £6.7m. There are still £24m of tax losses to be used up.

Dawson International (DWSN) – £5.63m@2.5p
Knitwear supplier Dawson International’s core business had a strong 2009 but this was offset by losses in home furnishings due to foreign exchange movements. The sale of the Todd & Duncan cashmere business meant that Dawson did not consolidate its losses. These discontinued losses were £6.13m, including operating losses of £927,000. Revenues from continuing operations fell from £85.7m to £72.9m in the year to 2 January 2010 – effectively 2009. The reported pre-tax profit declined from £1.12m to £575,000 but this figure was affected by pensions adjustments, which swung from an income of £126,000 to an expense of £889,000. The private label home furnishings business was hit by higher import costs due to the weak pound. It is difficult to pass on these extra costs. WH Ireland forecasts profits of £800,000 for 2010 which gives a P/E of 12.5x.

Net cash was £12.3m at the balance sheet date. This is a high point for cash. Dawson will renew its bank facilities during 2010. The unwinding of the stocks of the Dorma-branded home furnishings operation sold to Dunelm in 2008 will be completed in the first half of this year. There are also debtors to collect relating to Todd & Duncan. There could also be a $2.5m payment from King Deer, which still owes $8.5m after paying $1.5m last year. A rise in pension liabilities from £6.7m to £19.3m – due to longer life expectancy and lower bond yields – has hit the balance sheet with net assets down to £1.5m at the year end. The triennial actuarial valuation will probably show a larger deficit. Dawson will negotiate a new pension deficit recovery plan with the pension trustee. House broker WH Ireland believes a one-off payment of £2.3m might be made in 2010 and then annual payments would reduce to around £600,000.
Dawson would like to expand by acquisition but will not do this until the pensions situation is sorted out.

GoldStone Resources (GRL) – £3.01m@2.3p
Minerals explorer in Africa, GoldStone Resources Ltd has received ministerial consent for its joint ventures in Ghana and is waiting for news about the two prospecting licences applied for in Gabon. Exploration can start in Ghana but the first priority is to put together a resource statement using existing data for the Homase project. Upon defining an inferred resource GoldStone will earn 51% of the Homase joint venture. GoldStoen then has to spend a minimum of $1m to take its interest to 65%. If a successful feasibility study is completed within 24 months of a pre-feasibility study the stake will rise to 85%. The other joint venture is at Manso Amenfi. A minimum of $700,000 needs to be spent to earn 55% of the joint venture and a further $1m would take the stake to 75%. A successful feasibility study would take the stake to 85%. The EU funded a €13m study of Gabon and GoldStone has applied for two of the areas with the best gold anomalies. There should be news of the applications in the next few weeks. GoldStone intends to sell on projects when they reach the mining stage. GoldStone has been quoted on Aim for practically six years. It started out exploring for gold in Guyana. Although gold was found there were no commercial deposits discovered. The share price has moved ahead since GeoQuest sold its 40m shares. This removes a block on GoldStone acquiring projects in southern Africa.

GoldStone raised £5.6m at 25p a share when it floated in March 2004 so it is currently worth less than that initial placing. GoldStone is likely to need to raise additional cash in order to finance the exploration and development of its projects.

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