At 5,303.0 the FTSE 100 ended the week 2.7% lower with the AIM All Share at 681.6, down 1.5%. The plethora of economic statistics, are accumulative over a period and slow growth is the UK economic narrative, other than fiscal imbalances and watching out for stagflation, this is not dramatic by definition. SO it is shocks from abroad that are creating trading opportunities; China overheating, the world Financial systems overhaul and sovereign debt default. These are all macro areas we are happy to leave others to follow in micro detail, as small caps have less correlation to challenges to the world picture.

A relatively quiet week ahead for UK economic news finishes with Consumer Confidence on Friday after 4th Qtr Provisional GDP figures on Tuesday, enjoy!

Company Reports

Scientific Digital Image (SDI) – £2.25m@ 12.5p
Scientific Digital Imaging (SDI) does, if astronomy was included, what the name suggests.SDI reported interim results for the six months to 31 October 2009. The broadening of the product range into the consumer astronomy hobby market, which is a discretionary expenditure, might have been better timed. The management’s cautious optimism, however expressed at the finals seems justified as sales improved 7% to £3.42m, a rate of growth slightly higher than our forecasts. The 22% increase in Administration costs to £1.87m was partly due to the planned investment in Atik, acquired in October 08, and the weakness of the pound.

The weaker pound against the dollar was the major factor in the fall in the operating profit from almost £270,000 to just over £75,000. This will always be a factor in this company’s results as costs are mainly in US dollars. Another important factor was Tax – SDI claimed a tax credit of just over £68,000 which will not be ongoing. The reported operating profit at £75k compares with £160k (excluding a £110k exchange rate gain) so fully diluted Earnings Per Share (EPS) were 0.60p against 1.37p.

Net cash decreased to £163k from around £340k and included the payment of the final consideration of an earlier acquisition as well as forex losses and some tax expense. If the £348k loan stock, which is not repaid until 2013, was added back the net cash position is more than comfortable (Current Ratio 2.1x)SDI has strengthened its market position with new products and markets and offers a broader range of digital imaging solutions. Acquisitive growth to build scale and cross selling opportunities remains an important part of the growth strategy. At the ‘right’ price the search remains on for other companies in the imaging field.

Character Group (CCT) – £23m@72pInternational distributor of toys and games
After several years of difficult trading, and a tough retail environment, Character, would of been delighted to make a positive Christmas trading update . The Directors believe that the Group will see a significant turnaround in profit before tax for the first half ending 28 February 2010, and growth in revenues and profits is expected to continue for both the 2010 financial and calendar years. By not being financially constrained, the business is in a strong position to grow its sales, both in the UK and overseas, and build on its market share. They are well positioned for organic growth of their own product lines and to build on its current position. Character Group licensed toys includes Postman Pat , Scooby Do, Doctor Who, Fireman Sam and the famous Go Go Pets. Profits for August 2010 are likely to be £3.3m on £73.5 of sales giving an EPS of 7.5p so a prospective P/E of 9.6x with a 1.8% yield. The interims in April could still be surprisingly good and the company have permission to buy back shares. Longer term acquiring and building some intellectual properly mat make sense.

The Group has maintained a strong and healthy balance sheet; remains cash positive; and currently has no bank borrowings and substantial unused working capital facilities available to it.

Ebiquity (EBQ) – £18.2m@56.5pMedia monitoring and analysis
Ebiquity is growing the international revenues of its media analytics business.

The media monitoring and analytics business generated higher analytics revenues but the standard media monitoring divisions reported a reduction – although it maintained its profit before group expenses. The analytics growth was from international business – mainly in North America. US advertisers are particularly keen to assess how productivity their advertising has been.

Overall revenues grew from £8.59m to £9.26m in the six months to October 2009, with international revenues 36% of the total. Reported profits fell due to exchange rate losses, compared with gains in the first half of the previous year. Stripping these forex movements and exceptional charges out, underlying operating profits improved from £744,000 to £984,000. Underlying pre-tax profit rose from £613,000 to £917,000. Forecast for the April 2010, full year are for £2.2m giving an EPS of 5.05p and a prospective P/E of 11x, with realistic and perhaps unexciting growth prospects.

The business was cash generative, which helped cut net debt from £2.6m to £1.84m in the six months to October 2009. The UK term loan has been translated into dollars in order to provide a hedge against foreign exchange movements.

Proton Power (PPS) – £6.9m@4.4p – Fuel cells
German fuel cell systems developer Proton Power Systems had a tough 2009 because progress was much slower than it would have liked. Proton starts this year with a number of potential products, some of which will start to generate more significant revenues this year.

One of the areas that Proton is confident about is electric vehicles. Range extenders are particularly interesting to the vehicle suppliers. Proton’s technology enables electric vehicles to be refuelled in five minutes rather than hours. It also enables the vehicle to have air conditioning without sharply reducing the range of the vehicle. That is important in hot countries. Proton has found a manufacturer using a standard vehicle platform and he plans to announce the link up in two or three weeks. “

Assembly of fuel cell stacks is outsourced to Deutsche Mechatronics. The plan is for Proton to become a supplier of a fuel cell-based power pack that has a number of different uses rather than a large number of different individual products. This will help to reduce manufacturing costs. This is particularly important for back-up power applications where the market is much more cost sensitive. “Back-up power is another area that will produce revenues in the short-term.

Proton has signed an agreement giving Michigan-based engines and transmissions supplier L-3 Communications exclusivity over its fuel cell systems in propulsion systems, marine and universal power supply applications in the North American market. The US army says that at least 20% of military equipment acquired should be cleantech/environmentally friendly. In reality, this will mean support and logistics equipment. Proton is currently working on two projects with L-3.

Revenues fell from £455,000 to £289,000 in the six months to June 2009. The loss increased from £1.29m to £2.05m. Cash is likely to continue to be a constraint on the company’s ability to grow.

Oracle Coalfields (ORCP) – £5.35m@4.375pCoal mine developer
Oracle has signed a memorandum of understanding with Lucky Cement, which is based in the Sindh province of Pakistan and the largest cement manufacturer in the country. Oracle will supply coal for use at cement plants. Costs of transportation and use of the coal will be assessed before a definitive agreement is signed.

This follows the MOU with Karachi Electric Supply Company. Power generation is the main customer base for Oracle’s coal but it can start generating revenues more quickly from cement manufacturers – Oracle may secure a second contract with another cement manufacturer.

Oracle will need to raise a small amount of working capital and then it will need a more significant amount to finance the new mine. A move from Plus to AIM is likely and will be a test of AIM whether it is good for the amount of funds needed to bring a 1.4billion tonne deposit in Pakistan to cash flow.

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