Last Week
After 4 days of gains the FTSE 100 closed down 24.7 on Friday to end the week up 0.9%, while the AIM All Share closed at 711.2 a 1.6% improvement. The Budget seemingly managed to do a job and although the devil will be in the lack of detail it held-out the promise of improved terms for Tax-Efficient investing into larger AIM companies. Internationally, Greece and the other PIIG countries managed to stay afloat with some help from their friends.

This week’s peep into the real UK economy will be Balance of Payment Figures on Tuesday and Manufacturing GDP, it can not be as bad as January,. It may be worth watching-out for the EU and US Consumer Confidence figures also on Tuesday.

Pause for Thought

  1. In the last 52 weeks the AIM All Share Index is up 72% with The FTSE 100 up 52%
  2. Mobile bills are slashed by £1 billion -Sunday Times

Vislink (VLK) – £32.9m@23.75p
New chief executive Duncan Lewis has restructured Vislink’s operations so they are based on customer sectors rather than technologies at this Broadcast and CCTV technology company. The core news and entertainment division reported much lower revenues as the major US contract came to an end. The law enforcement division is benefiting from increased spending on surveillance equipment and the marine division is gaining work onshore. Revenues fell from £101m to £94.7m in 2009. The underlying operating profit declined by two-fifths to £5.22m and pre-tax profit slumped from £8.77m to £4.75m. The dividend is unchanged at 1.25p a share. The order book was worth £20.3m at the end of 2009. Cost savings will help profits to recover this year. Evolution forecasts that profits will improve to £8.6m in 2010. At 23.75p each, the shares are trading on less than 6x 2010 prospective earnings.

Net cash was £611,000 at the end of 2009. Capitalised development spending increased from £2.95m to £3.2m.
Asia and the Middle East provide the most opportunities. Vislink is ready to make acquisitions and they are likely to be in Asia so that the company has a base in the region.

IS Solutions (ISL) – £6.7m@27p
Online technology services provider IS Solutions is growing profits on the back of increasing managed services revenues. Two-fifths of the revenues of £9.78m in 2009 relate to managed services. New business wins will keep these revenues growing. Just a couple of years ago it was little more than one-quarter of revenues. Website analytics are driving the growth of the company. Companies want to understand more about their customers and generate more revenues from them. Managing director John Lythall says that these customers can achieve a quick return on investment. Document management and collaboration portals businesses are also growing. Underlying profits, excluding amortisation and the costs of moving back to Aim in 2008, improved from £551,000 to £654,000. Revenues increased by nearly 11%. FinnCap forecasts a rise in profit to £790,000 in 2010 giving a prospective P/E of around 12x.

The final dividend of 0.77p a share means that the total dividend for 2009 is 10% higher at 1.1p a share. IS Solutions decided to use its spare cash to buy its office in Sunbury-on-Thames last September. It cost £2.1m and this was part-funded by a 10 year mortgage of £1.6m. This means that the company has moved into a net debt position of £310,000 by the end of 2009 but the rent saving will be more significant than any interest cost.
The business continues to grow but management is willing to consider acquisition that will help supplement that growth. The main problem is the share price, which is perceived to be too low to make it worthwhile to pay for an acquisition with shares.

Northbridge Industrial Services (NBI) – £13.32@138.5p
Northbridge hire, rent and sell specialist industrial equipment supplying a wide range of non-cyclical customer base including utility companies, the public sector and the oil and gas industries. An aggressive growth plan is underway as they increase the fleet, service range, geographic reach both organically and via acquisitions. Increased opportunities are anticipate in the current market environment. The reported finals last week showed a 19% fall in turnover to £12.7m while pre-tax profits, if the exchange rate are evened-out, was £2.3m compared to £2.4m last year. Underneath the surface of this flat profit-line and tough trading environment the business is developing. Importantly gross margins grew to 59% from 51% reflecting the moving business mix towards rental, but this is being built on the back of longer term outsourcing. The UK still represents 71% of turnover which is down for 79% and increasing the proportion of international trade is a target. On these figures the P/E is 7.3x with a yield of 2.9%.

A further £6.0 million was invested in plant compared to £3.7 million which includes a further £5.5 million into the hire fleet. This is the largest investment to date into hire fleet as prices seem keen and the majority of this will support existing contracts. The Group NAV is £12.43m and gearing is around 44% with interest covered 13x.

In a tough year this is a ‘resilient performance’ . It should also be noted that the operations generated around £4.5m in cash used to increase the hire fleet This has enabled further substantial investment which will ensure continuing profitable growth in the future.

TEG (TEG) – £23.2m@44p
Composting and waste to energy technology plants operator TEG Group reported better than expected 2009 figures. Revenues grew from £12.7m to £15.4m, with the growth split between sales of plant and equipment and revenues from TEG’s own plants. TEG reported a swing from a loss of £1.48m to a profit of £155,000 but this was flattered by negative goodwill on the acquisition of Banham Compost of £956,000 – effectively the amount below asset value TEG paid for the business. There are up to 30 potential projects in the pipeline at various stages of progress up to tendering. This year’s revenues are underpinned by the Greater Manchester waste contract and annualised revenues from TEG plants of around £4m. House broker Canaccord forecasts an underlying profit of £700,000 on revenues of £22.6m in 2010 which is a prospective P/E 65x. TEG will need to win new contracts to hit that figure.

Net cash was £1.5m at the end of 2009 but more than £2m of cash has flowed in since then. There is also £1.4m of potential deferred consideration. TEG has enough cash for its own needs but would have to find additional finance if it were to make an acquisition.

Smartfocus (STF) – £11.03m@11.75p
Software company smartFOCUS returned to profit in 2009. The marketing and consumer relationship software provider reported a swing from a pre-exceptional loss of £1.2m to a £490,000 profit in 2009. Revenues grew 15% to £11.9m and 66% of these are recurring revenues. This marks the completion of the switch to a Software-as-a-Service model. Perpetual licences contributed 1% of revenues. The main growth in revenues was outside of Europe.

Earnings per share were 0.3p but this was after an unusually high tax charge. There are still some European tax losses but how fast they can be used is dependent on where profits are generated.

Current trading is in line with expectations for forecast revenue of £13.2m giving a PBT of £0.73m EPS of 0.59p making a prospective P/E of 19.9x.. The company has already secured 78% of expected 2010 revenues.

Net cash increased from £1.53m to £2.44m during the year.
Management is keen to spend some of its cash on acquisitions. This could be digital marketing technology businesses or companies that have customer bases in particular sectors.

Coolabi (COO) – £3.38m@7p
Animation and TV programme IP business, Coolabi made a small pre-amortisation and exceptionals profit in the 18 months to December 2009. The intellectual property developer reported a loss of £1.38m but this translates into a small pre-tax profit if amortisation of intangible assets, share based payments and the costs of a failed acquisition are excluded. The profit in the latest 12 month period was around £300,000, compared to a loss in 2008. Revenues almost doubled from £1.24m to £2.83m. This provides a better view of the progress made.

Bagpuss generated strong licensing revenues from soft toys and Coolabi plans to develop new concepts. The Scarlet & Crimson characters and brand are growing through additional book titles and the launch of cosmetics in Boots and Superdrug. A series based on Poppy Cat is being made and Coolabi hopes to sign a toy licensing partner.

House broker Evolution forecasts a profit of £500,000 in 2010 for an after Tax prospective P/E of around 10x. That equates to earnings per share of 1p.

Net debt was £734,000 at the end of 2009.

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