Last week:
The FTSE started the new quarter (Thursday) with a 1.1% gain and improved 0.7% over the 4 day week and is at a 21 month high. The AIM All Share at 704.9 was 0.8% lower. The large caps may have been helped by strong Eurozone economics statistics particularly in manufacturing output.

This week:
Next month there will be a new Government so more than usually economics will be open to political (mis) interpretation. On Thursday at 11am the BOE Interest rate decision is due – is now the time to start signalling an increase? Maybe, if it puts a lid inflationary trends and if the recovery is robust enough to bare it …..etc


Pause for Thought

All political thinking for years past has been vitiated in the same way. People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome.
George Orwell
 
Lighthouse Group (LGT) – £13.9m@10.25p
IFA Lighthouse Group had a much stronger second half in 2009. Management pointed out at the time of the interims that there were signs of improvement and these come through strongly. Lighthouse reported a pre-tax profit of £93,000 in 2009, compared to £59,000 (before one-off costs) in 2008. However, net interest income of £362,000 in 2008 became a net interest charge of £47,000 last year. This indicates the underlying improvement in trading before the effect of low interest rates. Recurring revenues were £16.4m out of total revenues of £60.7m in 2009. The company’s own IFAs and its network business both improved their revenue and profit contribution. The purchase of adviser Godfrey Pearson helped to boost revenues and there was a like-for-like decline but that was all in the first half. Lighthouse is focusing on the ‘mass affluent’ rather than high net worth individuals. The high operational leverage could come back strongly although this is not currently being forecast.


Finance
The total dividend was doubled to 0.4p a share. There is £13.4m in the bank and roughly one-third of that is free cash after regulatory capital and working capital requirements are taken into account.

M&A
Growth is likely to be predominantly organic. The FSA plan to remove commission-based advice from 2012, so firms will not be able to accept commission in return for recommending specific products. Instead, customers and advisers will have to agree fees for advice without any outside influence from product providers This may provide Lighthouse with acquisitions opportunities although it is difficult to find the right one at the right price.

Vindon Healthcare (VDN) – £9.3m@10.5p
Environmental control products and services, Vindon Healthcare believes that the US market will provide growth opportunities for its environmental control cabinets manufacturing and storage services business. Sales were flat at £5.47m in 2009 and profits fell by 32% to £1.04m. Services revenues continued to grow and this offset a decline in sales of equipment. New services such as Cryogenics and film stock storage helped to grow services revenues. Costs increased because of the move to new premises.

The US storage services operation should start operations in the summer. The facility is in Atlanta and if it is successful there could be scope for other facilities. The final dividend was increased 10% to 0.165p a share. House broker WH Ireland forecasts a small improvement in profit to £1.1m in 2010 for a P/E of 11.4x and dropping in 2011 to a prospective P/E of 9.3x.

Finance
Net debt was £2.04m at the end of 2009. Strong cash flow should reduce this debt level significantly over the coming years.
M&A
Vindon is looking at acquisitions in the healthcare services sector.

Pentagon Protection (PPR) – £1.76m@0.28p
Pentagon Protection more than doubled its turnover in the year to September 2009 but it continues to lose money. The safety and security films for glass supplier reported a rise in turnover from £1.44m to £2.95m but even excluding an exceptional provision the loss was £424,000, compared with a loss of £2.99m, including a goodwill impairment of £2.39m in 2007-08. Higher admin costs arising from an acquisition in September 2008 took up most of the additional gross profit generated with gross margins at 24%. A prestigious Euro 3m contract with the Official Journal of the European Union was awarded which is a reflection of Pentagon’s worldwide brand positioning. There was a £926,000 provision relating to a warranty claim due to a supplier supplying the wrong film. There appears to be a good chance that this could be sorted out before the end of this financial year so it is hoped that at least some of the provision could be written back. David Marks was appointed chief operating officer at the beginning of March. Marks are experienced in the security sector having floated and run Aim-quoted Sectorguard (now Legion Group). He wants to firm up the foundations of the business and then build on its revenues and profit. Marks will not have a significant effect on the business until the second half of this financial year. Rivington Street was recently appointed joint broker with Seymour Pierce.

Finance
Net debt was £37,000 at the end of September 2009, but last week Pentagon raised £326,000 at 0.2p for working capital.
M&A
David Marks would like to make acquisitions in the security products sector but this will not happen in the short-term.

eg solutions (EGS) – £7.3m@51p
A much-improved second half performance helped eg solutions to return to profit in the year to January 2010. The operations management software supplier reported a 13% increase in revenues to £4.15m. A loss of £753,000 was turned into a profit of £99,000. Higher gross margins and cost cutting were behind the improvement. More software licences were sold in the most recent period. It was recently announced that eg solutions is acquiring XTAQ for up to £233,000. XTAQ lost money in its last full financial year but it should not hold back eg solutions’ profits this year. XTAQ’s data capture software fits well with the group’s software and eg solutions would have needed to develop its own. There are cross-selling opportunities and XTAQ will also be part of a much stronger financial group which will make it easier to gain new customers. The group has already contracted 52% of expected revenues for 2010-11. New contract wins with Legal & General, Nationwide Building Society and Vital Forsikring in Norway have given the company a good start to the year. House broker Arbuthnot Securities has edged up its 2010-11 profit forecast to just over £300,000 for a prospective P/E of 32.6x.

Finance
There was net cash of £410,000 at the end of January 2010 but £33,000 of that will have been used on the XTAQ acquisition. Up to £150,000 of the payment is in the form of convertible unsecured loan notes and the rest in shares.

Surgical Innovations (SUN) – £8.88m@2.375p
Surgical Innovations has reached a point where it can build up its revenues in the US.

The surgical instruments manufacturer and supplier has a short-term order book of £2m and initial revenues in 2010 are running at an all time high. A deal with Premier, a major US Group Purchasing Organisation, will make it easier to sell to hospitals. Revenues moved forward from £4.31m to £4.54m in 2009. However, underlying profits fell from £805,000 to £539,000. More than £1m was invested in product development during the year. The outcome for the year was affected by a delayed order worth £480,000. This should be delivered in April.

Finance
There was net cash of £622,000 at the end of 2009. There are plans to reorganise the share capital so Surgical Innovations will be able to pay a dividend.
M&A
There was a £200,000 write down of the value of the autologous blood transfusion business, which is up for sale.

Getech (GTC) – £3.65m@12.5p
Oil exploration data services provider GETECH Group is still waiting to see any benefit from an uplift in oil exploration expenditure. Revenues slumped from £2.42m to £1.17m in the six months to January 2010. That meant that a profit of £187,000 was turned into a loss of £392,000. This was despite a positive contribution from the US business, Lisle. Staff took pay cuts during the period but the former pay levels have been reinstated. Client budgets were reduced in 2008 but the stabilisation of the oil price has helped to create a more positive outlook for 2010. However, gas prices are still weak. There are more opportunities for contracted work on specific exploration studies.

Six new geological studies are due to be launched in the second half of the year to July 2010. The Equatorial Atlantic Phase I study has already achieved four sales and there are two pre-sales for Phase II. The South Atlantic study has seven sales and the East African one a further four sales. House broker WH Ireland has downgraded its full year forecast from breakeven to a £200,000 loss. Selling an additional study could have a significant positive effect on the outcome for the year. Management says that it will restore the dividend but GETECH will need to generate cash before this happens.

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