Last week
The FTSE 250 improved 5.6% to 10022.9 hoping that the coalition Government will bring stability. While the FTSE 100, reflecting Eurozone economic troubles and poor US retail sales, staged a less convincing recovery with a 2.7% raise to 5262.85. The Aim All Share at 707.8 recovered 3.4%.

This week
After the political turmoil the slow news flow this week will allow the policy repercussion to reverberate around financial market. The main news will be on Tuesday when there are UK Retail Sales Price Index as well as a number of US and Euro consumer confidence indicators.

Pause for thought
Clients with large capital gains should think about enjoying the current CGT rate while it lasts and sell.
Charlie Hoffman/ Saturday FT.


Company Reports:
Nasstar (NASA) – £2.4m@6.75p
This provider of ‘cloud computing’ reported a 10% increase in turnover to £1.15m for the six months to March. Cloud computing is a hosted exchange services that enables subscribers to access their corporate desktop, files, applications and email rather than using local hard drives. Hosted services are a ‘pay for what you use’ approach and provides an alternative to capital expenditure necessary for traditional on-premise IT. Nasstar reported a 55% increase in Hosted Desktop subscribers to 1370 during the period and there are now over 1,900 subscribers under contract with a growing pipeline and distribution partners. The reported operating loss of £82,000 compares to a loss of £192,000 while the period loss was £161k. The fixed cost nature of this type of business does mean that effective ‘low cost’ marketing for gaining clients and the length of retention are critical factors. It is difficult to differentiate providers of hosted ‘cloud’ services by services offering and more intangible factors tend to close deals. On current margins and assuming no cost increases turnover will need to improve by 25% to reach break-even.
 
Financials
The working capital ratio is 0.76x, as current liabilities exceed assets. There is no longer term debt after a fund raising of raising £337,500 at 9p a share in February and in September 09 £900k was raised at 6p.
 
Billington (BILN) – £18.8m@145p
Structural steel and safety products company, Billington Holdings warns that it won’t be able to repeat 2009’s performance this year. The structural steel company was still benefiting from older contracts in 2009. Margins on these were much better than Billington can achieve under the current climate. Revenues from continuing operations fell 5% to £57.2m in 2009 while profits improved from £4.1m to £5.3m and EPS of 22.3p. The disposal of the non-core mining equipment operations led to a loss on disposal of £1.57m. The trading loss was £684,000. These losses are not included in the profit figure. The structural steel business is still relatively busy even if it is at lower margins. Steel price increases are coming through which won’t help. The revenues of the safety equipment business have held up.
 
Finance
There was cash of £8.49m at the end of 2009. The sale of non-core activities happened after the year end but the underlying cash position is similar to the end of 2009. The disposal meant that the company’s pension deficit has been cut to £200,000. The total dividend payment was reduced from 11.5p a share to 10p a share because of the caution about current trading.
 
M&A
There are opportunities to make acquisitions in the safety equipment side.
 
Advanced Power Components (APC) – £2.3m@9p
This specialist electronic components supplier, moved back into profit with £42,000 for the six months to 28 February as cost-cutting measures paid off. APC make a wide variety of niche components for sectors such as defence, medical and aerospace and this marginal profit compared to a loss of £227,000 and was achieved despite a 4.5% reduction in revenues from £6.78m to £6.47m. The gross margin disappointingly slipped from 32% to 30% as tough time’s impact. APC have eight product ranges focussed on low volume niche markets, which should be less price sensitive and vulnerable to economic factors. The cost cutting stage of recovery is behind and looking forward the focus is on building a sales team with the ability to identify design programmes earlier and provide greater technical input to customers’ component selection. A new power saving product has been launched and contracts are starting to be won. Generally sales in the electronic component sector were reported to be picking up in the past three-to-four months so a better second half can be anticipate. APC has launched its imop energy saving technology, which optimises the performance of motors, and this should start to contribute later this year or at least by the next financial year. If a PPT of £100k is reported with no tax that would give a recovery P/E of 23x. The longer term growth strategy may involve an increased focus on components for ‘green-tech’ products.
 
Financials
Net debt was £2.45m at the end of February 2010. That is predominantly trade finance. There was a cash inflow from operations but deferred consideration on past acquisitions meant that the net debt figure was slightly higher than at the end of August 2009. The Current Ratio is a positive 1.1, as current asset exceed current liabilities but stock levels at £1.618m gives a stock turnover to sales ratio of a lowly 2.8x and should be a target for improvement.
 
Nexus (NXS) – £3.8m@0.32p
Interims to March showed that sales on the continuing mix of businesses (after the writing off Peach Financial the US consumer Credit company) improved 26.5% to £3.1m. Nexus reported that It is (at last) on track to report break-even to a modest profit for the current year to September. The loss of £192,000 compared with profits of £87,000 while gross margins at 52% slipped from 55%. A relatively recent acquisition, Resilience Technology a provider of network security products, is reported to have won a number of new orders. The core IT remote services and help desk business is benefiting from a wholesale partnership with GWI, a provider of high-speed internet access. A new division, Nerd Force is an IT home/ office visiting Franchise operation which would benefit from further investment. The management are hoping to surprise the market on the upside after a series of disappointments. Operating expenses increased 33% to £1.62m and although Nexus have yet prove the intrinsic profitability and growth prospects of the current business divisions, other things being equal a moderate further turnover increase of 13% would bring break even.
 
Financials
Net debt was £676,000 at the end of March 2010 and should be slightly lower at the year end. The working capital ratio is a negative 0.56x showing that current liabilities exceed current asset with the largest liability being £2.2m of trade and other payables. There is a £375,000 10% loan note that converts at 0.4p after five years.
 
ILX (ILX) – £5.3m@22.5p
E-learning company ILX is expanding overseas so that it can take advantage of its market leadership in Prince2 project management training. ILX already has 12% of the global market for Prince2. The initial focus is on Australia where a new office is being opened.
 
The growth in the core business has offset the decline in the finance training division which is dependent on graduate recruitment for investment banks.
 
Financials
Revenues are expected to be £14.7m in the year to March 2010. Pre-exceptional profit should hit £1.1m.

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