Last week
The FTSE 250 closed the week at 9662.6 a raise of 0.6% while the FTSE 100 at 5163.7 was also 0.6% higher. UK interest rates were left unchanged while BP recovered but the dividend payment dilemma remains. Globally the disappointing 1.2% decline in US Retail Sales was offset by a 17.6% rise in Indian’s Industrial Production and a 48.5% rise in China’s exports. The AIM All Share at 682.9 improved a 1.2%.

This week
It’s a busy week ahead of the Budget on Tuesday 22nd. GDP growth expectations are likely to be reset by the new independent Office of Budget Reasonability an expectation downgrade to 2.5% from 3.5% is expected. On Tuesday the UK Retail Price Index (inflation) will be reported and a rise from the current 3.6% could signal a rise in interests rates. On Wednesday the new Chancellor will make his maiden Mansion House speech and there could be tough talk on budget deficits and bank regulation.

Pause for thought
By next year the Euro zone and the US will have debts of about the same as their GDP.

Software Radio Technology (SRT)£22.3m@22.75p
Marine positioning technology Software Radio Technology is starting to benefit from authorities making AIS marine positional technology mandatory. Existing mandates cover 500,000 vessels over the next three years and there are more to come. That means that sales should grow over the next few years. SRT increased its revenues from £2.52m to £3.56m in the year to March 2010. The loss was cut from £1.28m to £386,000. The former TETRA radio operations were all closed down in the previous year. SRT already had an order book worth $4m by the beginning of this financial year. Most of this should be for delivery over two or three months and the majority are the newer Class A transceiver where gross margins are higher. That means that SRT should generate more in revenues in the six months to September 2010 than in the previous year.

Gross margins could reach around 50% depending on the change in the product mix. Overheads should not go above £2m a year so SRT has a good chance of moving into profit in the first half of this year.

At the moment SRT controls the cheaper priced end of the market and there is little competition but this will not be true for ever. SRT continues to spend on R&D so that it can maintain a lead on any competitors.

Finance
SRT has a strong balance sheet because it is able to demand advance payments from customers. There was £952,000 in the bank at the end of March 2010.

Silverdell (SID)£14.8m@9.75p
Asbestos removal firm Silverdell is continuing its profit recovery.

In the six months to March 2010, revenues were flat at £29.6m while the underlying operating profit jumped from £200,000 to £1.5m. This figure is also higher than the operating profit in the second half of 2008-09. A pre-tax loss was turned into a profit of £1.17m. Demand from the education sector has been strong because of the investment in schools by the Labour government. There was also a large contract for the Shell Tower. Silverdell is maintaining its revenues in a market that is probably slightly down over the year. Management says that the current overhead base could take a much larger turnover without needing to be increased significantly. House broker Collins Stewart forecasts an improvement in full year profit from £2.3m to £4mon flat revenues. The shares are trading on less than eight times 2009-10 prospective earnings.

Finance
Collins Stewart expects net debt to be less than £4m at the end of September 2010. If no acquisitions are made Silverdell could be debt free by 2012.

M&A
Silverdell is interested in buying other environmental support services businesses that have similar customer bases to the asbestos business.

Intelek (ITK)£12.7m@14.5p
This datacoms equipment provider reported Satellite communications put in a strong performance in the year to March 2010 but the cyclical aerospace business hampered the overall progress of Intelek. Underlying pre-tax profit fell from £4.1m to £3.9m as sales slipped 4% to £37.7m. North American sales were higher. The full year dividend was maintained at 0.465p a share. Satcoms business Paradise Datacom increased its margins and profit although that was helped by the $/£ exchange rate. The company is winning US government work. The Labtech microwave components business made a small profit on revenues of £7.8m. The main growth was in defence and air traffic control. The year has started slowly but it should recover in the second half.

A decline in corporate jet business hit aerostructures company CML. Every Hawker corporate jet uses nearly £40,000 worth of CML’s composites. Overall sales dipped from £13.9m to £10.5m and the profit contribution fell from £2m to £1.1m. A new facility to supply the joint strike fighter project will add £400,000 to costs. New areas, such as aircraft interiors and power boats, are being investigated.

Finance
Net debt was £1.59m at the end of March 2010. The net pension deficit is just over £4m.

M&A
Intelek is looking for acquisitions in its core satellite area and there was a £201,000 write-off last year relating to transactions that fell through.

Focus Solutions (FSG)£12.5m@42p
Financial services software supplier Focus Solutions reported much better profits for the year to March 2010. Stripping out exceptional reorganisation and onerous contract costs, Focus improved its profit from £1.88m to £2.38m. The majority of revenues are now from licence and support revenues rather than professional services and this is helping to improve margins. They should rise further over the coming years as the mix continues to change.

Revenues were relatively flat at £9.85m in the year to March 2010. The good news is that HSBC will be much less prominent this year with the bank likely to be responsible for around 15% of revenues in 2010-11. This is because new contracts were won late in the last financial year from the likes of Mastek, Tenet and AWD Chase de Vere. All of these contracts will make a further contribution this year. The Mastek deal involves reselling Focus software outside of the UK. Focus has received a US patent for its software and there is scope to generate more revenues from IFA AWD Chase de Vere outside of the UK. The Retail Distribution Review for IFAs will bring new opportunities until the end of 2012.

There are four or five deals in the pipeline that would cover most of the additional work needed to achieve forecast revenues in 2010-11.

Cash flow has always been erratic at Focus. Some years there are advance payments for work while other years these unwind. The cash flow last year was poor with hardly any cash generated from operations, compared with more than twice operating profit the year before.

Finance
The balance sheet reveals the reason behind this poor cash generation. Trade and other receivables for more than one year jumped from £345,000 to £2.55m. This is mainly down to the Mastek deal where 80% of the £2.75m was recognised as revenue but it is being paid in installments. There was also an increase in capitalised development costs from £1.19m to £1.73m. Net cash fell from £4m to £2.4m in the year to March 2010.

Synchronica (SYNC)£16.8m@2p
Mobile email and instant messaging provider Synchronica has won a number of new contracts for 2010-11 but it needs to increase the rate of customer take-up to achieve this year’s forecast. Revenues improved from £3.71m to £3.83m in the year to March 2010, while the loss was slashed from £6.49m to £3.22m. There are 20 network carriers installing Synchronica’s technology and Telefonica is rolling it out in a number of markets. Many of these installations come on line this summer. Since the year end Synchronica has acquired the instant messaging business of Colibra. This added 13 more contracts some of which are with networks new to Synchronica. It also means more products can be offered to existing customers.

Finance
Synchronica raised £2.8m from a placing when it made the acquisition and agreed further equity funding of £2m over 24 months. There was net cash of £2.63m at the end of March 2010.

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