Last week
The FTSE 250 improved 3% last week to 9952.7 and after a sequence of small  daily rises the FTSE 100 closed lower on Friday at 5250.84 but gained 1.7% over the week. Buoyant May Retail Sales showed an annualised 4.4% increase but it may have ominous VAT undertones, while  Government service providing companies  are  generally marked down and  Euro trouble drones on in Spain. The AIM All Share improved up 1% to 690.2.
This week
The Budget on Tuesday could well live up to austere expectations with £big Billions of savings and tax increases.  The more financial markets believe in the sincerity of the deficit reduction measures the lower the eventual repayment costs, while it would also make sense for a coalition Government to take the pain early.
Pause for Thought 
Economist fear that Osborne’s tough approach will slow the recovery….
Company Reports
Datong (DTE) – £5.6m@40.5p
Surveillance technology developer Datong had a very strong trading period in the six months to March 2010. A strong order intake meant that revenues of £7.41m were 48% higher than the comparative period last year. Stripping out exceptional charges, Datong increased its profits from £172,000 to £530,000. There was a £324,000 write-down on the company’s old premises, which are now in the books for £373,000. There is interest at that price.
The financial year end is being changed to September. Datong still lost money in the 12 months to March 2010. This latest six month period is always the strongest but the seasonality appears to be diminishing. Order intake in the eight months to May 2010 was £11.4m, nearly double the corresponding period, with around one-third of that in the last two months. This indicates that the next six months should be relatively strong although much of the revenue growth has been in third party products so gross margins have declined.
America is the one part of the business that remains subdued but there are signs of recovery and growth elsewhere. New product launches will help growth to continue.
Net cash has fallen from £2.24m to £1.67m because of increased working capital.
Customer demand for integrated and interoperable products is pushing the sector towards consolidation and Datong wants to be a consolidator.
Northbridge – £12.5m@130p
A trading statement indicates that when Northbridge’s announce interims in September strong progress maybe shown. This is a result of the substantial investment of £4.4m made in the hire fleet last year and an addition £1.2m as development investment into the acquired compressor fleet, has helped to continue to expand the load bank, transformer and generator hire fleets Last year’s problem $359,000 a month contract in the Middle East has been resolved as an extension has been agreed. Forecasts for 2011 gives a prospective P/E of 4.7x with a 4% yield.
Northbridge Industrial Services was incorporated in 2007 to acquire and build a specialist industrial business that hires and sells equipment  to a non-seasonal  customer base including utility companies, the public sector and the oil and gas industries. The longer term strategy is to become a complete outsourcing provider involving a higher margin service/ maintenance element to the equipment provision.
Net debt is around £2,7m but there is growing cash flow sp there is potential to make further complementary acquisitions and increasing the product offering to its  growing international customer base. By consolidating these companies Northbridge expect  to continue to successfully add value to the organic expansion into new geographical or industry markets.  There are clear advantages of increased scale as it improves the leasing funding options as well as improving net profit margins.
Bango (BGO) – £32.5m@90.5p
This mobile web payments technology group’s revenues grew 48% to £26.1m in the year to March 2010. UK, European and rest of the world revenues fell back and US revenues were sharply higher. By the end of the year Bango had signed up mobile networks covering 65% of US mobile users. Bango still needs significant growth in revenues to move into profit.
The focus of the company’s resources will continue to be on the US. Bango hopes to sign up Verizon which will give it coverage of all mobile phone users in the US.
There was a cash outflow during the year but a share placing left Bango with cash of £2.7m at the end of March 2010.
Interbulk (INB) – £17.42m@5.75p
Transportation Group InterBulk Group reported much lower interim profits, the figure was still higher than the second half of the previous financial year. The bulk transportation services provider reported an improvement in revenues from £116.9m to £126.3m in the six months to March 2010. Underlying profit fell from £3.4m to £662,000 but that was better than the loss reported in the six months to September 2009. InterBulk expects the market to improve further in the second half. Longer-term growth will come from China and India.
House broker Arden forecasts a fall in full year profit from £3.3m to £1m in the year to September 2010  for a prospective P/E of 28.8xand then a recovery to £2.8m the following year for a P/E of 9.6x. Hoyer GmbH Internationale Fachspedition has built up a 23.2% stake in InterBulk. Hamburg-based Hoyer is a family company that specialises in logistics services. It also has operations in bulk logistics that have customers in the chemical, food and oil sectors so there is some overlap in the two businesses.
There was a fall in net debt at the interim stage thanks to foreign exchange movements and the high depreciation charges. Arden expects the year end net debt to fall from £118m to £115m. The interest payments will still be well covered by cash generated.
Servoca (SVCA) – £12.3m@10p
Education and health recruitment Servoca reported a small improvement in underlying profit at the interim stage but trading will not be easy over the next couple of years. The educational, healthcare and security recruitment and services provider has managed to edge up its profit because of the cost savings that have been put in place. The managements of the main businesses have nearly all been changed and they are much stronger and more able to cope with the current market conditions. Revenues fell 15% to £25.6m in the six months to March 2010 but that was partly down to the closure of some businesses.
The core healthcare and education businesses are not easy and they will continue to be tough because much of their revenues come from government. The police services business could be hardest hit over the medium-term, although the education recruitment side has been held back by a greater supply of teachers due to the recession. Underlying profit rose 11% to £950,000. A sharp rise in the number of shares in issue means that earnings per share were much lower.
FinnCap forecasts a fall in full year profit from £2.2m to £2m because of caution about government spending cuts. That equates to earnings per share of 1.61p and a prospective P/E of 6.2x.
Net debt was £1.9m at the end of March 2010
Management would like to make acquisitions to build up the divisions. Servoca would prefer to use debt rather than shares at the current share price.
Trifast (TRI) – £26.4m@31p
The industrial fasteners manufacturer and distributor had lost its way before Malcolm Diamond returned as executive chairman and Jim Barker came back as chief executive in 2009 – replacing the man who took over from him less than two years before. Having started the turnaround of the business the two men have rebuilt the management team.
Experienced group management has been elevated to board level jobs giving the company a highly experienced board. This is the middle year of the three year plan which is designed to get margins back to former levels.
Trifast is centralising its purchasing and sourcing and integrating its Northern European warehousing operations. It is also increasing its marketing effort. Most importantly, Trifast is winning new orders – something that was not happening a couple of years ago. Medical equipment, automotive and electronics are strong sectors. Trifast would like to win more one-off transactional business. Although the orders are much smaller the margins are better.
Last year’s figures show some aspects of the improvement in the business but revenues fell from £104.9m to £85.94m in the year to March 2010. The fasteners market declined during the period so it was no surprise that Trifast’s revenues did as well. Considering that slump in revenues the fall in underlying profit from £2.54m to £920,000 was smaller than it could have been. Overheads were reduced by more than £3m even though there was a swing from a foreign exchange gain of £546,000 to a loss of £524,000. All the operations are now trading profitably. However, all of last year’s profit came from Asia. There were £3.42m of restructuring costs last year. This year’s figure is likely to be lower even though there is still work to be done.
Trifast has benefited from its Asian manufacturing capacity. Capacity utilisation was 20% when times were toughest but it is back up to nearer 80%, which still leaves scope for more work. Selective capital expenditure is planned. Trading in Asia is buoyant, while it is gradually improving in the UK and Europe. Recovery appears to be getting underway in the US. House broker Arden forecasts a sharp recovery in profit this year. Revenues are growing faster than it expected but the broker also believes more will have to be spent on administration. It forecasts a pre-tax profit of £2.4m, rising to £3.4m in the year to March 2012. The shares are trading on 15xs 2010-11 prospective earnings, falling to 10x the following year.
A reduction in working capital helped the business to generate cash. Net debt fell from £8.4m to £4.68m at the end of March 2010. Bank facilities have been renewed with HSBC. As the business recovers borrowings are likely to remain around the current level. Trifast would like to reintroduce dividend payments. Arden has pencilled in a 1p a share dividend in 2012.

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