Last week
The FTSE 250 has fallen -3.5 % to 9606.1 over the last five days with the FTSE 100 off -3.9 at 5046.5 and the Aim All Share at 673.9 is down -2.3%. The ’tough love’ budget may have been slightly better than worse expectations and the pace of the recovery may only be slowed down while weakness in the US recovery was shown is the US housing market.

This week
The forest of UK and World economic data this week likely to weigh the major indices down. As the EU, US and UK release consumer confidence data, all of which are expected to fall proving clues as to the strength of the recovery. On Monday there is German inflation as well as US and Japan consumption data. Tuesday there are house price data from the UK and US. On Wednesday there are the first quarter UK GDP figures, the Office for Budget Responsibility (OBR) is predicting the economy will expand 2.3% in 2011, down from its previous 2.6% prediction pre-Budget and the 3% to 3.5% estimate given in Labour’s last Budget. On Thursday the US focus will be on unemployment statistics and jobless claims are expected to rise giving weak signals from the US economy , while on Friday the US unemployment rate, could show a small rise to 9.8% from 9.7%.

Pause for Thought
The Budget’s 25% Government Deparatments cuts helped the pound improve to Euro1.22 which is at its highest since November 2008.

ILX (ILX) – £5.77m@24.5p
International expansion will be the focus of e-learning software provider ILX Group. The core best practice division in the UK is still growing with the decline in UK and group revenues last year all down to a fall off in revenues generated by Corporate Training Group, which trains graduates going into investment banking. Group revenues fell from £15.6m to £14.7m in the year to March 2010. Best practice revenues grew 9%. ILX has already opened an office in Australia, where revenues more than quadrupled to £360,000 in 2009-10. This market is dominated by classroom training but it makes sense to use e-learning software in such a large country where travelling time can be significant. The core of ILX is PRINCE2 project management training. Peter Gershon compiled a report for the UK government recommending PRINCE2 training in the UK and more recently he published a similar report for the Australian government. ILX has a 12% share of the world market for PRINCE2, which is a qualification required by project managers. It is in a good position to build on that market share.

Less than one-fifth of ILX’s revenues are from the public sector in the UK so the company is not significantly exposed to government spending cuts especially as none of its training is dependent on grants. Underlying profits fell from £1.7m to £1.1m in 2009-10. That excludes a £2.29m write-down on the goodwill related to CTG and restructuring costs of £359,000.

House broker FinnCap forecasts profits of £1.4m this year, which puts the shares on six times prospective earnings for 2009-10. The shares yield more than 6%.

Finance
Net debt was £3.16m at the end of March 2010 and there was also £335,000 of potential contingent consideration for past acquisitions. This debt will come down through cash generated from operations. ILX is paying an unchanged dividend of 1.5p a share.

Hartest (HTH) – £7.23m@84p
Despite the unwelcome distraction of a potential bid instrumentation supplier Hartest Holdings produced figures for the year to March 2010 that were better than expected. Delta Controls said it was not proceeding with a bid in February. There was agreement in principle for a 68.33p a share bid – after payment of a 0.67p a share interim dividend – but not all shareholders supported the offer. The integration of some of the group’s businesses on one site is beginning to bear fruit and there are more productivity benefits to come. All the businesses are profitable and Hartest swung from a loss of £865,000 to a profit of £1m on revenues up from £20.7m to £22.2m in the year to March 2010. Management reckons that a number of its operations have particularly good growth prospects. They include the Carnation Design business supplying systems for emergency vehicles, the Tinsley Precision underwater cable testing business and the Tinsley Ophthalmic eye test equipment operation.

FinanceAssetco (ASTO) – £52.6m@58p
There was net cash of £107,000 at the end of March 2010. There were also an asset held for resale worth £750,000. The business is cash generative. Hartest’s dividend policy is to pay roughly one-third of pre-tax profit in dividends to shareholders. The total dividend was 4p a share for the period just reported with most of that dividend paid in the form of the final dividend. The balance between the two dividends could change this year. A full year dividend of 5.5p a share is forecast for 2010-11 which means that the shares yield around 6%.

Assetco is concentrating on its core outsourced fire services contracts in London and Lincolnshire and in the Middle East. The potential contracts for other fire service regions still haven’t materialised. The recent election has not helped but it would take more than one year to tender and award an outsourcing contract even if the decision is made now. Assetco is winning more business from its existing UK customers but the main short-term growth is likely to come from recently won contracts in the UAE and Abu Dhabi. The three year contract for outsourced fire services in the UAE started just after the new financial year commenced and should be worth £13m a year. The contract to operate an emergency services training centre should start making a significant contribution in 2012-13. The ten year contract could generate £2.5m profit a year.

Finance
Net debt has fallen from £76m to £68.5m at the end of March 2010. Assets held for sale are in the books for around £10m.
The final dividend was 1.5p a share and a dividend of at least 1p a share will be paid when the assets are sold.
M&A
There are still a number of small fire and rescue businesses that Assetco wants to sell.

Third Quad Capital – £2m@0.5p
The trading update on 23rd June reported a potentially very significant advance in the distribution of the core software. As DSG International (Dixons/PC-World/ Currys-Digital) will be marketing a full suite of Ability Software applications. DSGI customers will be offered a completing purchase proposition of Norton Internet Security and Ability Software in a highly competitively priced package. The distribution agreement with DSGI could be a thin end of a wedge into Microsoft’s vast home office territory. The Norton and Ability Office Package is purchased in the shop at the point of sale allowing the assistant to recommend and demonstrate the software. Increasingly a basic Microsoft office version is ‘included in a new computer but with an online offer of upgrading to the full version so it is not being sold in boxes through the retail outlets and the ASI product range fills this market gap. TQC is reported to be operating profitably with positive cash-flow, allowing the CEO Mr Monk, to be paid a salary. The core business is potentially moving to profitability and the interims to June 2010 should show the improvement but may also contain the last of the restructuring costs. The news of the disposal or rental of the HQ property in Crawley and along with current cash of around £350k suggests that add–on acquisitions could be made without the need for external funding.

M&A
The 21% shareholder and ex-stockbroker, Andrew Monk continues to investigate a number of acquisition opportunities which could be more transformational.

Mavinwood (MVW) – £7.7m@0.5p
Mavinwood has got rid of its emergency repairs businesses and is concentrating on its document storage/data solutions and the Peter Cox damp proofing business. Last year’s figures show another large loss but Mavinwood should return to profit this year – Cenkos forecasts an underlying profit of £2.9m.

Finance
Net debt is down to £11.6m at the end of 2009 from three times that level one year earlier.
M&A
Management is keen to buy document scanning businesses that it can integrate with the company’s existing operations. It is also keen to sell additional services to the current customer list. The Peter Cox business is non-core but it is not the time to sell.

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