Last week:
The FTSE 250 improved 3.3% with the FTSE 100 up 3.0% at 5312.6. Has the economic frame been changed by the upbeat preliminary estimate of UK GDP growth at an unexpected accelerated rate of 1.1% in the 2nd Quarter? It could be that the Government’s brake on spending to reduce the deficit is being well executed allowing the maintenance low interest rates and sustainable growth at a moderate at 1% to 1.5%. Perhaps affected more by lack of volume and aggressive market making than fear of Double Dipping the AIM All Share at 682.5 improved a sedentary 0.95%.

This week:
Stress test free without a sovereign defaulter in sight the markets will focus on the 20% of the FTSE 100 companies with trading statements this week. Noteworthy Economic data due on Thursday could be jobless claims from the US and in the in the UK, money supply will be released alongside mortgage approvals and the PMI retail index.

Pause for thought
Economic forecasting is: “extrapolation from a partially know past through an unknown present to an unknowable future”.
Denis Healey

Access Intelligence (ACC) – £10.8m at 4.25p
Compliance software software-as-a-Service provider Access Intelligence reported strong growth in revenues and profit but uncertainty about public spending means that the outlook is uncertain.

Revenues grew from £2.54m to £4.14m in the six months to May 2010. That enable pre-tax profit to jump from £169,000 to £470,000. There was a full contribution from last year’s acquisitions and a few weeks contribution from compliance software firm Cobent – which made a small loss. Recurring revenue increased 65% to £2.4m. Access Intelligence has sold its WiredGov email information business and this competed its disposal of non-core businesses.The acquisition of Cobent boosted the private sector customer base but the public sector is still important to the group. House broker Astaire forecasts a rise in full year profits from £600,000 to £1.4m for a prospective P/E of 23x.

There was net cash of £2.42m at the end of May 2010.

Scientific Digital Imaging (SDI) – £3.96m at 22p
Digital imaging technology company Scientific Digital Imaging improved its profit last year but acquisitions remain the focus.SDI’s products are used to analyse environmental and astronomy data.

In the year to April 2010, revenue increased 6% to £7.19m and pre-tax profit improved from £57,000 to £258,000. There was a swing from a forex gain in the previous year to a small loss last year. More than 90% of sales are outside of the UK. Ken Ford has made his first share purchase since becoming chairman. He bought 75,000 shares at 27p each – a total cost of £20,250. Recently appointed house broker FinnCap forecasts an increase in profit to £338,000. The shares are trading on less than six times prospective 2010-11 earnings.

Net cash was £340,000 at the end of April 2010 and this should increase by next April – but that depends on whether any acquisitions are made.
SDI needs to become larger in order to make the most of its quotation. It is still on the look out for acquisitions in what is a fragmented market. Price expectations have been unrealistic in the past but there are signs that there will be opportunities at realistic prices in the coming months.

Ebiquity (EBQ) – £34.1m at 61p
Media monitoring and analytics Ebiquity reported an improved profit thanks to a strong performance from its analytics business and a 17 day contribution from media intelligence group Xtreme. Revenues grew from £18.4m to £21.2m in the year to April 2010. Underlying profit rose from £2.11m to £2.5m. Ebiquity acquired Xtreme for £17.9m in cash, shares and convertible loan notes. It also bought the remaining 50% of its existing subsidiary in Germany for £800,000 in cash and shares. Xtreme covers more than 60 countries and the acquisition doubles Ebiquity’s revenues. Xtreme reported revenues of £18m and EBITDA of £2.3m in 2009. Around 90% of the revenues are based on subscriptions. Group revenues are expected to reach around £42m in the year to April 2011. A profit of £4.2m is forecast for 2010-11 but earnings per share would be flat at 5.9p a share a prospective P/E of 10.3x.

A share placing raised £770,000 at 56p a share at the time of the recent acquisitions. Net debt was £2m at the end of April 2010.

Motive Television (MTV) – £1.5m at 0.27p
Digital television technology, MTV has re-focused on its digital terrestrial television technology business and it has almost completed the disposal of its TV production business. MTV owns the worldwide distribution rights to Adecq Digital’s BesTV technology – outside Spain and Italy. MTV has already signed up a Czech Republic broadcaster and, if successful, it will be rolled out across the rest of that group which has stations in central and Eastern Europe. The technology enables broadcasters to offer video-on-demand and catch-up TV. The digital information for the films and other programmes is sent down the same digital channel as the programming information. It then sits on the set top box of the customer for a limited amount of time and can be accessed on the basis of a pay per view model.

MTV raised £400,000 at 0.2p a share earlier this year. Further cash has come from the disposal of the original TV production businesses with only the Irish TV production business still part of the group – for the time being at least. Pro forma net cash should be around £560,000.

Publishing Technology (PTO) – £5.47m at 65p
The publishing software and services provider is set to reap the benefits of its investment in its advance software. This software helps publishers to run their businesses and generate additional revenues from existing content. There should be an initial contribution in the second half of this year but the real benefits will show through in 2011. Brazil could be another growth area for the company. Again, this will take a while to make a significant contribution but could be important in 2011. Revenues were flat at £15.3m in 2009. A loss of £1.25m was turned into a profit of £287,000 – although the previous year’s loss was down to exceptional costs.

Net debt was £2.88m at the end of 2009. Publishing Technology spends around £3m a year on R&D but all of that is written off as it is incurred.

Merchant Securities (MERC) – £11m at 23.5p
Aim adviser and private client wealth manager Merchant Securities returned to profit in the year to March 2010. Revenues increased by two-fifths to £7.61m in the year to March 2010. All the main parts of the business increased their contributions. One-quarter of group revenues are recurring – client retainers and fund management fees. An underlying loss of £500,000 was turned into a profit of £1.26m. There was a seven month contribution from Cavendish Young and this also helped funds under management to grow 137% to £181m. The launch of new funds has helped that growth in funds under management. All of the subsidiaries have rebranded under the Merchant Securities name. Lindsay Mair, formerly of Daniel Stewart and Astaire, will become head of UK small cap sales and research in September. The broking side is also taking on financials analyst Chris Smith. House broker Arden expects revenues to grow 18% to £9m and pre-tax profit to reach £1.03m in 2010-11 for a prospective P/E of 14.5x.

Merchant has a strong balance sheet with net cash of £3.06m at the end of March 2010.
Merchant wants to acquire more private client/wealth management businesses.

Jon Levinson will publish his next Small Cap Report on 23rd August.

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