Last week
On the first week back from summer holidays the three indices, we try to follow cause and effect  improved  sharply. Both the FTSE 250 and 100 improved more than 4.3% while the Aim All Share at 709 improved 3.2%  last week.  The two larger indices reflected increased M&A activity and positive  US jobs data showing that private sector employment rose 67,000, which was higher than expected so reducing double-dip recession concerns.  
This week
The Bank of England’s interest rate decision is due on Thursday and no change is expected nor is a change expected this year.  Also on Thursday is the US balance of trade data which should show the economy’s trade deficit narrowing by around $1 billion from the previous month’s $49.9 billion gap.
Pause for thought
The BIG Picture shows that the world economy is recovering more rapidly than most investor assumed.
Sunday Times 
Pilat Media Group (PGB) – £20.8m at 35p
Pilat Media Global normally has a slow start to the year but the broadcast management software provider is already strongly profitable in the first half. Revenues grew from £8.33m to £10.4m in the six months to June 2010. Most of the growth came from implementation services. A pre-amortisation loss of £995,000 to a pre-amortisation profit of £1.02m. A large part of that improvement came from a positive swing in exchange rates and fair value adjustments of financial instruments. However, there was also an underlying improvement in operating profit. Pilat continues to expense all of its research and development spending, which was 13% of revenues in the first half.
A $11.2m software and services contract with a US telecoms company widens the potential customer base and provides a strong start to the second half. The contract is spread over a number of years but a large proportion of it will become revenues in the second half.  A New York office has been opened to help increase sales in the US. House broker Shore Capital forecasts a full year profit of £2.5 putting the shares on an 11x prospective December 2010 earnings. 

There is £3.79m in cash in the bank.

Pan African Resources (PAF) – £88.9m at 6.31p
Pan African Resources has a cash generative gold mine which can finance the companys expansion and also enables it to pay a dividend. The Barberton gold mine is generating all of Pan Africans revenues at the moment. They increased by 29% to £68.5m in the year to June 2010. Gold production edged up by 3% to 97,483 ounces and the grade remained high at 10.61g/tonne. Management believes that the grade should be maintained. Pre-tax profit improved from £16.3m to £22.2m but that was mainly down to the £4.7m reduction in the impairment charge. Pan African, which is also listed on the JSE, took 100% ownership of the Barberton mine during the period so it will keep all of the profit from now on. Shanduka Gold has taken a 26% stake in Pan African and Cyril Ramaphosa has become non-executive chairman.

Pan African generated cash of £10.6m during the period, taking the cash figure to £12.8m at the end of June 2010. A dividend of 0.3723p a share will use up £5.26m of that cash. The cash in the bank and being generated from Barberton will finance the development of the Phoenix platinum project. Production of platinum group metals from the processing of chrome tailings could commence in the second half of 2011.
Pan African is looking to buy high quality mining assets in southern Africa with good grades. A low cost structure and high margins are also required.

Dawson International (DWSN) – £4.5m at 2p
Knitwear and household textiles supplier Dawson International says that higher cashmere prices will hamper progress in the second half.  When Dawson makes profits it is  normally in the second half and this year will be no different. However, the full year profit will not be as high as originally hoped.
Revenues from ongoing operations improved from £18.6m to £19.1m in the first half of 2010. The underlying pre-tax loss edged up from £3.35m to £3.44m. That excludes a further $1m payment of part of a long standing debt owed by King Deer that was received in the first half.  The exit from the Dorma branded home furnishings market has been completed within budget. Dawson should still make a small profit for the full year but it won’t be as high as the 2009 profit. There will be an improved performance by home furnishings but knitwear profits will be much lower than last year. Costs are being cut but it is difficult to provide products at the right price points without taking a hit to margins. The weight of fabrics is being reduced in order to cut their cost.

The disposal of Todd & Duncan has reduced working capital requirements and there was net cash of £1.1m at the end of June 2010. The annual pension deficit reduction contribution has been increased from £350,000 to £400,000. This is on top of the normal contribution. The gross pension deficit is £19.2m.
Stadium Group (SDM) – £18.4m at 63p
Contract electronics manufacturer Stadium Group recovered strongly in the first half of 2010.
Revenues from continuing operations increased 37% to £23.1m and operating margins improved. Profit from continuing operations doubled to £1.45m. Most of the manufacturing business’ main customer sectors are recovering, even automotive. Growth areas are smart meters, hospital security, rail door monitors and IP security. The only really poor market was US satellite TV. Stadium Power is also growing as energy efficient power supplies become more important. Components are in short supply and that could hold back short-term progress. Brewin Dolphin forecasts a full year profit of £2.7m, rising to £3m next year but that assumes that the disposal cash is not reinvested in acquiring additional operations. The shares are trading on 9x prospective 2010 earnings, falling to eight in 2011.

The sale of the plastics business has boosted the cash position. Flambeau Europlast paid £2.5m for the business. A property worth £2.05m has been retained and could be sold for more than book value. It is next door to a new Tesco development. Net cash was £1.83m at the end of June 2010. There are also £7.63m of additional bank facilities. The gross pension liability has reduced to £7.19m thanks to additional contributions. The improved financial position has enabled Stadium to increase its interim dividend from 0.8p to 0.95p a share. That is still much lower than the 2008 interim.
The strong balance sheet enables Stadium to think more seriously about acquisitions. It could become a consolidator in the UK contract electronics manufacturing sector.

RAM Investments (RAM) – £5.2m at 4.25p
The option to acquire the remaining 50.1% of TrainFX, together with a £1.5m secured loan note should be the final piece of the restructuring jigsaw. Ram will own 100% of Train FX which has developed a product range of legally required two-way communications technology for the rail industry. Already announced is a pipeline of £15 million of orders. The loan note along with the £1m raise at 5p in June, should allow the two divisions of TrainFx and  the Shopping Mall Media estate owner, Ram Vision, sufficient funds to accelerate growth. Opportunistically in November 2009 Ram aggressively negotiated the acquisitions of two Shopping Mall media companies and formed Ram Vision. Setting the foundations of a gateway for advertisers into Shopping Malls. The development of its complimentary TrainFX (TFX) business will be in two phases which reduces the business risk and the need for further fund raisings. TFX will initially concentrate on technology sales to train operators these tend to be large orders but the timing may be difficult to predict. The Train FX pipe line of 7 bids worth around £15m, so even assuming a less that 50% conversion rate for 2011. A combined turnover of around £11m for 2011 should produce significant profits. The second Phase of TrainFX is to develop media sales with screens in the train carriages.

The secured £1.5m loan note is at 8% with 37.5m warrants set at 6p and subject the  GM on the 17th of September.

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