Last week
The FTSE 250 improved 1.9% with the FTSE 100 up 1.4% to 5501.6. The double-dip recession fears are easing but sovereign debts and the European Banks reserve ratios are causing concern. The Aim All Share at 732.2 improved 3.2% and it was noticeable that micro-cap share prices were reacting positively to good news- perhaps suggesting an increased interest in this downtrodden sector?

This week
There are UK Inflation figures on Tuesday which are expected to show a fall from last month’s 3.1% but there remains an undercurrent of raising food and clothes prices following on Wednesday is UK unemployment. The US economy could be troubled by Inflation numbers on Tuesday and falling Consumer confidence on Wednesday.

Pause for thought
Formula for success: rise early, work hard, strike oil.
J. Paul Getty

Company Reports
Staffline (STAF) – £27.5m at 129.5p
Outsourced recruitment services provider Staffline Group had already told the market that its interims would be much better than expected but the share price still soared on their release. Revenues rose 70% to £83.4m in the six months to June 2010. Acquisitions made a strong contribution to that growth but there was also organic growth. Pre-amortisation profit improved from £1.38m to £2.35m. There are 129 OnSite locations with six more to come in the third quarter. Additional business is being won with Tesco and recent acquisitions brought new customers including Ginsters owner Samworth Brothers and Cranswick. House broker Altium forecasts a rise in full year underlying profit from £3.6m to £6.7m. The shares are trading on less than 6x prospective 2010 earnings, which is modest considering the potential and the yield. It indicates how lowly rated the shares were before the share price rise.
The interim dividend was increased from 1.4p a share to 2.4p a share. The total dividend for the year is forecast to increase from 3.1p a share to 5.5p a share. Even after the share price rise, the yield is 4.2%.
The business is strongly cash generative and net debt edged down to £4.8m at the end of June 2010 even though two acquisitions were made in the period. Bad debts remain rare. Staffline is looking for more acquisitions in industrial recruitment, training and related areas. Changes in government funding have led to a number of training companies being put up for sale.
Independent Media Distribution (IMD) – £21m at 61p
Independent Media Distribution improved its underlying interim profit by 70% and July and August have also been strong. IMD distributes advertising online to TV and radio stations and also provides software and other services to these customers. Revenues rose 30% to £4.7m in the six months to June 2010. IMD had lost some business in the first half of 2009 when an agent signed up with a rival but much of this business was won back. Some of the growth reflects those changes in 2009 but there is also underlying growth. France is growing strongly and it is a bigger contributor than Germany. Even the radio business is starting to recover. Underlying pre-tax profit improved from £574,000 to £975,000. This excludes a notional gain from buying out the joint venture partner in the Irish business. Revenues in July and August are 27% ahead. New services, such as subtitles and sponsorship distribution, are helping IMD to grow. The losses in France should also end in the second half. The digital media sector will be an important customer base in the future. House broker Charles Stanley forecasts an improvement in full year profit from £1.7m to £2.2m. Much of that improvement has already been made in the first half. The shares are trading on 14x prospective earnings for 2010.
The interim dividend is being increased from 0.5p a share to 0.8p a share. The effective final dividend for 2009 was 0.7p a share. The cash pile has increased to £965,000 even though more cash is going out in dividends and money is being spent on increasing capacity and developing new services.
Vindon Healthcare (VDN) – £9.11m at 10.25p
Environmental control equipment and services provider Vindon Healthcare believes the investment in its US storage services business will pay off over the longer-term Vindon is on course to open its first US storage facility in Atlanta in the fourth quarter of this year. The focus on this investment and the lack of new environmental storage cabinet sales in the US has held back the short-term figures. Revenues edged up from £2.59m to £2.64m in the six months to June 2010. However, pre-tax profit dipped from £506,000 to £412,000 even though the contribution from the Irish storage services business trebled to £155,000. There were extra overheads after the purchase of US distributor Westech. The core business is the storage of drugs but areas such as cryogenics and heritage storage are growing in importance. Orders for equipment are recovering and there is long-term contracted storage revenue of £3.9m. That includes £1m for the second half of 2010. House broker WH Ireland forecasts a small improvement in profit to £1.1m this year, with a bigger improvement to £1.3m in 2011. The shares are trading on just over 11x prospective earnings for 2010, falling to little more than nine in 2011.
The dividend is expected to be edged up from 0.165p a share to 0.18p a share this year. The prospective yield is 1.8%. Net debt was £2.2m at the end of June 2010. The business is cash generative and this figure should reduce over time even with investment in expanding storage facilities.
Vindon is keen to supplement its organic growth through acquisition. Management would like to add further services that it could offer its customers.
Environ Group (Investments) (EVN) – £8.9m at 6.5p
Environ Group (Investments) is the new name for the streamlined Southern Bear. Environ operates plumbing and building services businesses in Stoke-on-Trent and Newcastle-upon-Tyne. There is also a fire protection business. Environ does work for social housing organisations. There are no signs of any weakness in the social housing repairs market. It also works with Seaga, which holds the contract for the £1.5bn Warm Front programme in England that helps people to make their homes more fuel efficient. Revenues from continuing operations rose 52% to £19m in the year to March 2010. The writing down of assets led to a loss of £17.2m.
Environ has just raised £3.6m in a placing and one-for-40 open offer at 4p a share and £2.2m was used to repay chairman Nigel Wray. The open offer was oversubscribed. There was also a 40-for-one consolidation of the existing shares. Net debt was £5.43m at the end of March 2010.
ZincOx Resources (ZOX) – £29m at 36.5p
Zinc reclamation and recycling groupZincOx intends to construct its first recycling plant in South Korea. After a number of false starts in the US and Turkey it appears that ZincOx is finally going to get its recycling operations up and running. The technology being used takes processing waste from blast furnaces and produces zinc oxide. ZincOx has won the right to take 400,000 tonnes of this dust from Korean steel companies. This is a 10-year supply agreement. Production could commence by the end of 2011.
ZincOx is waiting for confirmation of the capital cost of the project. ZincOx has bought some second hand plant that will help to reduce the overall cost of the recycling plant, which will be built in two phases. Land is expensive in South Korea but if the plant’s land can get foreign investment zone status then the government will buy the land and rent it to the company. ZincOx has cash in the bank.
ZincOx may spin off its mining interests into a separate company in order to attract green investors to the main recycling business.
Johnson Service Group (JSG) – £52.6m at 21p
Executive chairman John Talbot has headed up the recovery of the business, which was hit by massive write-downs in 2007. JSG is smaller now but it has stronger foundations and good market positions in its niches. Although JSG is thought of as a dry cleaning business it is the textile rental operations that make the most revenues and the bulk of profit. The economy has an effect on this business with Corus a major customer. Cost cutting has improved operating profit, although energy costs may rise again next year. There was a 3% drop in JSG’s revenues to £109.8m in the six months to June 2010 but it still improved its underlying profit from £5.3m to £6.2m, thanks to lower interest charges. That profit figure excludes £6.5m of provisions relating to 28 loss-making dry cleaning stores being closed or run down. The cold start to the year knocked £600,000 off dry cleaning profit. The dry cleaning business has found trading tough but its profit is expected to recover in the second half as the benefits of the restructuring come through. The facilities management division is the smallest in revenue terms but has plenty of scope to grow. The division is buying eight PFI contracts from the administrator of Jarvis. These contracts generated £10.5m in revenues last year. JSG’s facilities management division generated revenues of £36.6m in 2009. The acquisition will be earnings enhancing in the second half of 2010. Investec forecasts a rise in full year profit from £12.2m to £14.1m. That puts the shares on little more than 5.6x prospective earnings.
Management is comfortable with debt levels and point out that the bank facility, which is in place until April 2013, is £77.5m. Net debt is certainly a lot lower than the £181m figure at the end of February 2008. JSG moved from the full list to AIM in July 2008 and around that time it raised £28m gross from a placing and an open offer at 20p a share. The current share price is below that price.

JSG increased its interim dividend from 0.25p to 0.27p a share. JSG returned to paying dividends at the interim stage last year after a two year gap. Last year’s total dividend was 0.75p a share and it should improve to around 0.8p a share for 2010. That dividend is still nearly five times covered by forecast earnings per share for this year. Net debt is £64.6m and, even after a dividend costing £670,000, could fall to £63.5m at the end of 2010. The yield is nearly 5% and should be attractive to investors.

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