Last week
After a 14% rally during the third quarter the FTSE 250 closed the week up 0.5% with the FTSE 100 up 0.1%. Gold at $1,300 a oz. shinned helped by QE and the falling dollar, while Sovereign Debt and Bank ratios and the continuing uncertain macro- economic background tarnished equities. The Aim All- Share at 785.5 improved a further 1% and has risen nearly 21% over the last three months.

This week
Although, less true in the AIM market macro-economics is driving trading and this week there are three interest rate decisions. No-change decisions are expected from: Japan , 0.1%; UK, 0.5% and the EU at 1%. The Bank of England may add more flesh to the Quantitative Easing (QE) bones currently at a skinny £200billion which may not be enough to deal with the slow-down caused by Government Spending cuts. Euroland’s GDP on Wednesday for April-July should show annual growth of 1.9%. The US on Friday could, however weigh-in with a slight rise in the unemployment rate currently 9.6%.

Pause for thought
An economist’s guess is liable to be as good as anybody else’s.
Will Rogers

Company Reports

Netcall (NET) – £15.3m at 12.5p
Telephony services software provider Netcall has had an initial contribution from the October 2009 purchase Q-Max. This helped Netcall improve its underlying profit in the year to June 2010 but the purchase of Telephonetics will have a greater influence this year. The telecoms call-back and speech recognition software provider acquired Aim-quoted Telephonetics just after the year end and it will contribute 11 months figures in 2010-11.

Revenues edged up from £3.93m to £4.13m in 2010-11, including the £1.19m contribution from workplace management software provider Q-Max. Licence sales of the core QueueBuster call-back software were disappointing. The customer base has more than doubled to over 600. This provides cross-selling opportunities and it is no longer dominated by financial services companies, although there will be more exposure to the public sector and health. Cinema booking systems account for nearly one-quarter of pro-forma revenues but its importance will decline. Netcall has already achieved £500,000 of cost savings following the Telephonetics acquisition and house broker Evolution believes that this can increase to £1.5m. Recurring revenues will be more than two-thirds of the total.

Finance
Evolution forecasts revenues of £14.1m this year with all the growth coming from Telephonetics making a profit of £2.3m for the current year, rising marginally to £2.4m in 2011-12. The shares are trading on 9x prospective 2010-11 earnings. Pro-forma cash is more than £4m and the cash pile should rise over the next few years.

M&A
Netcall will probably focus on completing the integration of Telephonetics. It is still interested in other consolidation opportunities in a fragmented market, the focus will be on businesses with proven revenue streams and profitable or trading at around breakeven.

VPhase (VPHA) – £14.9m at 2.125p
Energy saving products and voltage optimisation product developer VPhase has adapted its commercial strategy following a disappointing first half and revenues are starting to pick up. There have been changes on the board with former Blick boss Vanda Murray taking over as chairman and finance director Rick Smith replacing Lee Juby as chief executive. In the six months to June 2010, VPhase doubled its revenues to £121,000 but still lost £727,000. The loss of £412,000 in the first half of 2009 was flattered by the capitalisation of development costs. Sales in September are running at three times the average monthly rate suggesting revenues of around £60,000 for the month. VPhase says that consumers should not have to pay more than £250 plus VAT to buy the device. Installation by an electrician is an additional cost. The payback for investment in the voltage control product is expected to be less than five years – based on electricity savings. More than 280 electricians have been trained by VPhase but any electrician should be able to fit the product to a modern fuse box.

The use of the product in an edition of DIY SOS has helped to bring it to the public’s attention. VPhase is also using things such as social media to help get the product known.

Finance
There was a £737,000 cash outflow in the first half of 2010. That leaves VPhase with £940,000 in the bank. There has been little change in the rate of cash outflow so it will not last long. The management says that there is no immediate intention to raise more cash but it is difficult to see VPhase getting anywhere near breakeven before the cash runs out. Debt finance may be an option but a share placing seems likely – sooner rather than later.

Atlantic Global (ATL) – £3.03m at 13.5p
Business management software
Software-as-a-Service revenues are growing quickly but are still relatively low. New customers include Experian and eSure. The launch in October of a fully automated platform will make it easier for customers to try out the software and provide additional selling opportunities. Revenues grew from £647,000 to £728,000 in the six months to June 2010. Higher gross margins and lower admin costs helped turn a £148,000 loss into a £21,000 profit. House broker Daniel Stewart forecasts a swing from a loss of £0.1m to a profit of £0.6m for the full year.

Finance
Atlantic Global has not paid a dividend since the final dividend for the 2008 figures. The latest interim dividend is 0.1p a share and is the second ever interim dividend paid by the company. The company can certainly afford the dividend with net cash of £2.11m at the end of June 2010. The final dividend could be 0.9p a share, taking the total to 1p a share.

GVC Holdings (GVC) – £34m at 112p
Online gaming provider GVC Holdings’s first half figures bear the costs of redomiciling to the Isle of Man but the underlying business held up reasonably well. Net gaming revenue improved from €26m to €28.1m in the six months to June 2010. The underlying figure was flat because the South American business Betboo was not bought until the second half of 2009. GVC increased its marketing spending on the CasinoClub business focused on the German market. Although CasinoClub’s net gaming revenue fell during the first half it could have declined even faster without the additional investment. Underlying EBITDA fell from £9m to £6.6m. There were exceptional costs of €3.31m, most of which were accounted for by redomicilation costs and one-off payments to the chief executive and finance director.

The €410,000 loss relating to the discontinued Spanish online bingo business are not included in the EBITDA figure. GVC has fallen out with gaming software supplier Boss because it believes the latter has made use of the GVC database of customers without its permission. Boss has tried to terminate the provision of its services to GVC’s Italian business but GVC obtained an injunction. This dispute has cost €266,000 in the first half and there will be more to come in the second half. Betboo has its own software and this will be used to launch operations in Russia, Turkey, Greece and Portugal. These operations should be profitable in 18 months. Trading has been better in September but it is difficult to assess whether this will continue. The recent European Court of Justice ruling against German legal restrictions have not made the situation any clearer according to GVC. House broker Arbuthnot forecasts a full year pre-tax profit of €8.4m, down from €14m in 2009. The shares are trading on 5x prospective 2010 earnings.

Finance
Even after paying a 50 cents a share dividend, there is still €5m of cash in the bank. That is enough to pay an interim dividend of 10 cents a share and the final dividend will probably be the same amount. The strategy is to pay 75% of net cash generated in dividends. However, deferred consideration of €5.87m is payable for Betboo in October 2012 and GVC says that it may have to pass the interim dividend in 2012 in order to finance that payment.

Sceptre Leisure (SCEL) – £18.3m at 33p
Gaming and amusement machines supplier Sceptre Leisure continues to grow despite a tough pub market. The core amusement machines business made progress in the year even though Sceptre was short of capital for part of the period. An initial contribution from December’s acquisition American 8 Ball also helped. The latest deal is a two year supply agreement with the managed pubs business of Punch Taverns. The deal covers around 30% of the managed outlets. Group revenues grew from £39.2m to £42.8m in the year to April 2010, while pre-tax profit improved from £1.39m to £1.91m giving an historic P/E of 10.3x which falls to 9.0x for the April 2011 year-end on profits forecast at £3.1m. Sceptre sold its Fixed Odds Betting Terminal business for £3.75m, which generated a profit of £800,000. One notable thing was the sharp rise in the revenues of the lottery and games business, which Sceptre inherited when it reversed into Gamingking. They jumped from £2.54m to £3.68m. This is an indication of the cross-selling benefits generated by the group.

Finance
A share placing helped cut net debt from £19.5m to £15.9m and still allowed investment in more amusement machines.

M&A
Management is still keen to make add-on acquisitions in the amusement machines sector.

smartFOCUS (STF) – £13.6m at 14.25p
Customer relationship and marketing software provider smartFOCUS reported doubled profit of £309,000 in the first half of 2010. Revenues grew 17% to £6.59m, with 63% of them recurring. The UK accounts for three-fifths of revenues. The company has added 30 new customers during the period as well as signing up new regional partners. The biggest customer is less than 7% and there is a good spread of sectors, although finance, media and retail make up the majority of the business. Arbuthnot forecasts a full year profit of £800,000, compared with £490,000 in 2009 giving a prospective P/E of 24.5x. There is already 88% visibility of the 2010 forecast revenues of £13.4m.

Finance
There was £2.21m in the bank at the end of June 2010. The second half is normally much more cash generative than the first half. Management is considering starting to pay dividends but a share capital restructuring will be required to do that.

M&A
There is consolidation in the sector and smartFOCUS is well-placed to make add-on acquisitions. New capabilities would be particularly attractive.

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