Last week
The details of the Government £81billon cutback seem taken ,by investors as an economic necessity leaving the UK’s AAA credit rating firm. It is accepted that GDP growth is fragile and it has long been signalled that the Bank of England is poised for a round of QE, depressing sterling but helpful to the UK economy. So the FTSE 250 and FTSE 100 closed 0.6 % and 0.7% while the Aim All Share continues is rally with a 2.2% improvement to 815.8.

This week
While Governments focus on exchange rates and trade imbalances at the G20 in South Korea, investor’s macro- economic focus this week will be on 3rd Qtr GDP. In the UK it will be announced on Tuesday and is estimated to range between 0.4% -and 0.8%, which is drop from the 1.2% growth in the 2nd Qtr. The US 3rd Qtr GDP announcement is on Friday where a growth rate of 2.0% , perhaps more is the consensus making the US QE decision seem more about trade imbalances.

Pause for thought
It is possible that the equity market will continue to march much higher – valuations remain attractive as the FTS 100 trades on a 2011 P/E of 10.5x and earnings remain firm.
FT Neil Hume
 
Company reports
 
Tristel (TSTL) – £18.9m at 57p
Disinfection products producer , Tristel is doubling its manufacturing capacity and moving into the market for sterile packed disinfectants for clean rooms in factories and pharmacies. The infection and contamination control products supplier has taken on an experienced marketing team of five people and will be selling to the new sector under the Crystel brand. Up until now hospitals have been the core market, although Tristel has already moved into the animal healthcare sector. Revenues rose 28% to £8.76m in the year to June 2010. Pre-tax profit was one-third higher at £1.72m. Export sales are growing and animal healthcare is becoming a significant revenue contributor. FinnCap forecasts another sharp rise in revenues but due to an increased sales and marketing costs, a more modest increase in profit to £1.8m for a prospective P/E of 10.1x. The benefit of that investment in marketing should show through the following year in 2012 when profit could hit £3m.
 
Finance
Net debt was £270,000 at the end of June 2010 – even though there were late payments by debtors – and this is expected to increase to £1.5m because of increased working capital requirements and £950,000 of capital investment. The full year dividend increased 7% to 1.825p a share.
 
Next Fifteen (NFC ) – £40.3m at 73.5p
This technology and consumer PR firm has reported a one-quarter increase in profit in the year to July 2010 and expects another strong performance this year. A particularly strong second half helped revenues grow by 11% to £72.3m with the US recovering strongly and making up for a weak UK market. Underlying profit improved from £5.2m to £6.6m even though there was a lower contribution from Asia Pacific because of the purchase of loss-making Upstream. Beyond, the digital business, did not make a significant contribution to these figures but Next Fifteen chief executive Tim Dyson believes that this will be an important part of the ongoing business. Edison Investment Research forecasts a profit of £8m on revenues of £80.6m in 2010-11 giving a prospective P/E of 9.1x.
 
Finance
The final dividend is increased by 10% to 1.375p a share. That takes the total for the year to 1.85p a share. Next Fifteen spent £5.1m on acquisitions during the year but net debt remains modest at £851,000. That is despite one of two clients unilaterally extending their credit terms.
 
M&A
Next Fifteen has agreed to buy 85% of US-based investor relations firm Blueshirt, which handles a number of technology company flotations. Blueshirt is handling the PR for AIM-quoted mobile marketing technology provider Velti’s proposed listing on Nasdaq. The initial payment is $3m (£1.92m) and there is potential contingent consideration of up to $8m (£5.11m) based on performance of the next four years. If this purchase goes to plan then Next Fifteen may buy more investor relations businesses.
 
Lok’nStore (LOK) – £33m at 128p
Self storage facilities provider Lok’nStore has not opened a new site for more than one year and continues to trade from 21 locations. It has three sites – in Portsmouth, Southampton and Maidenhead – which are not going to be developed until the economy gets better. Lok’nStore recently acquired an option over a 1.2 acre site in Southend. The company’s sites are valued at £81m. That includes the existing Reading site with residential planning permission. The net asset value is 181p a share, or 224p a share excluding the deferred tax charge. Revenues rose 4% to £10.4m in the year to July 2010 thanks to increased prices and higher occupancy rates. These figures were originally going to be published on 8 November but the date was brought forward.
 
Laxey Partners built up a 29% stake in Lok’nStore during the summer. Oliver Ellingham and Audley Capital Management both sold their stakes. The share price has risen by more than one-third since late July. The strong asset base will have been an attraction for Laxey and it is already sitting on a significant profit.
 
Finance
Lok’nStore is focusing on generating cash and reducing its borrowings for the time being because it does not feel it is the right time to start investing in new stores. A stronger balance sheet will put the self storage site operator in a good position when the economy turns up. Net debt was £22.7m at the end of July 2010 but that still leaves around £17m of headroom for when the company wants to start expanding again.

Lombard Risk Management (LRM) – £9.31m at 4.5p
The interims from this risk and compliance software distributer have been published six weeks after the previous full year figures and less than three weeks after the end of the interim period. Banks and financial companies have to comply with the Liquidity Reporting and Stress Testing regulatory regime before the end of 2010. LRM has been working for customers in this area for at least a year but the revenues only started to be recognised in the latest six months. That helped revenues rise by one-third to £5.8m. Annualised recurring revenues are running at more than £4.4m.

A loss of £820,000 was turned into a profit of £154,000. Things could have been even better without the additional cost of moving office in London. Admin costs will fall in the second half.

There is plenty of other legislation that will provide further demand for LRM’s software. The customer base is broad with the largest five customers accounting for 22% of revenues. Continuing profitability is likely for 2011 and the best guess so far for March 2012 is a PBT of £1m for a P/E 9x.

Finance
The balance sheet is strong with net cash of £1.31m at the end of September 2010. That cash pile will have given customers’ confidence in the financial stability of LRM and may have helped to win some of its recent business.

Kryso Resources (KYS) – £27.5m at 15.75p
Gold miner Kryso owns 100% of the 3.02m ounce Pakrut gold deposit in Tajikistan. The mine is expected to have a life of 14 years. At a gold price of $897/ounce the NPV of the project is $121m. If things go to plan the mine could be in production by 2012.

Finance
Chinese government approval for the China Nonferrous Metals International Mining investment is expected in a few days. A general meeting will be required to issue the shares. The Chinese company also intends to arrange the finance for the project. The total cost of developing the mine is $108m.

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