The FTSE 250 fell -0.5% while the FTSE 100 decreased -1.5%. Although there was no major surprises, UK GDP at 0.8% is towards the top end of expectations while US GDP at 2 % is toward the bottom end. The AIM All Share at 814.4 is marginally lower by- 0.17% and is the first week of decline in months.
In the UK the BOE is likely to leave interest rates as well as QE2 on hold in their Thursday’s meeting.
In the US after Tuesday’s elections the latest unemployment rate will be announced on Friday, while on Wednesday the Federal Reserve have signalled they may push the button on QE2 and start buying $500 billion Treasury Securities over the next six months. In a move to reduce trade imbalances as much as kick-start the US economy.
Pause for thought
“I raised $1.5million from my friends and from the initial capital we sold the bank 34 years later for $8.5 billion “.
Vernon Hill FT.
GETECH (GTC) – £4.24m at 14.5p
Oil exploration data services provider GETECH Group returned to profit in the second half but it still reported a full year loss in the year to July 2010. Revenue was slightly down from £3.31m to £3.25m, while the loss was reduced from £628,000 to £228,000. GETECH has already won a $1.1m contract with a new national oil company client and a £230,000 data contract with another large oil company.
House broker WH Ireland expects GETECH to move back into profit this year. It forecasts a £250,000 profit – up from £200,000 previously and gives a P/E of 23x. GETECH depends on oil companies investing in exploration and spending is continuing to recover. More studies will be available for sale this year. The company is also becoming more flexible and selling more focused parts of their surveys. The focus will still be selling the big surveys but smaller oil companies will not want to spend the large amount of money for a full survey and may only be interested in a specific area. GETECH is also considering generating aeromagnetic data of its own by linking up with a flying contractor.
Net debt was £130,000 at the end of July 2010 and GETECH still has a £1m loan at 1.6% over LIBOR.
LiDCO (LID) – £31.8m at 18.25p
Cardiac monitoring equipment developer LiDCO has distribution agreements with Covidien in the US and Becton Dickenson in Japan but LiDCO is dependent on them getting behind the sale of its monitors. This has not really happened yet. In fact, Becton Dickinson sold its critical care business to Argon Medical Devices. Argon would like to take on the LiDCO distribution licence and negotiations are underway. What does give LiDCO an edge is its agreements with large medical equipment companies – as long as they put their muscle behind the product. This is not just its distribution agreements but also the fact that the monitor can be connected to Philips and GE’s clinical information systems. That will make the technology much more attractive to potential buyers. The agreement with Covidien also means that the LiDCO monitor can be sold with the distributor’s own products, which include its Bispectral Index product, which ensures that the right level of anaesthetic is given to a patient. A package of products, including LiDCO monitors, is a more attractive purchase for US hospitals. Things have not gone exactly to plan for LiDCO because sales have not risen as hoped. Revenues grew 7% to £2.66m in the six months to July 2010. Revenues outside of the US grew by one-third, although Covidien has ordered 100 monitors for the US market since the end of the period. The loss was reduced from £1.2m to £577,000.
The majority of revenues come from disposables and these recurring revenues will become increasingly important. House broker FinnCap believes that LiDCO can move into profit in the year to January 2012, although it wasn’t long ago that it was expected to make a profit this year. Deltex’s broker Arden reckons that Deltex can do the same in the year to December 2011 – effectively the same year as LiDCO. Then again, a profit was forecast for 2010 around 18 months ago. All this goes to show how difficult it is to estimate how long it will take to move into profit. LiDCO is moving in the right direction but it is taking a long time. There is competition but LiDCO has strong partners – as long as they put some effort into selling the company’s products.
Net cash was £1.73m at the end of July 2010 and it is expected to fall to £1.1m by January 2011. After that, the business should be cash generative if it achieves expectations.
Clean Air Power (CAP) – £9.25m at 12.5p
Loss-making Clean Air Power’s Dual-Fuel combustion technology enables heavy-duty diesel engines to run on a combination of both diesel and natural gas. Diesel is used to ignite the natural gas in the engine but when the gas runs out the engine goes back to running purely on diesel. Bio-diesel and bio-gas can also be used. The Dual-Fuel technology could reduce greenhouse gas emissions by 7-10%. In the UK, costs could be reduced by 13p per mile for each truck. The main rival is Nasdaq-quoted Westport, which has much more sophisticated and costs a lot more. A five year supply and development agreement has been signed with Volvo Powertrain. The deal covers truck engines and comes about following an initial agreement at the beginning of 2009. The first commercial sales from the Volvo deal will begin in 2011. UK, Sweden and Thailand are the initial markets. Volvo and Clean Air are also developing an inter-city coach and a snow blower. Clean Air has a separate deal with Navistar in the US. This engine is at concept stage, though. The US is keen on natural gas being used as a fuel for trucks and is offering grants of up to $64,000 for LNG trucks – the grant covers 80% of the incremental cost. The payback period could be six months with the grant or two years without it.
Clean Air raised £2.25m gross at the end of September through a placing and subscription at 12.5p a share in order to provide additional working capital for the business, help develop the Navistar engine and finance a test cell.
Intellego – £1.3m at 0.3.75p
Interims recently announced showed Intellego (IHP) made a profit for the first time in its history. Under new executive management control the main dials on the business dashboard have all improved. On turnover of £1m (up 17.3%), gross margins improved to 77% from 44% illustrating the successful implementation of the strategy. This involved an increased sales focus on own higher margin product and services, the disposal of part of the business, cost reductions and the release of the CVA liabilities. These interims signal the end of an intensive period of restructuring. The strategy to achieve sustainable profitable growth has been developing for the months since Angus Forrest took executive control. After a sequence of trading and strategic announcements the achievements are becoming clear Intellego has started a new sales division to sell its own published content and this is expected to be the main engine for sustainable profitability.
Along with the improved trading position the balance sheet has benefited from the CVA and a placing raising £221,000 at 0.25p. The working capital ratio has improved and pro-forma net debt is £0.17 million.