The US elections may have stimulated $600billion of QE2 helping the FTSE 100 to its highest point since June 2008, with a 3.5% rise to 5875.3. The FTSE 250 improved 2.5% while the FTSE Aim All-Share at 837.7 increased by 23.8%. Cheaper rates of borrowing are usually good for share prices and assuming it is soundly and prudently invested it is good for the economy. So thoughts of a double dip recession clearly seem misplaced.
The micro economic bus keeps rolling this week with UK Balance of Trade on Tuesday and Inflation on Wednesday. Additional US unemployment news on Thursday with Jobless Claims could contrast the better Non Farm payrolls recently reported. The US Trade Balances will be reported on Wednesday.
Pause for thought
Small companies are vital for the recovery as they employ around 60% of all private sector workers.
Discover Leisure (DISL) – £2.29m at1.48p
Caravan and motor homes retailer Discover Leisure made a small profit in the second half of the year to August 2010. Focusing on five sites in northern England and improving operating efficiency have helped to improve margins. Underlying operating costs were cut by one-fifth. The second half is always the stronger of the two trading periods. The increase in VAT from 17.5% to 20% could spark buying before the end of the year but the business will remain second half weighted. Discover has also managed to grow like-for-like sales of caravans by 6.4% even though the market shrank by 2.8%. The decline in the motor homes market was 15.9% but Discover’s like-for-like sales rose 6.9%. Touring caravans account for 51% of sales and motor homes a further 38%. Sales of accessories declined. Overall revenues fell from £84.4m to £52.3m, while the reported loss declined from £16.7m to £1.8m. These figures include sites that have been closed. Discover more than doubled orders from this year’s NEC Caravan and Motor Home Show. However, the market as a whole is likely to be flat this year. Discover plans to increase its aftermarket and servicing revenues.
Residential planning permission has been granted by Havant Borough Council for Discover’s Portsmouth site. That should enable it to complete the £1.65m sale of the site. This will go towards paying off a £1.9m bank loan. The loan has already been reduced by £3.1m through the sale of four other sites. Net debt was £11.5m at the end of August 2010, even though Discover has increased its new vehicle stocks. The NAV is around £8m.
RED24 (REDT) – £4.23m at 8.75p
Interims reported a 33% increase in turnover to £2.48m on which an above budget profit of £302,000 was made. Red24 is a highly operationally leveraged supplier of security assistance services to leading international financial services companies. The services are sold as an insurance type policy and once the cost of the call centre in South Africa are covered further policy sales fall straight through to profits. There is positive cash flow and cash balances are £1.1m with a very healthy current ratio of 2.2x. A 0.24p interim dividend is to be paid representing a 60% increase and directors are major shareholders with the Chairman owning 29%. The security insurance policies tend to be imbedded with other banking services which increases their stickiness so the reported 35% increase in customer base given the high operational leverage is particularly noteworthy. The Full year turnover is forecast at £4.7m with a PBT of £700,000 for an EPS of 1.4p for a prospective P/E of 6.3x.
The downside is that further weakness in the dollar negatively impacts as sales are invoiced in dollars and tend to be worth less in local currency terms when payment is actually received, whether this is in the UK or South Africa. The strong balance sheet supported by the £1.1m of cash given the low cost and limited new product development opportunities does allow acquisition opportunities and a dollar earning target would makes the most strategic sense.
MobilityOne (MBO) – £4.68m at 5p
MobilityOne Ltd, which provides e-commerce infrastructure services and technology, has invested a lot of time and money in its technology and the benefits are showing through with the company expected to move into profit in 2011. Malaysia-based MobilityOne started out providing mobile phone top-ups and has branched into mobile banking, bill payments, ticket purchasing and global cash remittance. All the technology has been developed internally. MobilityOne has its own terminals but the number is unlikely to rise significantly because more transactions are being done via bank cash machines and mobile phones. Eight Malaysian banks have signed up and they have 10m account holders who could potentially use the company’s services. The original mobile top-up business is growing by 10% a year and most people still use scratch cards for top-ups. MobilityOne has expanded into Indonesia and is about to start trading in Cambodia but Malaysia still generates more than 90% of revenues. Only 5% of mobile top-ups are electronic in Cambodia and MobilityOne has agreements with six out of the nine mobile operators. In the six months to June 2010, revenues increased 81% to £9.77m, against £13.7m for the whole of 2009. The interim loss was more than halved to £204,000. The global remittance business has only just started to contribute revenues. MobilityOne recently gained its licence to operate the remittance business from the Malaysian Central Bank. A deal with Coinstar Money Transfer will make it easier to facilitate transfers around the world.
Net debt was £669,000 at the end of June 2010. There was an operational cash inflow of £222,000 in the first half of 2010, as well as £373,000 raised from disposals. However, most of the cash inflow was offset by exchange rate movements.