Last week
The FTSE 100’s slide continued with a -1.1% fall while the FTSE 250 declined a marginal -0.2%. The $112 billion Irish loan bail-out was agreed, but intensified fears for other sinking ships such as Spain, Portugal and maybe others. War in Korea is unthinkable. Domestically, GDP behaved with 3rd qtr growth of 0. 8% increasing confidence that the Chancellors 1.2% forecast for 2010 could be beaten. The AIM All Shares at 853.8 was a slight 0.8% lower.

This week
Spain’s Prime Minister ominously stated he had no need for to consider an EU rescue and the EU President categorically denied that Portugal are considering a package . The EU interest rate meeting in on Thursday and while Interest rates are likely to be unchanged but there could be a merest signal for future increases. In the UK there are house price surveys and mortgage approvals.

Pause for thought
Since 1984 the FTSE 100 rose in 22 out of 25 times between December to the year end.
Financial Times


Ffastfill (FFA)£34.3m at 8.62p
Financial trading systems supplier FFastFill managed to increase its interim revenues even though it lost one of its main Software-as-a-Service (SaaS) customers. Revenues grew 4% to £7.31m in the six months to September 2010. Pre-amortisation profit rose from £1.18m to £1.23m, helped by other operating income of £153,000. Capitalised development spending increased from £797,000 to £855,000. AIM-quoted FFastFill’s SaaS order book has increased from £10.5m to £11.8m. That reflects revenue over the next 12 months. The total 12 month order book is worth £14.5m. Depending on the spread of orders, that suggests that the forecast revenues of £15.3m for the year to March 2011 should be almost covered by orders. Ten contracts have been won in recent weeks.

Canaccord forecasts an increase in underling profit from £1.2m to £2.3m in 2010-11 for a prospective P/E of 16.7x , which is slightly about house broker FinnCap’s figure.

Customers are not paying much up front these days – there is not much need to with SaaS contracts. That means that the cash position has reduced with net cash of £1.4m at the end of September 2010 but the business is still cash generative.

Omega Diagnostics (ODX)£3.51m at 17p
Omega Diagnostics has pushed up its interim profit even before it completes the takeover of the allergy testing business of Allergopharma Joachim Ganzer. Revenues grew from £2.87m to £3.3m in the six months to September 2010, while underlying profit jumped from £263,000 to £403,000. That profit figure excludes the £262,000 of acquisition costs in the period plus non-cash items in the income statement. Omega produces diagnostic tests for food intolerances and infectious diseases. The former currently accounts for around one-half of revenues and was responsible for the majority of the growth in revenues. There was growth all around the world. Omega is paying £5m for the allergy testing business of Allergopharma, which has been a small part of pharma company Merck and has therefore been neglected. Revenues have been flat at around €4.3m a year. They are mainly in Germany but there is scope to sell the testing products in more countries around the world.

This is a high margin business – gross margins are more than 75% – with one major competitor in the form of Phadia. The acquired business has 600 allergens, which is more than Phadia. The allergy testing market has historically grown at around 8% a year. Omega should be valued at around £14m when the deal is completed after the shareholder meeting on 17 December.

Net debt was £852,000 at the end of September 2010. Most of the £7.75m gross (£6.7m net) raised in a placing at 12p a share will go on the acquisition. The rest of the cash is likely to go on investment in automating the company’s tests. This includes using the IDS-iSYS machine developed by Aim-quoted Immunodiagnostic Systems Holdings. Omega is also developing an automated version of its Genarrayt system.

Armour Group (AMR)£6.16m at 9p
Consumer and automotive electronics products supplier Armour Group has been finding trading tough for the past couple of years but chief executive George Dexter says that conditions are the toughest he has seen for more than a decade. Competitors are going bust but many are just starting up again without their old debts . All three competitors that recently went bust approached Armour but they would not have added anything to the business.

The consumer business is showing few signs of getting any better with the company’s TV stands business appearing to offer the best short-term prospects. Armour has set up a new factory in China so that it can supply its own TV stands and furniture as well as reselling other companies’ products.

In contrast, automotive business – car radios, speakers, etc – is starting to recover. The car market remains weak but demand from commercial vehicles and tractor manufacturers – high commodity prices are encouraging farmers to replace their existing tractors – is growing.

Revenues rose from £51.6m to £56.6m in the year to August 2010 but materials costs rose faster. Interest costs fell but pre-tax profit still declined from £1.12m to £947,000 for a prospective P/E of 10.6x. Growth will come from new products rather than the trend in the market. This includes the Q2 Cube internet radio. Analysts expect a fall in profit to around £200,000 on flat revenues this year.

Armour capitalises some of its product development investment. Last year it was £1.684m, compared with amortisation of £977,000. This is part of the reason why net debt rose from £4.89m to £5.7m at the end of August 2010. A much lower profit this year and continued product investment means that it will be difficult to reduce debt. However, the development spending will fall as projects come to an end and it is likely to move towards the amortisation charge.

Northern Bear (NTBR)£3.37m at 17.75p
Newcastle-upon-Tyne-based building services firm Northern Bear learnt its lesson from the demise of Connaught and was not as badly hurt by Rok going bust. Northern Bear had to write-off £165,000 when Connaught went to the wall. It was a contractor to Connaught but it did not lose the business it was working on because the end customer took over the management of the project. Northern Bear decided that it had to be more careful with its debtors and it compiled a danger list. Rok was on the list and Northern Bear limited its exposure to £11,000 when the building firm went bust.

Given the current economic climate a rise in revenues, from £15.6m to £15.9m in the six months to September 2010, was a decent achievement. Pre-tax profit dipped from £576,000 to £458,000 but that was due to the Connaught debt. Loss-making plumbing services business DJ McGough was sold to its management during the period. Chief executive Graham Forrest believes that his company will benefit from North East England customers awarding contracts to local businesses.

Net debt was £9.4m at the end of September 2010. The overdraft has been renewed for another year.

Clarity Commerce Solutions (CCS)£15.3m at 37p
IT Services and Leisure and hospitality software provider Clarity Commerce Solutions is behind plan for its financial year but it still believes that it can hit its broker’s forecast. Arbuthnot forecasts a profit of £2.5m in the year to March 2010 for a prospective P/E of 6.7x. In the six months to September 2010, Clarity swung from a profit of £400,000 to a loss of £663,000 with revenues 8% higher at £9.47m. That was down to a £1m contribution from IT held desk services provider Cyntergy which was acquired in the previous year. Clarity will have to generate revenues of £14.9m in the second half in order to meet expectations. Costs are higher because of increased spending on marketing. Recurring revenues are two-fifths of total revenues.

Net debt was £65,000 at the end of September 2010. There is also just over £1m of deferred consideration that could be payable.

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