Slow, fast, faster and slow was the beat of the market last week. The FTSE 250 improved 2.5% while the FTSE 100 increased 1.4% to 5745.32. Macro–economic uncertainty focused Euro debt contagion fears which were papered over with the promise of serious EU funds. A rise in US jobless to 9.8%, lower UK house prices and consumer confidence were the downbeats to the week. The AIM All Share at 881.9 improved 3.2% making a gain so far this year of 35.18%
The BOE interest rate decision on Thursday is a traditional point of interest but has been unchanged at 0.5% for 22 months. Otherwise there is a host of trading data from factory orders, new car registrations and consumer credit. Perhaps providing the reason the British Chamber of Commerce reduced UK GDP 2011 forecast from 2.2% to 1.9%.
Pause for thought
There are lots of value to be found in the Rubble from the Bubble of Aim companies listed during 2005- 2007.
Sanderson (SND) – £12.2m at 28p
Investment in software and improving market conditions helped enterprise software supplier Sanderson to increase its revenues and profit in the year to September 2010.
Revenues rose 8% to £27m, while the underlying profit rose 15% from £1.63m to £1.88m. The gross margin from recurring revenues covers two-thirds of overheads. If incremental revenue from existing customers is added on then all of the overhead costs are covered. This means that the gross profit from new customer revenues should fall through to profit.
There was a small increase in the revenues of the manufacturing sector, particularly food, but most of the growth was from retail customers. The order book is worth around £3m, which is 58% higher than one year before. Sanderson has just launched a new product that will help customers’ to reduce the number of servers they need to use. A Software-as-a-Service product is due to be launched by the beginning of 2011. House broker Charles Stanley forecasts a profit of £2.5m this year putting the shares on a prospective 6x P/E for 2010-11 earnings.
Net debt has been cut from £9.96m to £7.84m but the interest charge remains high due to the company’s situation when it negotiated its present bank facility. Sanderson is confident that it can refinance its borrowings next year that would reduce the interest burden. That could enhance earnings by around £200,000 in a full year. Charles Stanley believes that net debt will fall to £6.4m by next September. There are still more than £5m of tax losses. Sanderson is aware that a lot of its shareholders bought the shares for income and it continues to rebuild the dividend. It is 50% higher at 0.6p a share.
Sanderson is interested in bolt-on software acquisitions but it is not keen to issue shares at the current level.
Advanced Power Components (APC) – £2.83m at 11p
Electronic components distributor Advanced Power Components reported a slightly better than expected profit in the year to August 2010. The previous year’s loss of £752,000 was turned into a pre-tax profit of £247,000 even though revenues slipped from £14.1m to £13.4m. Better foreign exchange controls and lower overheads helped APC to return to profit. The order book has started to pick up in recent months. Defence and aerospace orders were held back prior to the spending review but they are coming through again. There is also demand in areas such as digital signage. New distribution agreements will also help. The electricity optimisation product, the imop, is still being tested by potential customers. Distributors are being signed up outside of the UK. APC plans to add more green technology products to its range so that it can sell them through its distribution network.
House broker Northland Capital forecasts a profit of £300,000 this year with little contribution from the imop. The shares are trading on less than 8x prospective 2010-11 earnings.
Net debt was down from £2.2m to £1.7m thanks to lower stocks and debtors.
OMG (OMG) – £27.3m at 39.5p
Imaging and motion capture software developer OMG almost trebled its underlying profit in the year to September 2010 as the Vicon motion capture business recovered strongly in the period. Overall, revenues were 19% ahead at £31.2m, while the underlying profit improved from £1.1m to £3.2m with reported profits due to impairment of goodwill was £1m with EPS lower at 0.47p shares compared to 0.74p. The latest figure excludes an impairment of intangible assets of £1.92m. The Vicon division’s revenues grew from £10.6m to £14.1m even though there was a lack of spending on new software by entertainment customers. This did help the House of Moves animation services business but the main growth came from life sciences and engineering. The part of the business developing software for unmanned aircraft should benefit from the defence spending review because spending in this area will continue. Yotta is a problem area. Yotta uses OMG’s motion capture software to survey highways and pavements plus the assets related to them. The UK is winning new contracts but the US business remains weak and costs are being reduced. Current forecast for September 2011 of £2.7m would give EPS of 2.95p and a prospective P/E of 13.2x
Strong cash flow helped OMG to increase its net cash position from £2.78m to £6.2m by the end of September 2010. The full year dividend was doubled to 0.3p a share.
Wasabi Energy (WAS) – £40.8m at 2.13p
Australia-based cleantech investor Wasabi Energy has completed its secondary quotation on AIM and the shares ended the day at nearly double their placing price. The Kalina Cycle process uses ammonia mixed with water so that the boiling point is lower. The technology can be used to create power from geothermal sources or from waste heat from cement plants and other industrial sites where waste heat is significant. This means that between 10% and 50% more power can be generated from the same heat input as other technologies. At the end of 2008, Wasabi’s subsidiary Global Geothermal issued a licence to the Kalina Cycle technology to Shanghai Shenghe New Energy Resources Science and Technology. This government backed organisation intends to roll out the techno logy to cement plants and other businesses where waste heat can be used. Global Geothermal will receive a royalty based on the size in MW of each plant. Longer-term, Global Geothermal intends to build and operate its own plants because this will provide a higher return for its cash. Wasabi’s other two main investments are a 50% stake in Aqua Guardian Group and 23.3% of ASX-listed Australian Renewable Fuels. Aqua Guardian is a water conservation company whose first product, AquaArmour, is designed to “minimise the effect of sun and wind evaporation losses on large water storages servicing cities, towns, agri-business and mining projects”. This is a hexagonal shaped module that reduces the amount of light and heat entering the water as well as protecting against the wind. Wasabi claims that evaporation can be reduced by up to 88%.
Loss-making Australian Renewable Fuels is a biodiesel producer with a capacity of 90m litres a year. Earlier this year, a merger between ARF and Wasabi was agreed but market conditions meant that it did not proceed. ARF has an impressive plant and it is currently investigating the use of waste from palm oil production as a feedstock.
Wasabi’s executive chairman John Byrne used to run Cambrian Mining, which merged with Western Coal Corporation, itself currently the subject of a £2.1bn merger with US-based coal miner Walter Energy.
ASX-listed Wasabi raised £4.9m at 1.1p a share prior to joining AIM. Byrne says that Wasabi has enough cash for its needs.