The FTSE 100 improved 1.2% to 5812.95 while the FTSE 250 rose 1.8%. Shares on Wall St and Europe are at around two year highs. The US QE2 action buying back $240 billion bonds buy is causing a higher US deficit higher gold, lower dollar etc and remember QE2 is designed to arrest a double dip recession. In the UK as in the US the economic look-out remains a mix of inflation and slow growth suggesting a wait and see approach rather than further new highs. The FTSE AIM All Share at 881.6 was unchanged on the week.
Its a busy economic week for the UK and given the mix background the news is bound to be contradictory. There are unemployment figures on Wednesday and although of 7.7% is steady it is likely to move-up so that related items such as Consumer confidence ( Friday) and Retail Sales (Monday) may start growing slower.
Pause for thought
The next two weeks are make or break for many retailers.
Plastics Capital (PLA) – £22.1m at 80.5p
Plastics products manufacturer Plastics Capital has improved its profit and cut its debt at the interim stage. Revenues rose £12.9m to £16.3m in the six months to September 2010. Gross margins were slightly lower because the company is passing on higher plastics prices. Overheads did not rise as fast as revenues. Stripping out amortisation, forex movements and restructuring charges, the underlying profit improved from £936,000 to £1.75m on a constant currency basis. The full year to March a PBT of £2.9m is a reasonable forecast giving a Prospective P/E of 11x .All of the core businesses put in an improved performance. The largest percentage improvement in revenues came from the hose mandrel business. Capacity has been expanded. The power transmission division, which includes bearings and hose mandrel operations, returned to profit. The Thai factory is producing 50% of the company’s bearings and it is servicing customers on the west coast of the US. The factory has gained its first customer in Thailand. Plastics Capital is likely to invest further in the factory. Plastics Capital has set up offices in India and China but has yet to see the benefits from this investment.
Net debt was £14.3m at the end of September 2010. In October, Plastics Capital sold and leased back its property in Dunstable for £1.3m, which is above book value.
Plastics Capital intends to continue to reduce its borrowings in the coming year and think about further niche acquisitions in 2011-12. Price expectations remain too high at the moment but the long-term aim is two acquisitions each year.
Prologic (PGC) – £5m at 50p
Fashion retail software systems provider Prologic’s new chief executive Tom Fischer believes that the company’s new Software-as-a-Service capability will increase its potential market. Revenues edged up from £4.81m to £4.94m in the six months to September 2010. Recurring revenues are 53% of the total. The pre-tax profit improved from £8,000 to £80,000 even though more was spent on sales and marketing. Existing customers have been opening new stores which has helped to boost revenues even though there has been a lack of new clients. New fashion retailer Pretty Green has been signed up as the company’s first Software-as-a-Service customer since September. There has also been a general upturn in potential new business.House broker Arbuthnot forecasts a full year profit of £170,000, which puts the shares on 36x prospective 2010-11 earnings, falling to 17x in 2011-12.
The business is cash generative and net cash was £1.56m at the end of September 2010.
Datong (DTE) – £8.78m at 63.5p
Surveillance technology developer Datong returned to profit in the 12 months to September 2010. Datong changed its year end to September so the official accounts are for 18 months but the company also released information on the last two 12 month periods. Revenues increased 80% to £14.1m with most of the growth coming from Europe and the rest of the world. America, which has always been a key market is beginning to recover. These increased volumes helped Datong to swing from a loss of £642,000 to a profit of £546,000 for a P/E of 15.The new financial year has started strongly and £3.1m of orders for 2010-11 have been received. A PBT of £1.1m is forecast September 2011 forgiving a prospective P/E of 7x.
Net cash has risen to £2.58m by the end of September 2010. The former factory has been written down from £699,000 to £375,000 but its sale could be completed in the near future.
Datong is looking to acquire businesses that have products or services that fit in with its existing offering.
Bglobal (BGB) – £41m at 41.25p
Smart meter installer Bglobal is already enjoying the benefits of its acquisition of software company Utiligroup in June for an initial £5.3m in cash and shares. Bglobal moved into profit in the six months to September 2010. This is the first time that Bglobal has made a profit. The core meter installation business was installing enough meters to reach profitability but Utiligroup generated as much operating profit in the three months it was included in the latest figures. Utiligroup made a gain of £253,000 on selling a shell company with regulatory approvals to be an electricity supplier to Co-op Energy. Utiligroup has set up two more of these shell energy supply companies and intends to sell these and set up some more. Management expects this to be a regular source of income for the group. Bglobal installed 32,000 meters in the first half, against 17,000 in the same period last year when the business was still making a significant loss. Overall revenues grew from £5.82m to £12.5m with £2m of the additional revenues coming from Utiligroup. Stripping out amortisation and the £194,000 of acquisition costs expensed in the period, Bglobal swung from a loss of £481,000 to a profit of £1.36m. For the March 2011 year end if the PBT if as forecast of£3.1m the prospective P/E would be 14x.
There is potential deferred consideration for Utiligroup of £2.75m. Including that in debt, Bglobal still had net cash of £777,000 at the end of September 2010. Since then a further £2.8m of cash has been generated.