“Estimates for UK 1st Qtr GDP to 31 March go up to 0.8%, while the forecast for the 2nd Qtr to June go to 0.3%. It is slow, occasionally unsteady but it is a recovery.“

David Smith, Sunday Times

Last week….
…. moderate progress continued. The FTSE 100 improving 0.8% to 6055 helped by high oil prices, commodity stocks and strong global growth, while the FTSE 250 increased 0.1%. The Aim All Share at 920 rose 1.6%. The UK economic news remains balanced between the knife edge of inflation pressure and the cliff edge of slow growth, so interest rates may stay unchanged for a few more months.

This week…..
…. Tuesday is busy for UK economists with statistics on the Balance of Trade, Retail Price Index and RICS Housing Survey followed on Wednesday by Unemployment. In the US Retail Sales and Mortgages will be reported on Tuesday. We bet it will add-up to a mixed picture but markets may marginally improve.

Company Reports

Next Fifteen Communications (NFC) – £46.6m at 84p
Next Fifteen grew its revenue from £34.2m to £40.8m in the six months to January 2011.North American revenues showed organic growth of 11%, while organic growth was 4% in the UK and Asia Pacific. The only geographic region that did not generate higher revenues was Europe and it was the only region to report a decline in profit. Digital operations are growing fastest and they are more than 5% of revenues. Underlying profit improved from £2.28m to £3.69m.Technology and consumer PR operations both reported better profits. Edison Investment Research forecasts a rise in full year profit from £6.6m to £8m. The shares are trading on 10x prospective 1010-11 earnings.
Net debt was £2.69m at the end of January 2011. The business is cash generative and £4.7m was spent on acquisitions in the period. Borrowing facilities should be renewed shortly and these should last until 2014.
The interim dividend was raised by 8% to 0.515p a share and the forecast total dividend is 2p a share.
Next Fifteen is looking to make further acquisitions. Another purchase is expected in the next few months. The Asia Pacific part of the business would benefit from more scale. Next Fifteen would also like to buy a European business similar to US-based investor relations consultancy Blueshirt. It is proving difficult to find similar businesses in Europe because investor relations are handled differently in North America.

Bond International Software (BDI) – £16.7m at 45.5p
Recruitment business software company Bond International slipped into loss in 2010 as recruitment software sales fell but there was some improvement in the second half. Revenues were flat at £32.4m, while a 2009 profit of £217,000 was turned into a loss of £1.19m. The main reason for the sharp turnaround was a lack of high margin software sales and some labour intensive projects. Services revenues grew and recurring revenues were 7% higher at £18.7m. Acquisitions made a contribution to revenues but the rate of decline in the continuing operations was slower in the second half than it was in the first half. The purchase of US rival VCG at the end of 2010 was financed by the issue of ordinary and non-voting convertible shares to TSX-listed Constellation Software Inc. Constellation owns 21.6% of Bond and it was a shareholder in VCG prior to its acquisition by Bond. There are signs of recovery in its market but Bond tends to lag behind the recovery of its customers. Sales in Hong Kong and Japan are still building despite the Japanese earthquake. House broker Cenkos forecasts a 2011 adjusted profit of £2m on revenues of £38m giving EPS of 3.39p for a prospective P/E of 13.4x. On the adjusted basis Bond made a small profit in 2010. Cenkos excludes acquired intangibles and share based payments, which are expected to rise from £1.43m in 2010 to £1.67m in 2011.
Cash flow was strong last year and net debt was cut from £2.96m to £2.54m at the end of 2010.

Autologic (ALG) – £14.1m at 23p
Vehicle distributor Autologic is continuing its recovery and has been sorting out its past issues. Problems with a contract with Ford have been resolved and the property liabilities relating to the French business, which was sold before the current management was in place, are no longer a worry following an early earn-out settlement.
Revenues from continuing operations rose 3% to £138.3m in 2010. There was a contribution from MCD which was acquired a few weeks before the end of the year. Underlying profit edged up 5% to £2.2m. The contribution from the mainland European operations improved. Autologic is buying up transporters when they reach the end of their leases. This will reduce costs and increase the interest charge. The company has been successful in renewing contracts, while new business with Aston Martin and Chrysler. Costs have been reduced through consolidation and streamlining of activities plus the rationalisation of suppliers. Profits if £1.2m are forecast for the December 2011 year-end which gives EPS of 1.9p and a prospective P/E 12.1x.
Net debt is £1.9m.
Autologic has a strong position in its core market. The plan is to add more vehicle-related services. The strategy would be to buy a business with a strong market position in a chosen sector and then build on that position.

Motivcom (MCM) – £39.9m at 137.5p
In 2010 employee and marketing incentives group Motivcom grew its pre-amortisation profit by one-third to £4.69m.The majority of the improvement came from the events business, which reported record turnover and profit. Clients are starting to spend more on sales and marketing and events are part of that spending. There was a small improvement in the promotions division’s profit contribution but the motivation division reported a decline in profit. There were a number of cancellations of motivation programmes in 2009 and that hit the division last year. Spending is picking up and 2011 should be a better year for this division. House broker Numis forecasts a 2011 profit of £4.8m, for an EPS of 11p putting the shares on less than 12x 2011 prospective earnings.
The business was highly cash generative last year as working capital reduced. Net cash was £6.24m at the end of 2010. The cash figure is likely to continue to increase unless the cash is spent on acquisitions. The total dividend has been increased from 2.5p a share to 3.2p a share.
Motivcom believes that it is in a good position to make acquisitions. Target companies would have an operating profit of between £500,000 and £1.5m.
Acquisitions have always been part of the strategy but Motivcom has not been able to find a suitable candidate in the past couple of years.

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