“Pressure to raise interest rates has been has been significantly reduced by surprising fall in inflation.” Don Smith ICAP.

Last week….
..the FTSE 100 drifted down -1% to 5,966 while the FTSE 250 lost -0.4%. Consumer Price Inflation unexpectedly dropped from 4.4% to 4% in March while IMF’s  UK GDP forecast for 2011 were reduced to 1.8% concerns for a double dip recession are fading.  The Balance of Trade deficit narrowed by a further £1.5billion to £2.4billion and there was decent news of UK Unemployment being lower at 7.8%.  The Aim All Share at 912 was down -0.86% over the week.

This week….
……euro debt problems rumble on. Wednesday in this Easter Week the Bank of England Minutes will be released  giving an insight into the thinking behind the decision earlier this month to leave interest rates unchanged. This will be followed by Retail Sales figures on Thursday while in the US later in the same day Jobless figures will be announced. We expect markets to end this week higher then they started.

Company Reports

Hydrogen (HYDG) – £26.8m at 114p
Recruitment firm Hydrogen realised that it needed to diversify internationally even before the latest downturn in the recruitment cycle. International net fee income was 6% of the total in 2007 and it has risen to nearly one-third in 2010. Australian revenues are rising rapidly and the Singapore office made its first contribution. A Hong Kong office is about to open. The target is 50% of net fee income from international business.

This international expansion helped Hydrogen to remain profitable throughout the cycle and to grow even faster now that the UK business is recovering strongly. Contract and permanent recruitment revenues are each recovering. Pre-tax profit jumped from £330,000 in 2009 to £2.46m in 2010. This prompted FinnCap to upgrade its 2011 profit forecast from £2.9m to £3.25m  making an EPS of 10.67p so a prospective P/E of 10.7x. All parts of the business are growing. Technology, finance and professional are all growing but engineering – mainly focused on natural resource businesses – grew its income by 152%. Technology still provides the majority of profit. The focus is on organically growing existing business sectors.

Net debt was £2.2m at the end of 2010. Hydrogen has been able to reduce debt at the same time as maintaining its dividend at 4.1p a share for the past three years.

Walker Greenbank (WGB) – 51.25p at £29.75p
Luxury household good group, Walker Greenbank shares have risen from 27p to 57p over the last year. Full Year results to January 2010 reported profit doubling to £4.46m and an dividend increase from 0.5p to 0.95p. The fast recovery from recession is a combination of organic growth and operational leverage  which have lifted figures higher than the market expectations that were reset in a trading update in February. Walker Greenbank is a luxury interior furnishing group with specialist design skills and high quality manufacturing. Leading brands include Harlequin, Sanderson which is 150 years old, William Morris and Zoffany. The management have pursued a consistent programme of investment in brands and collections. Profits for the January 2012 are forecast at £5.35m for an EPS of 6.7p and giving a prospective P/E of 7.6x, while yielding a prospective 2.2%. This low rating may reflect past problems from which the company has totally restructured and has a different management team.

Gearing more than halved from 17% to 8% which gives debt of  around £1.7m. The strong cashflow generated will be used for further brand investment and development.

Parseq (PSQ) – £24.6m at 5.62p
Outsourcing business Documetric reversed into software company Intelligent Environments last year to form Parseq. The customer base of the businesses was financial services. This means that the 2010 figures include 12 months of Documetric, five months of IE and four months of Avance, which was acquired in August and takes the group into the utilities sector. Revenues grew from £10.2m to £16.5m but all of that growth came from the acquisitions. Outsourcing margins have declined as Parseq tries to boost its sales and marketing. It has also appointed a new boss for Documentric. Underlying profit was £3m. Recurring revenues are 50% of the total and they should continue to grow. Cost savings from the Avance acquisition should show through this year.

The mobile banking application Mobinetic could be a highly significant product for the group. House broker Canaccord Genuity believes that pro forma revenues were £24m in 2011 and that this could grow to £26.4m in 2011. A profit of £4.3m is forecast which means that the shares are trading on less than 7x 2011 earnings.

Net debt was £4.2m at the end of 2010.

Symphony Environmental Technologies (SYM) – £21.4m at 18.25p
Degradable plastics additive supplier Symphony Environmental Technologies increased its underlying profit by 76% in 2010. Revenues increased from £7.04m to £8.48m, while profit improved from £638,000 to £1.12m, which is their first profit above £1m. The latest figure does not include £119,000 of restructuring costs or the capitalised development costs of £325,000, up from £230,000 in 2009.  This shows how fast profit can grow as revenues rise. Demand for the company’s additives is growing thanks to environmental legislation changes around the world. The number of distributors has increased from 49 to 61. Costs related to the development of the waste-to-value technology increased from £182,000 to £218,000. This project is in its final year. It involves the deconstruction of tyres and the main technology owned by Symphony relates to the high pressure water disassembly of the tyres. The recently appointed broker is yet to put out profit forecasts.

Net debt was £1.23m at the end of 2010. Cash generation was held back by growth in revenues near the end of the year increasing the trade receivables figure.

Orosur Mining (OMI) – £53.9m at 82p
There has been a sequence of positive announcements from the diverse South American gold miner Orosur. Last week a strong third quarter was reported with cash costs of production of $521/oz compared with $825/oz a year earlier. Greater silver revenues helped to reduce costs and more higher grade ore was processed. Higher gold prices also helped to push third quarter revenues up from $13.2m to $21.6m. That enabled Orosur to move from a loss to net income of $6.29m.  The Arenal Deeps development is likely to be a continuing source of news flow

Orosur generated $9.24m from operations in the third quarter and it has net cash of more than $15m. Orosur will need this cash to finance further exploration drilling on its projects in Chile and Uruguay. There is a $5.4m line of credit from HSBC Bank.

2 comments for ““Pressure to raise interest rates has been has been significantly reduced by surprising fall in inflation.” Don Smith ICAP.

  1. 26 April, 2011 at 20:34

    What goes around, comes around.

  2. 19 April, 2011 at 20:46

    It really is hard to find well-informed persons on that issue, you sound like you are aware of what you are posting about! Thanks

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