“Retailing this year is going to be like walking up a down escalator”. Lord Wolfson

Last week
The FTSE 100 rose 3.5% to 5,900 while the FTSE 250 improved 2.5%. The Aim All Share, which is our small Cap index of choice at 907.7 increased 2.7%. Our global caution last week was unfounded or maybe ignored but lower UK growth and 4.4% inflation remain concerns. News that 4th Qtr US GDP was revised upwards to 3.1% from 2.8% was favoured ahead of a report that US consumer confidence fell to the lowest level since November 2009.

This week
There is a full round of economic stats with Tuesday’s UK GDP perhaps being the most market sensitive. This will be followed on Thursday by UK Consumer Confidence and House Prices, while on Friday US Unemployment will be reported. Our guess is for a cautious week.


Restore (RST) – £19.6m at 42.5p
Document storage services provider Restore has recovered strongly in 2010 thanks to a good performance from the core business and the return to profit of Peter Cox. Restore, previously known as Mavinwood, reported a small increase in revenues from continuing operations from £27m to £27.7m. There was a dip in revenue from the small document scanning business, which slumped into loss. Elsewhere, revenues edged ahead. An underlying group pre-tax loss of around £100,000 in 2009 was turned into a £2.7m profit in 2010.
Most of the growth in revenues from the document storage business came from two recent acquisitions but the sharp jump in operating profit from £2.8m to £3.9m was mainly down to cost savings from the integration of past acquisitions. Datacare, acquired in September, contributed around £500,000 to revenues and £180,000 to operating profit. Formsafe was acquired too late in the year to make a significant contribution. Cost savings should help Datacare to contribute operating profit of more than £500,000 this year and Formsafe, which cost £720,000, to make more than £300,000 operating profit. Those two acquisitions underpin nearly half of Restore’s profit improvement expected by house broker Cenkos in 2011.
The scanning business has started 2011 more strongly and should return to profit this year.

Building maintenance business Peter Cox has started a solar installation business and this should help it to build on its revenue and profit. Cenkos forecasts a profit of £4.1m for 2010. The shares are trading on nine times 2010 earnings, falling to less than 7x for 2011.

Net bank debt is £10m and Geraldton, which is owned by Lord Ashcroft, also has a £2.4m loan due for repayment, including interest, in 2012. Geraldton’s loan was reduced during the year as it was converted into shares.

ServicePower Technologies (SVR) – £16.8m at 8.88p
Scheduling and operations management software provider ServicePower Technologies has made its first underlying profit for 14 years and new contracts mean it should do much better in 2011. Low margin business has been shed by the AIM-quoted company and a large contract won with Assurant Solutions, which provides insurance services. The model involves ServicePower getting 50% of the 50 cents plus charge for each claim handled. Assurant handles 6m claims a year and also offers ServicePower a way in with a number of retailers. Tesco is also trialling the software. Revenues were relatively flat at £18.3m in 2010 and the underlying profit was £11,000. The release of a restructuring provision and a foreign exchange gain meant that the reported profit was £577,000, compared with a loss of £4.02m the year before. Staff numbers were reduced by one-third and overheads cut back. Revenues are expected to slump to £12.5m but pre-tax profit should hit £400,000 with around £200,000 of the improvement likely to come from a lower amortisation charge as the intangibles are written off.
There is cash in the bank of £3.67m and convertible loan note of £1.45m where interest is being rolled up. The loan is convertible at 5p a share.

VPhase (VPHA) – £16.2m at 2.03p
Voltage optimisation products developer VPhase has gained Carbon Emission Reduction Target (CERT) credits for its VX1 product. This CERT accreditation will make it easier to sell the product to social housing organisations and other customers. There are 27 social housing groups trialing the technology. VPhase has secured CERT accreditation at 2.5 tonnes of carbon dioxide over a 20 year measure. The tests showed a 5.3% reduction in electricity usage when the VX1 product was installed. The CERT credits are worth around £10 each so that makes the accreditation worth £25 per VX1.
Revenues were more than doubled from £124,000 to £266,000 in 2010, while the loss increased from £976,000 to £1.71m. House broker Ambrian expects a sharp rise in revenues to £2.3 million in 2011 but the loss is still expected to be £1.2 million. The cash pile will slip below £1m on these forecasts. VPhase expects to become cash flow positive during 2012. Ambrian still expects the company to report a loss for 2012. The plan is to develop other products based on the company’s technology. The first is a larger version of the VX1, which could take the company into offices, light commercial and retail properties. Eaga has been signed up as an installation partner for the VX1.
There was still £2.08m in the bank, following the £2m fundraising at 2p a share last autumn. That diluted Energetix’s stake to 42.9%.

KBC Advanced Technologies (KBC) – £38m at 68.5p
Oil refinery consultancy and software provider KBC Advanced Technologies enjoyed a strong second half to 2010 and the positive trading momentum has carried on into 2011. There was a drop in underlying profit from £5.7m in 2009 to £4.9m in 2010. The first half’s trading was poor. KBC made £1.3m of annualised cost savings with a few hundred thousand pounds worth still to come through. Revenues were flat at £53.1m. AIM-quoted KBC had a record order book of £58.7m at the end of 2010, helped by last year’s $42m contract with Pemex. That contract is spread over three years.
Other contracts were won with PetroVietnam and BP. KBC is finding additional markets for its abilities. One of these is energy management. The rising cost of power is making refineries look much more seriously into reducing their power consumption. Refinery sales can also spark short-term due diligence work for KBC. Software sales have been good but there is litigation with a competitor that might hold back short-term sales. Management believes that the arbitration process should be completed by the middle of this year. House broker Cenkos forecasts a rise in underlying profit to £6.3m in 2011. The shares are trading on less than 10 times 2011 prospective earnings.
The confidence of management is shown by the 19% increase in total dividend to 1.85p a share – the final dividend is 1.3p a share. That is a bold statement given the fall in earnings in 2010. Even so, the dividend is three times covered by earnings and KBC is confident that it will grow earnings this year and continue to raise the dividend.

Atlantic Global (ATL) – £3.36m at 15p
Resource management software developer Atlantic Global was hit by delays in contracts in 2010. Management warned that this would be the case at the end of last year. The pre-tax loss increased from £130,000 to £220,000, which was just below the indication given in the trading statement. Revenue fell from £1.35m to £1.17m. The new SaaS offering is being refined and improved ease of use should help to convert more of the companies trialling the software to customers. House broker Daniel Stewart forecasts a return to profit this year. It expects revenues to be £2m and a profit of around £500,000. That rise in revenues will be helped by the delayed contracts, which have already started to come through. Atlantic is tripling marketing spending and partnerships with LiveRoute in the Middle East – which has already signed up a customer – and Baker Tilly in the UK will help to make the software more widely known. The shares are trading on less than 11x prospective 2011 earnings.

There was no final dividend but there had been an interim payout of 0.4p a share. Net cash was £2.04m at the end of 2010.

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