Last week
The FTSE 250 and 100 both fell -1.7% last week, while the AIM All Share at 955.3 was down just 0.4%.  Market traders will need to follow China’s economy more closely as it’s higher than target inflation (4.6%) and accelerating GDP growth (9.8%) could lead to higher interest rates and slower growth.  In the UK Retail Sales Figures for December fell 0.8%, making the Christmas of 2010 the worst recorded, while CPI (inflation) rose to 3.7%.

This week
The main economic event this week will be Tuesday’s economic growth (GDP) for December.  It is the last one before the VAT tax increases take effect and the worry is that if GDP growth slips to 0.3% it will not be robust enough to avoid a double dip into recession. In the US there are house price figures and jobless claims. Our forecast  is for the FTSE100 to end the week higher, after a slow start.

Pause for thought 
Mr Balls, the new Shadow Chancellor, will reiterate a strategy of going for growth and worrying about the deficit later.

Company Reports
Character Group  (CCT) – 186p Mkt Cap £45million 
Toy company, Character reported a strong first half which included a merry festive Christmas.  First half revenues are expected to be at least 33% ahead of last year. A new  “ toy construction” product range is to be added which is the fast growing sector of the toy market and will be launched this week at the Olympia Toy Fair.  The key strength displayed by Character Group over the years is its continuing ability to develop and refresh its portfolio of leading brands – such as the move into the toy construction sector with the existing Dr Who and the HM Forces brands. Toy Portfolio, includes Pepa Pig , Fireman Sam and Scooby Doo and  is proving its longevity by attracting new generations of children and showing sustainable  sales growth. Character’s operations are international, with the group employing around 156 staff worldwide (UK 98, Hong Kong / China 58).The four founding directors have been with the company since its inception and there are two non execs. Character’s in-house team designs and develops the toys for nearly all its brands, which are all among the top 50 UK Toy Brands.  Character enjoys significant operational gearing as increased sales to national High St. chains such as Argos involve little additional overhead costs and consequently profit margins are rapidly increasing.

There was a small net debt position at the August 2010 year end and that was after buying back £10m shares for cancellation. As there are extensive lines of credit available working capital is not a restraint to revenue growth. Profits for the August 2011 are forecast at £9m which after 20% tax gives a prospective P/E of 7x and a dividend is being paid.

Creat Resources Holdings (CRHL) – 6.75p Mkt Cap £42.6m
Creat Resources Holdings is an investor in mining companies and it is majority owned by the Chinese investment holding company Creat Group, which will always pass resources opportunities to CRH.

CRH was formerly known as Zeehan Zinc prior to Creat taking its majority stake. Zeehan’s mining assets in Tasmania are still part of the group but the 19.8%-owned Galaxy is the main focus at the moment. Galaxy has a lithium ore mine and CRH has used its expertise and contacts to help set up a lithium carbonate facility in China. Lithium mining started in September 2010 and it is being sent to the factory to be processed and turned into batteries for electric vehicles. Galaxy expects to produce 137,000 tonnes of lithium concentrates a year. All that production goes to the factory in China, which has an annual output of 17,000 tonnes of lithium carbonate a year. Galaxy wants to be the lowest cost producer in China and it is set to be the fourth largest lithium carbonate producer in the world. The lithium batteries have a longer life cycle than lead acid batteries and China is putting weight restrictions on electric bikes. There are 500m of these bikes in China. Currently 2% of batteries for electric bikes are lithium-based. The government is also encouraging the use of electric cars. This points to potential increases demand for the lithium batteries.  Zeehan has a magnetite deposit in Tasmania and CRH is talking to potential partners.

Galaxy is expected to generate cash this year but CRH does not have any cash coming directly into the company. The magnetite deposit is likely to be the first of the directly owned assets to generate cash.
CRH is looking for further mining assets with management experienced in the mining sector. The potential mine should be well advanced and getting to the point when it needs to raise finance. CRH will take a stake in the company owning the mine and bring value to the business through its contacts and helping to obtain finance in order to develop the mine.

Mirada (MIRA) – 24.5p Mkt Cap £5.7m
The interims to September were reported in December and showed a loss of £0.7m but talked of an increase and strong business pipeline.  Last week Mirada reported two contract wins both in Latin America and amounting to $1.3m over two years.  Mirada design, build and manage interactive digital solutions and services   for broadcasters and media brands such as Disney and Sky. Revenue for the six months 30 September 2010 were £2.6m and a loss £0.7m was reported. The first of the recent contract wins is with Cablecom, a major cable operator in Mexico. As part of the two year agreement, Mirada will provide an Electronic Programme Guide in HD with a pay-per-view functionality which will be deployed in set top boxes.  The second contact starts a relationship with a world leading operator in Latin America to provide recording functionality to the operator’s digital TV platform and it is anticipated that the commercial launch will take place in Q1 this year. Mirada’s remote recording solution allows users to control digital TV settings remotely from a mobile phone or an internet-connected computer wherever and whenever they like. There is an explosion of new interactive devices and as a multi-platform expert, Mirada is well placed to take advantage of this growth through its interactive audiovisual offerings. Post an extensive restructuring undertaken in the first half of last year, in which costs were cut back dramatically, the focus is now on selling product ‘build once and sell often’ strategy into international markets. Further contracts seem likely.

The interims reported additional bank and loans amounting to £1.6 million giving sufficient working capital.  The shares have been recently split for a nominal value to 1p and will allow equity funding if required.

Ebiquity (EBQ) – 90p Mkt Cap £50.3m
Advertising data and analysis provider reported interims showing the integration of Xtreme has gone more smoothly than expected although that means that the costs of integration have come through quicker than expected. Revenues were 122% ahead at £20.5m in the six months to October 2010. The underlying growth was still 3.9%. Underlying profit was 67% ahead at £1.2m but the shares issued to buy Xtreme mean that earnings per share are lower. The platform division, which provides advertising and editorial monitoring, is the biggest part of the group. This is where the integration benefits will be generated and operating margins are already rising. The cost reductions totalled £550,000.   The data analytics division grew its revenues but operating margins fell from 41.6% to 33.9%. There was uncertainty around the time of the Budget in May but demand started to improve in the late summer. There were additional international travel and recruitment costs, which offset the growth in revenues. The second half is expected to be better and operating margins should start to recover. The business is being rebranded with the Ebiquity name and split into six separate practices. Edison forecasts a full year profit of £4.3m, which excludes £3.6m of exceptional costs.

Net debt is expected to be £4.26m at the end of April 2011. Cash generation should improve next year and the debt should be wiped out.

Cello Group (CCL) – 60p Mkt Cap £37m
The shares in this insight and strategic marketing company improved from 50p following a trading statement.  Revenue momentum from the research and consulting business in the last quarter of 2010 means that the group is carrying forward a healthy pipeline of activity into the first quarter of 2011 signally increased growth. Non-UK revenues are growing faster than UK revenues and now comprise almost half of the Group’s research and consulting activity. In particular, the Group’s pharmaceutical offering based in the New York office has performed very strongly and is expanding rapidly. Tangible the group’s web-based social media research and communications division has continued to grow with some significant new client wins. Tangible is opening an office in Beijing which may also serve as a hub for the research and consulting business.  Further expansion in the Asia-Pacific region is being considered.

Pre-tax profit for the year ended 31st December 2010 is expected to be ahead of expectations when announced on Wednesday 15th of March.  The debt position will be better than expected at less than £9m and there are debt facilities for £17m. Profits are forecast at £6m for an EPS of 7.2p which gives a prospective P/E 8.3x.

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