A new brick to help fill the equity cap …

… The Business Angel Seed Investment Scheme (BASIS) is to offer tax breaks to wealthy investors who put time and money into early-stage ventures.

 

Last week…

… after a buoyant start the FTSE 100 closed last week unchanged at 5990.6.  The FTSE 250 improved 0.3% while the AIM All Share at 889.9 increased 3%.  Influencing the pause in the rally are Euro debt uncertainty, with Italy potentially defaulting and a drop in US employment growth to a mere 18,000 which increased the unemployment rate to 9.2%

 

This week…

… In the UK CPI (Consumer Price Index) figures will be reported on Tuesday and Unemployment figures on Wednesday. The mildly disappointing growth reported last week for manufacturing and construction lead Citigroup to reduced GDP forecast for the Second Quarter to a -0.2% decline. The FTSE 100 seems stuck below 6,000 for this week.

 

Company Reports

Ila (ILA) – £12.4m at 1.48p

A trading statement from Personal security products supplier Ila Group reported sales were stronger than expected. The forecast was for £1.4m sales and a loss of £800,000 for the June 2011 year-end. Ila‘s management expects the company to breakeven faster than initially anticipated.

The Premium Factory was acquired in March with sales of £2.6m  and sales are ahead of expectations and its entering new geographic markets. Recent orders from Germany and Austria will contribute in the first half of this financial year. The integration of Premium Factory has gone well. Premium Factory, which develops promotional goods for consumer goods manufacturers, such as Nestle and Unilever, was acquired in March 2011. The company also has the rights to make products under licence from companies such as Marvel. New customers are approaching the company. Ila plans to launch its Scootrix range of children’s products before the end of 2011.

Financials

At the interims cash stood at £1.6m – so a cash call of organic growth would seem unnecessary.

 

Begbies Traynor (BEG) – £37.2m at 41.5p

This Insolvency practitioner reported finals to April 2011 and has cut its final dividend following a fall in profit but reaffirmed its long-term progressive dividend policy. Profit fell from £11.3m to £7.6m in the year to April 2011 because activity levels were poor. The total dividend for the year is 2.2p a share, down from 3.1p a share. That is covered just over 2.5 times by underlying earnings from continuing operations, which is the upper end of the payout ratio that Begbies likes to maintain. Begbies is hopeful that the insolvency business will start to recover this year and margins should also improve. Cost savings of £500,000 will come through this year.

M&A

Begbies plans to focus on its insolvency and global risk activities and intends to sell its tax planning business, because the HMRC is clamping down on tax loopholes. Begbies wrote down the assets of the tax division by £3.4m last year.  The tax business made a small profit last year on revenues of £7m and Begbies believes it could achieve one times earnings for the business. The Red Flag insolvency information publishing business is also up for sale. This has no value in the balance sheet. Red Flag lost £700,000 on revenues of £200,000 last year. Begbies will probably retain a stake in any buyout of this business.  Forecast for the 2012 year end of £8m give a prospective P/E of 7x and  the disposals on balance should be earnings enhancing.

Finance

Net debt was £22.5m at the end of April 2011 but there should be some income from the disposal of non-core assets, including the tax division which is in the books at £7m.

 

Omega Diagnostics (ODX) – £13.6m at 16p

Omega Diagnostics grew its profit for the year to March 2011 but the real return on investment will not show through until 2012-13. Omega produces diagnostic tests for food intolerances and infectious diseases. Revenues grew 27% to £7.9m. That includes an initial contribution of £955,000 from the allergy diagnostics division of Allergopharma acquired for £4.9m last year. Like-for-like growth was 12%. There was particularly strong growth in Europe, helped by the acquisition, and in Brazil.  Underlying pre-tax profit rose 25% to £736,000. The majority of the profit growth came from the food intolerance side of the business. House broker Cenkos forecasts a profit of £1.8m in 2011-12, rising to £5.2m in 2012-13 as the recent acquisition and the investment in automated instrument really starts to pay off. The shares are trading on 11 times 2011-12 prospective earnings, falling to less than four 

for 2013.

Finance

Net cash was £447,000 at the end of March 2011. That does not include the remaining £550,000 due to be paid to Immunodiagnostic Systems Holdings for the right to use its IDS-iSYS automated instrument technology platform. Most of that cash will be paid out in this financial year. Omega has already paid £400,000 of the licence payment.

 

ILX (ILX) – £8.63m at 3p

E-learning software supplier ILX is reaping the benefits of concentrating on international expansion of its best practice e-learning software and the closure of poorly performing operations. The UK best practice division, predominantly PRINCE2 training, was flat last year although sales of higher margin products meant that the profit contribution was slightly higher. Most of the overall improvement came in the international best practice division with Australasia and the Middle East generating strong growth. The closure of investment banker training business CTG led to massive write-offs and the total cost in the year to March 2011 was £10.5m. Excluding that, pre-tax profit jumped from £757,000 to £1.42m, on revenues up from £11.9m to £12.9m. The executive directors taking a pay cut also helped to improve profit. International expansion will continue to be key to growth and ILX wants to further exploit its own brand through improved marketing. Developing a consultancy business will also help to enhance growth. House broker FinnCap forecasts a 2011-12 profit of £1.8m, rising to £2.1m the following year. The shares are trading on seven times 2011-12 prospective earnings.

Finance

The improved trading has even enabled ILX, which has shifted sectors from support services to software, to reinstate the dividend. A 1.5p a share dividend is payable on 14 October. The dividend was withdrawn last year because ILX wanted to spend the cash on its international business and reduce its net debt, which was down from £3.16m to £1.89m at the end of March 2011.

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