… I told him, ‘At my age, I don’t even buy green bananas'” – Claude Pepper
…markets improved with the FTSE 100 up 1.6% to 5935 and the FTSE 250 improving by 0.6%. The Aim All Share at 879.2 rose 0.4%. Greek sovereign debt was papered over and generally the economic news remains mixed. Lower retail sales reflected in the MPC minutes which stated there is no room for an interest rate rise anytime soon.
…the focus is on the US Budget agreement and UK GDP on Tuesday causing concern. The US deficit agreement is being played for political gain but agreement should be reached this week. Lower UK GDP growth has, however been signalled due to some well-rehearsed excuses of the extended Easter Break and Royal Wedding. Although volatile markets could end around where they started.
Redhall (RHL) – £24.3m at 82p
Engineering and nuclear services group Redhall has been hit by a dispute with bioenergy firm Vivergo, which it helped to construct its plant. This has hampered its growth plans. Nuclear remains a long-term growth opportunity. The recent electricity market reform white paper provides a positive backdrop. The carbon price floor system could provide £1bn of support for nuclear and renewable energy developers. Decommissioning and new nuclear capacity are both areas where Redhall can generate revenues. The white paper is also likely to encourage investment in gas-fired generation, where Redhall can provide equipment and services. Profits for the September 2011 year end are forecast at £4.4m for an EPS of 10.7p to give a prospective P/E of 7.6x with a yield of 2.2%
Net debt was £10.8m at the end of March 2011 because of a £14.6m cash outflow relating to Vivergo.
Acquisitions are unlikely to happen in the short-term because the focus is sorting out the Vivergo situation first. Redhall will hopefully stabilise its financial position after the dispute is settled. The plan is to grow revenues by £125m over the next five years with acquisitions contributing £70m and the rest coming from the existing businesses.
600 Group (SIXH) – £17.4m at 27.25p
Capital equipment and machine tools supplier 600 recently moved to Aim from the full list. The company slimmed down the number of locations it operates from and it is well-placed to take advantage of a recovery in its markets. Management has cut out overheads of £16m in the past two years. Outsourcing manufacturing to China was not a success because of quality problems and 600 has bought a factory in Poland so that it can manufacture in a low cost area. The machine tools market is recovering and the benefits of the Poland facility will help 600 return to profit and increase profit over the coming years. The laser marking business generates 15% of sales but it could be worth a lot to 600. It offers an alternative to inkjet marking. Customers include automotive, IT, aerospace, pharma and solar with more projects in the pipeline. Finals to March 2011 forecast a profit of £1.1m for a prospective P/E of 14.3x
The move to Aim on 14 July will make it easier to do the deals that 600 wants to do in order to grow to a turnover of more than £100m within three years. Haddeo Partners took a 28.2% stake one year ago in order to grow the business. Bolt-on acquisitions are planned. A new division is also part of the expansion plan. 600 also wants to dispose of its South African waste management handling equipment business. That could raise R40m-R50m. There are also plans to sell an existing property and move to a smaller one. This has a book value of £1.5m but could raised more than £4m.
Fitbug (FITBP) – £6.1m at 4.65p
Fitbug provide online personal health and well-being services and recently raised £0.77m at 4p a share. The service is to help individuals to improve their lifestyles by making realistic changes to their daily routine. It combines activity tracking devices, which download to fitbug.com to provide an understanding of each user’s daily activity achievements, with web technology which provides users with personalised weekly activity and nutrition targets, feedback, advice and encouragement. It promotes heath improvement and has been developed over 5 years. In April, ex Bupa director Fergus Kee, joined as Executive Chairman and increased his holding in the funding to 18 %. He has extensive experience of the US health market and is making inroads into this far more lucrative market. The US expansion is a low cost B2B model with the focus on health insurance companies where there are expectations that a distribution agreement could be closed this year. Forecast for 2011 are for a loss and 2012 should be its first profitable year.
After the fund raising there is net cash which will be invested in developing a low cost perhaps high impact US sales office.
1PM (OPM) – £4.26m at 0.13p
Equipment finance provider 1PM focuses on leasing finance for equipment used by small businesses and with banks continuing to be cautious about lending to business it appears to be in a strong position to grow. Management says the company is busier than it has ever been and it cannot see that changing. Even so, 1PM is cautious about whom it lends to and directors guarantees are asked for on many occasions. Most borrowers have homes that can be used as security for the finance. The amount lent ranges from £1,000 to £30,000 with the average around £7,500. The average yield to 1PM on its lending is 19% and the money costs the company 8.5%. The payment is fixed for the full term of the lending as is the borrowing cost to 1PM. Leases tend to be for three years. Brokers generate most of the business. There are currently around 40 brokers supplying customers and one-third of them account for the majority of business. Around one-half of the business introduced is taken up by 1PM. The gross value of leases is £10.1m and £6.1m of new business was written in the year to May 2011. Bad debt write offs fell 46% to £188,000. Revenues jumped from £1.3m to £1.9m and by using its own cash 1PM reduced its cost of sales even though revenues grew. That helped the business to swing from a loss of £402,000 to a profit of £202,000 in the year to May 2011 giving a historic P/E of 21.2x.
One of the things that holds back growth is the availability of finance. 1PM has agreed additional funding of up to £2.2m, which includes £200,000 from a SIPP.
1PM is interested in buying books of business but the ones that it has looked at are too dear.