FT Business Wisdom: Why? Is an important question which needs to be continued to be asked until the heart of the problem is reached

Last week…

… shares ended the week lower with the FTSE 100 at 5,765 and FTSE 250 falling -1.5% and -1.6% respectively, while the AIM All Share at 876.7 fell –0.4%. A mixture of growth concerns, inflation and sovereign defaults kept UK interest rates on hold and the likelihood of no further rounds of US QE2 when it finishes in two weeks’ time.


This week…

… on Tuesday the CPI (Inflation) Index is likely to be at 4.5%, which is 2x the BOE Target. CPI is followed on Wednesday with perhaps stable UK Unemployment and Retail Sales that may have improved. Retail Sales for US and China are due on Tuesday and could be pointing down.  A marginally improved week for shares can be expected.


Company Reports

ECKOH ( ECK) – £16m at 8p

Finals to March 2011 show an improving picture with a net cash position of £5.7m and the payment of a dividend. Turnover was £9m and a PBT of £0.8m giving EPS of 0.54p and an historic P/E of 14.8x. Eckoh is a provider of hosted speech-recognition services that are offered over an increasingly wide range of ‘media channels’ including web-based, SMS, and smartphone apps. Eckoh seemed to have a technology that always needed further Capex to commercialise into products. This stage is seemingly completed and no further funding seems to be needed for growth. A smart phone app has been developed for NIE Energy (formerly known as Northern Ireland Electricity) that will enable pre-pay customers to make credit card payments via the app. This is an important addition to the product range, mitigating the risk that apps will cannibalise Eckoh’s phone-based services. This also enables Eckoh to act as a one-stop shop for customer contact solutions. The focus is on expanding the sales channels with partners and increasing the headcount sales to existing customers are a prime target. Forecast for 2012 are for turnover of £10.3m with a PBT of £1.2m which gives an EPS 0.61p so a prospective P/E of 13.1x and a yield of 1.6%.


Eckoh is paying a maiden final dividend of 0.1p a share and it plans a progressive dividend policy. There is no debt and cash rose from £3.9m to £5.7m in the year to March 2011.


Servoca  (SVCA) – £10.4m at 8.25p

The outsourcing operations have overtaken the recruitment as the main business focus. The purchase of home care services provider Phoenix Employment Services last August has proved a bargain and transformed the profitability of the outsourcing operations. Servoca paid just short of £1m for Phoenix’s trade and debtor book and that purchase price was covered by payments by debtors. Phoenix was a major contributor to group outsourcing revenues, which doubled to £8.03m, and operating profit before central costs of £413,000 in the six months to March 2011. Phoenix success is largely due to its speed of response to requests for care from its core customer base of primary care trusts.

The performance of the security business was mixed with manned guarding tough but sales of security products and event security helping to boost revenues. Servoca is hopeful that more supermarkets will buy its security products and this will become a highly profitable part of the business. Overall group revenues were flat at £25.2m, while underlying profit slipped from £950,000 to £800,000. This indicates the decline in contribution from the recruitment companies. Interim recruitment revenues fell from £21.5m to £17.2m. Doctors supply, education recruitment and police recruitment all found trading tough. Nursing recruitment and the supply of English speaking teachers to the Middle East remained strong. The division’s profit contribution before central costs dived from £1.17m to £897,000. House broker FinnCap forecasts flat full year profits of £2m implying the shares are trading on 5x prospective 2010-11 earnings.


Net debt was £2.58m at the end of March 2011 and this all related to invoice discounting.


Servoca will make add-on acquisitions to expand the home care business geographically in what is a highly fragmented market. Servoca has the management to run the overall business and it can cope with many more branches.


Tricorn (TCN) – £11.7m at 36.25p

Engineer Tricorn Group reported strong growth in profit even though the aerospace division fell into losses. Strong performances from the energy and transportation divisions helped underling pre-tax profit improve from £288,000 to £1.07m in the year to March 2011. Revenues grew 45% to £21.8m. Tricorn supplies tubular components for diesel engines and generators. Demand is particularly strong and capacity is being increased. Supplying additional products helped the transportation division. The core customer base is off highway construction vehicles. Aerospace was hit by problems with its supply chain for aero engine parts and higher materials costs. New management is sorting out the problems and the parts that were not available have become available again.  Profits of £1.4m are forecast giving an EPS of 3.11p so a prospective P/E on March 2012 earnings of 11.7x.


Net debt fell from £841,000 to £61,000 and the strong balance sheet means that Tricorn has decided to pay a maiden dividend of 0.1p a share.


Tricorn wants to acquire niche engineering businesses which supply blue chip customers and can make EBITDA margins of at least 10%.


Printing.com (PDC) – £17.8m at 38.5p

Printing.com’s recent Netherlands acquisition helped it to grow its revenues in the year to March 2011 but it could not stop a decline in profit as costs increased. The core UK business reported flat revenues as group sales improved from £14.5m to £17m. Even if acquisition costs are stripped out, pre-tax profit fell from £1.7m to £1.5m. Netherlands-based MFG was acquired for €2m in cash and shares and it provides a base from which to expand in Europe. The integration of the businesses is being completed. New product templates will help to boost sales this year but the market is not easy. House broker Brewin Dolphin has cut its 2011-12 profit forecast due to tough trading from £2.25m to £2m for an EPS of 3.4p and a prospective p/E of 11x.


Printing.com has net cash of £1.21m and this helps it to maintain the full year dividend of 3.15p a share even though it is not covered by earnings.

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