“Just 47% of the Fast Track 100 list of fast growing enterprises from 2001 are still in business

… Consequently slower sustainable growth may be best for the longer term survival. ” Says SAP UK


Last week…

…the delayed US debt ceiling agreement could be a symptom of a deeper fiscal credibility illness. It caused the FTSE 100 to fall 2% to 5815 with the FTSE 250 2.3% lower and the AIM All Share at 865 was down 1.6%. UK GDP was reported at 0.2% growth for the 2nd Qtr which is possibly not as bad as expected while US GDP at 1.3% was possibly worse than expected. The Euro Debt concerns are never much further away than Spain and Italy were credit ratings are deteriorating.


This week…

…the BOE’s monthly interest rate decision meeting this Thursday could be suspended until next year when there may be room for an increase. The BOE does have the Quantitative Easing tool to use which may need to be sharpened.  On Friday US Employment is due while the ADP Employment Report on 500,000 US Businesses is published on Wednesday. Enjoy the Debt Relief Rally as it may take time for evidence of economic improvement.


Company News:

Avisen (AVI) – £12.8m at 5.62p

Avisen has won a three year contract with Unilever and this could prove to be a key point in the development of the business. It will take time to roll out the software, which will help Unilever to run its supply chain more efficiently. The software sale is in perpetuity but there are services on top of that. Recurring revenues are estimated to be up to £5m a year. Tesco Direct is another customer in this area. Revenues from continuing operations grew from £2.28m to £2.63m in the year to January 2011. There were large write-offs and one-off items. Stripping these out, the underlying loss fell from £1.61m to £1.51m. On the strength of the contract with Unilever, Avisen is expected to make a profit of £1.5m in the year to January 2012, rising to £2.5m the following year for a prospective PE of 8x falling to 5x . Storage Fusion, which has developed software that can analyse the use of storage and how to maximise its effectiveness, generated little in the way of revenues last year but this should become increasingly important.


Net cash was £313,000 at the end of January. Since the year end, Inca Software has been sold for £7.3m and £6m of that has been received in cash with the rest due to be paid in April 2012. The operations making up Inca had originally cost £4m.


Avisen realises that it needs to gain critical mass through acquisitions and it has cash to finance them. These are likely to be software-based business but Avisen is not interested in “basket cases”. There could be bolt-on acquisitions or purchases of businesses in tangential markets. Avisen would prefer privately-owned business to take shares in consideration but the low share price will make that a more difficult sell to vendors – at least at the moment until the expected profitability is shown to be coming through.


Amino Tech (AMO) – £25.5m at 44p

IPTV technology company Amino Technologies grew its revenues in the six months to May 2011 and it is well-placed to take advantage of growth in newer markets. Revenues grew from £18.1m to £24.7m in the six months to May 2011. The improvement in revenues is mainly down to the initial orders from Telecom Italia for so-called ‘Over-The-Top’ (OTT) video technology – effectively the ability to access recent programmes through a set top box. However, those initial orders did not yield a profit. The latest order will generate a gross margin of well over 10%. Stripping out the Telecom Italia sales and stock provisions gross margins rose from 29.7% to 35.7%. The pre-tax loss was cut from £944,000 to £416,000 but this was down to the lack of unrealised foreign exchange losses in the latest period. Excluding those, the underlying loss would have been higher.  There were 298,000 units shipped in the first half. The order book of 153,000 units underpins the second half forecasts. A number of operators are assessing Amino’s OTT technology and a simpler version is being launched that is more suitable for smaller broadcasters.  The business is second half weighted and Amino is on course to make a profit this year to November 2011, although house broker FinnCap expects it to fall from £1.9m to £1.6m. However, the broker expects a jump in profit to £2.9m in 2011-12. The shares are trading on 16 x 2010-11 prospective earnings, falling to 9x 2011-12.


Strong cash generation due to the unwinding of the stocks of product sold to Telecom Italia meant that net cash was £11.6m at the end of May 2011. The cash in the bank accounts for nearly one-half of the market value of the company.


Merchant Securities (MERC) – £6.67m at 13p

Aim adviser and wealth management company Merchant Securities has grown its underlying profit by one-third. Revenues grew 10% to £8.4m in the year to March 2011, while underlying pre-tax profit improved from £834,000 to £1.12m. There has been a strong start to the current year.  The number of employees has increased from 43 to 73 over the past year. The new London office gives additional scope for expansion even though the rent is lower than the previous premises. Acquisitions have helped the private client wealth management division more than double funds under management from £205m to £487m. Merchant is trying to move more of those funds to a discretionary basis.  Profits for the March 2012 year end are forecast at £1.4m for an EPS of 2p and a prospective P/E of 6.3x. There is no yeild


There is net cash of £2.62m at the end of March 2011.


Merchant remains keen to expand both its broking and its wealth management businesses. There are brokers on the market at the moment but it does not necessarily mean that they will be good businesses to buy. Merchant may be better off taking on teams from brokers rather than acquiring a whole business.


Newmark Security (NWT) – £5m at 1.2p

Finals for the year to end April 2011 were weaker than earlier expectations with revenue 8.3% lower at £12.7m. PBT fell from £1.7m to £0.8m but perhaps as a show of confidence the dividend was increased from 0.025p to 0.0275p. Newmark expects a similar outlook for FY12 but further out new products could drive growth faster.  The higher operating expenses are reported to be a result of this investment drive and support for new product sales. Newmark Security is an established niche player in the provision of electronic and physical security systems to blue-chip customers predominately in the UK. It operates through two wholly owned divisions where revenue is fairly evenly split:  Asset Protection and the higher margin Electronic Division where the core activity is the design and supply of fixed and rising security screens. Forecast for the 2012 year end of £0.8m and an EPS of 0.13p show little growth and a prospective P/E of 9x yielding 2.3%


Cash flow from operating activities reduced to £1.1 million from £1.7m and long term borrowings have increased to £0.5m giving gearing of 9%. The NAV per share is 2.3p.There is a 25.5% shareholding in the hands of a deceased estate perhaps adding some interest.

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