Manufacturing has fallen from 22% of GDP in 1990 to 11% in 2009 but is showing a recovery

Last week ….

…… after a turbulent start due to concern that the US’s Triple AAA debt could be downgraded by Standard and Poor. Markets recovered with FTSE 100 at 6018 a 0.4% rise, while the FTSE 250 improved 1.1%, the AIM All Share Index rose 1% to 921.6. Strong corporate earnings, an increase in March’s UK Retails Sales and Mortgage lending kept the clouds of macro-economic doubt away.


This week….

……. it’s a three day week.  The working week’s highlight is tomorrow, Wednesday when the first estimate for UK 1st. Qtr GDP will be announced and expectations have drifted to 1.7% growth.  Further market gains can be expected.


Company Reports

Character Group (CCT) – £45.6m at 191p

Branded toy group distributor and creator, Character reported strong interims despite poor weather and recessionary pressure. Turnover increased 35% to £58.1m with a 78% increase in PBT to £6.64m clearly helped by operational leverage.  The experienced management team  at Character have over the years, assembled a portfolio of  branded toys that include ZhuZhu Pets, Peppa Pig, Doctor Who, H.M. Armed Forces, Fireman Sam, Postman Pat, Let’s Cook and Scooby-Doo. These have all performed well.  These ranges are being expanded with Bob the Builder and  Squinkies, and a new construction toy range featuring unique figures and play sets from Doctor Who and H.M. Armed Forces. Forecast for the finals to August 2011 are for a PBT of £9m, reflecting the first half bias which gives an EPS of 26.67p and a prospective P/E of 7x while yielding 2.6%. The strategy remains in developing the existing range while selectively seeking to license new ranges.


An extensive share buy-back programme remains in place and cash flow is strong and there is no debt allowing the interim dividend to be increased 50% to 3p.


Lok’nStore (LOK) – £26.8m at 112p

Self-storage sites operator Lok’nStore is being run to generate cash at the moment because management is not confident enough about the economy to open new sites. It is more than two years since a new site has been added and the maturing sites are becoming increasingly cash generative. Lok’nStore operates 21 sites at the moment and it does have two additional sites in the pipeline but no immediate plans to open them. Lok’nStore is collaborating with Lidl on the potential Maidenhead site.

Revenues were nearly 5% higher at £5.42m in the six months to January 2011 as the company pushed up its charges and increased occupancy. Underlying net asset value before deferred tax is 229p a share. There will be a revaluation of properties at the year-end. Laxey Partners remains the biggest shareholder with 29% of the company and although the share price is higher than when Laxey bought its stake but it is still well below the 229p a share NAV.


Net debt has been reduced by £2.3m to £21.9m and the interim dividend is unchanged at 0.33p a share.  Slightly better than break-even can be expected for the full year to July 2011.


Netdimensions (NETD) – £5.88m at 23p

Learning management systems supplier NetDimensions was hit by a number of one-offs in its 2010 figures but its underlying operating profit improved. Adding back $400,000 of acquisition and litigation costs and the $120,000 amortisation charge on the intangible assets acquired through the purchases of the company’s UK reseller and US-based content and hosting business BPTech, produces an operating profit of $770,000, against $692,000 the year before. The reported pre-tax profit slumped from $701,000 to $116,000. There was also a swing from a forex gain of $185,000 to a loss of $95,000. House broker Arden strips out the one-offs and foreign exchange translation gains and losses and its underlying pre-tax profit figure grew from $570,000 to $740,000. Revenues grew from $6.84m to $8.26m and they would have still grown by 15% without the acquisitions. New clients account for one-fifth of the revenues. All the main geographic areas grew their contribution and a new office has been opened in China. In product terms the bulk of the growth came from software licences. Management is excited about the prospects for the new mobile enterprise knowledge platform (mEKP), which can be run independently using a USB flash drive. All data is saved to the USB drive and it is fully encrypted. Arden forecasts a rise in profit to $900,000, excluding any foreign exchange gains and losses, in 2011 giving a P/E of 12 x prospective earnings. Revenues are forecast to grow to $11.5m, with organic growth of 23%. Recurring revenues are the majority of the total. NetDimensions already has $3.5m of deferred income in its balance sheet that it will recognise this year.


Paying for the acquisitions reduced the cash pile from $7.44m to $6m at the end of 2010 but this figure should grow if no further acquisitions are made. Trade  receivables were high at the end of 2010 but they have already fallen sharply. NetDimensions plans to start paying dividends from this year. Arden forecasts a maiden dividend of 0.4 cents a share, which will be eight times covered by forecast earnings.


NetDimensions is looking to acquire resellers in major markets such as France, Germany, Brazil and India.


Surgical Innovations (SUN) – £33.9m at 8.63p

Cost pressures in the health sector are helping Surgical Innovations to sell more of its Reposable products. These keyhole surgery products have a disposable element but the main instrument is reusable. Demand for these products is increasing in most countries although the NHS is lagging behind. A deal with Mediflex Surgical Products means that the company’s YelloPort+ products will be included in surgical trays in the US. In 2010, revenues jumped 55% to £7.05m, while pre-tax profit was 487% higher at £1.55m. Capitalised R&D rose from £1.07m to £1.67m as Surgical Innovations adds products to its range. It also develops products for other medical device companies whilst retaining the IP. This means that margins on these products are higher than in normal OEM operations. There was a large industrial order worth more than £600,000 during the year but this level of revenues is unlikely to be repeated this year. The company’s factory could produce £30m worth of products per year. As volumes grow gross margins should improve. House broker Seymour Pierce forecasts a rise in profit to £2m in 2011, and a further improvement to £2.8m in 2012. Much of that growth in profit is already recognised in the share price which valuesSurgical Innovations at 14x 2012 prospective earnings. The long-term potential of the business is significant.


The business is cash generative. Net cash is £442,000 despite investment in increasing capacity. A capital reconstruction means that dividends could be paid but there is no immediate intention to do this.


The company is looking to acquire businesses with minimally invasive surgical products that will expand its range.

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