Pause for thought: Will interest rates need to be raised to put a brake on inflation or will slowing consumer expenditure do the job?

Last week
After four days of caution the FTSE 100 rallied 81.2 points on Friday to close 1.3% lower. The rally may have been inspired by, corporate earnings and Saudi Arabia committing to lifting oil output. Also, ignoring a possible weather assisted GDP bounce-back, Friday’s downward revision in December‘s UK GDP to -0.6% may, optimistically delay interest rates rises. The FTSE 250 fell -1.9% while the Aim All Share Index at 925 dropped -3.1%.

This week
The contagion democracy in the Middle East is an uncertain on-going theme. What is more likely to drive markets this week in the UK will be corporate news and Internationally on Thursday there is the EU’s interest rate decision followed on Friday by US unemployment. Our ‘educated’ guess is for a moderate FTSE increase.

Company Reports

Boomerang Plus – £6m at 67.25p
Producing a wide range of TV programmes helped Boomerang Plus have a bumper first half to its financial year. Two large projects that were expected last year slipped into the first half of this year, helping Boomerang Plus to produce an 84% increase in revenue to £16.3m in the six months to November 2010. A full six month contribution from Indus Films – acquired in October 2009 – also boosted the growth. Profit improved from £470,000 to £788,000 which was ahead of the last full year although the second will be lower. Nationally broadcast programmes are increasing in importance. Recent series include Bruce Parry’s programme on the Arctic and The Secret Supper Club. Advertiser funded programming is a growing area, with Red Bull and Sony included in Boomerang Plus’ clients in this area. Changes to Welsh channel S4C provide some uncertainty for Boomerang Plus even though it has been reducing the percentage of revenues from this source. S4C’s budget is going to reduce and it appears that it will end up under the management of the BBC.

Cash and cash equivalents stood at £3.76m but gives net cash of around £0.4m.
Boomerang Plus wants to continue to diversify its customer base so it is even less dependent on S4C. TV production companies with their own IP are particularly attractive purchases and Boomerang Plus is keen on programming that can have a global audience.

Proton Power Systems (PPS) – £6.37m at 3.5p
Alternative energy and fuel cell products developer believes it is reaching the point where funded projects start to turn into commercial products generating revenues. The initial commercial focus of the technology is stationary applications, such as telecoms base stations. Proton’s range extenders have been successfully tested on Smith’s electric vehicles and it is still working on fuel cell systems for buses and ferries. The same basic fuel stack modules are used for all the different customer areas. This technology covers a range of sizes from 5kw to 100kw – based on one module or putting modules together. This year’s revenues are likely to come from funded projects but Proton is talking to a number of large companies in its main customer areas. Thomas Melczer has switched from chief executive to head of investor relations and business development. Chief operating officer Christian Meyne took over as chief executive.

Proton has invested €50m in its technology and this is much higher than the market value of Proton plus its debt.

There was net debt of just over £4m at the end of June 2010 although since then borrowing have been increased but debt has also been converted into shares.

Pinnacle Telecom – 0.41p at £7.56m
Finals from this hosted telecom solution provider showed a 107% increase in turnover to £6.6m. The bread and butter business is delivering solutions that improve productivity and reduced costs particularly for multi location SME customers. Pinn, however have a growing reputation for data and connectivity solutions for special events such as the newly won Royal Wedding from the BBC. The money value is not reported but the more complex and higher profile the higher the margin is likely to be. The last acquisition was of Solwise a VOIP provider which was in the accounts for 8.5months and contributed £1m to turnover. This moved Pinn further away from traditional telephony and onto the next generation of IP telephony. The reported EBITDA of £0.16m gives a margin of 2.4% and the Loss before Tax was £0.26m. Reduced costs from closed offices and streamlined structures will become increasingly evident. For the September 2011 year end, break-even can be expected on organic growth but Pinn do see opportunity for earnings enhancing bolt-on acquisitions and have strong group of NEDS.

There is net cash for around £0.69m having risen £0.45m during the year at 0.35p which was at the time an 18% premium to the market price.

ClearStream Technologies (CTN) – £22.7m at 50p
A treading update from volatile medical devices manufacturer, ClearStream reported plans to further expand the capacity of its factory in Ireland as a €1m grant application has been approved by Enterprise Ireland. A lease has been signed on a property next door to the existing factory. R&D, finished goods and customer service activities will be moved to the new property so catheter manufacturing capacity can be expanded at the existing premises. Sales operations have also been upgraded and there is strong growth in the equipment. The manufacturing part of the business has continued to grow in this financial year. This is the smallest part of the business with most of the revenues coming from own-label or co-labelling partners, including Cordis, where the contract has been extended to 2015. Figures for the six months to January 2011 will be in line with recovery in sales and profits and a profit of Euro 0.53m was made to the September 2010 year-end. Widening the product range and selling the products in additional countries provide potential growth and the order book is reported to be Euro 3m plus. The additional capacity means that ClearStream can satisfy increased demand.

There was net cash of Euro 2.6m at the year-end.

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