…markets fell for the fifth week. The FTSE 100 was -0.3% lower at 5697.2, the FTSE 250 down -1.15, while the Aim All-Share at 838.1 dropped -1.9%. The Greek debt problems may be lifted by an austerity ’lite’ five-year program but the repercussions on Portugal, Spain, Italy etc. could be expensive. The Fed downgraded the US economic outlook and ended QE2 without putting a QE3 in place.
…on Tuesday there are UK Balance of Payments figures followed on Wednesday by, a final measurement of first Qtr. GDP which is likely to stick at 0.5%. Price sensitivity could be in Euroland with unemployment, consumer confidence and retail sales all being announced. The point is how far Germany is being dragged down by the average. Low trading volumes could exacerbate movements and we are expecting the run of slight falls to continue.
Pause for thought
An annual survey estimated the combined wealth of the world’s 10.9m rich people to be $42.7 trillion in 2010, which is higher than in 2007. The majority of who live in the United States, Japan and Germany and for the first time Asia has more in total than Europe.
Angel Mining (ANGM) – £14.5m at 1.98p
Greenland-focused minerals producer and explorer Angel Mining has produced its first gold at the Nalunaq gold mine. The mine has a life of two years at the moment but there is scope to extend that through exploration. Grades can range from 5g/t to more than 100g/t. Angel expects to reach an annual production rate of 24,000 ounces of gold in the fourth quarter of 2011. The cash cost is expected to be $700/ounce. Not cheap but still well below the current gold price. The Black Angel zinc/lead mine is still the main focus of the group. The mine was in production between 1976 and 1990 and $80m will need to be invested in the mine to recommence production. Angel needs to invest in installing a cable car for access to the mine plus further development of the mine. The cable car will be installed in the second half of 2011 and the processing plant will be built next year. The company hopes that Black Angel will recommence production by the first half of 2013. The metal produced could fetch $2,500 per tonne and the cost of mining is estimated at $1,500 per tonne. There is potential to explore in the surrounding area.
Further investment could be needed for the cable car operations at Black Angel. Investor Cyrus intends to convert some of its debt to equity. That would leave pro forma net debt of $22m. The gold mining activities will be cash generative next year.
Angel is seeking to use its mining expertise by acquiring other mines. These will be hard rock gold and metals mines that are similar to the existing interests. There are opportunities in Greenland.
Management hopes that a more diversified portfolio of assets will make Angel a better long-term investment.
Avesco (AVS) – £32m at 130p
Avesco is an international media services group, providing broadcast and audiovisual equipment and services to the corporate, entertainment, sports and broadcast markets. Interims to March reported a 31% increase in turnover to £62m and a return to profits with £0.3m against a loss of £1.1m. Avesco should be major beneficiary of the 2012 Olympics and the order book is above expectations. Other prestigious events include the Beijing Olympics opening ceremony, Wimbledon tennis championships and the Ryder Cup to the IAA Motorshow in Frankfurt and The X Factor television. As a rental business, Avesco’s business is highly sensitive to asset utilisation and also to pricing. Margins have been under pressure for the last two years, but management believes that competition is flattening out, suggesting that top-line growth should translate into better profitability Currently PBT of £4.5m is forecast for September 2012 with an EPS of 13.6p which putting the shares on P/E of 9.5x. Tere is a court case against Disney at the appeal stage and could be resolved by the end of 2012 which is in the price for nothing but could give a£35m pay-out.
The NAV is 140p a share and debts are £18.7m.
DiamondCorp (DCP) – £26m at 12.75p
DiamondCorp plans to develop the Lace diamond mine in South Africa in 2011-12. Lace has produced diamonds in the past and this development will give it a mine life of 25 years and enable the company to produce 500,000 carats per annum. Diamond production continues to edge lower as demand gets stronger so diamond prices should remain strong. The rough diamond price is higher than it was at its previous peak in 2008, when the credit crisis hit the industry. DiamondCorp hopes to publish results of bulk testing at the end of July. This will show what the grades should be and provide the background for the fundraising to develop the mine. The company also has a joint venture in Botswana, which is near to De Beers’ main diamond mine. DiamondCorp was chosen as the partner for the Jwaneng South jv after other Aim companies were considered. DiamondCorp is earning a 77.5% stake by funding a definitive feasibility study by June 2014. There are three kimberlite targets earmarked for priority drilling.
DiamondCorp recently raised £3m at 13p a share and there was strong demand from investors. Further funding will be required to develop the Lace Mine.
i-Design (IDG) – £4.4m at 31p
i-design is a propriety provider of software and marketing services for banks and ATM network owners worldwide. It runs both internal marketing campaigns and third party advertising. Recent interims showed a 57% increase in turnover to £1.4m losing £0.1m compared to a loss of £0.6m. The deal with Barclays for all its 4,000 cash machines came after the end of the period and will be included in the second half. This takes the number of machines using the i-design technology to 21,000. Barclays will be using it for internal marketing but 9,900 of the cash machines can take third party advertising from the likes of Coca-Cola and British Airways. Further sunshine on a cloudy history is the recently launched next generation technology, joono, offering greater functionality and cross media range. joono will enable banks and ATM network owners via a single platform to communicate with their customers through multiple digital channels. i-design will continue to provide network owners with the ability to generate new revenues through atmAd, the company’s dedicated advertising sales service. Losses for September 2011 are forecast at -£0.22m but the new software and increased geographic reach should generate sufficient new orders to ensure that 2012 will be profitable (at last).
There is £0.7m cash but developing new markets tends to increase cash burn.
Green Compliance (GCO) – £23.7m at 1.3p
Figures for the year to March 2011 reflect the new management team with revenues jumping from £547,000 to £18.2m – due to 11 acquisitions (3 water, 3 Pest, 5 Fire). The acquired businesses generated like-for-like growth of 9%. Stripping out acquisition costs of £1.32m and amortisation and share-based costs of £2.4m, Green Compliance reported a profit of £1.31m. Chief executive John Prowse helped to build up Iron Mountain in Europe and used to run the compliance division of Connaught – not one of its problem areas. As well as making the acquisitions he has and closed the loss-making energy services business.
The strategy is to consolidate businesses in the water hygiene, pest control and fire protection compliance sectors. These are fragmented markets. Green Compliance is already in the top three in water and pest control and the top ten in fire protection. Cross-selling opportunities will also be targeted. House broker Collins Stewart forecasts a trebled profit of £3.6m this year. The shares are trading on 9x prospective 2011-12 earnings
£9.1m has been raised from share placings in the past year in order to finance acquisitions. There are a number of financial institutions that understand that further fundraisings will be required and they are ready to invest more cash. A 50-for-one share consolidation is planned to take the company out of the penny share bracket. Net debt was £3.7m at the end of March 2011. The banking facility has been increased to £7.5m. This gives scope for more bolt-on acquisitions.
Further consolidation can be expected although the focus this year will probably be on integrating past acquisitions.