… can be compared to the technology stocks of the 90’s so there could real bubble to look forward too.
Editor–in-Chief, Money Week
… the reporting of a reduction in UK inflation and an increase in employment did not help the markets as the FTSE 100 fell -2.5% to 5843 and the FTSE 250 was -2.7% lower. The Aim All Share at 875.0 was less stressed by Banks, US and European Sovereign debt concerns closing last week -1.5% lower.
This week …
… the US will agree an austerity programme and increased the debt ceiling at some stage so lifting some uncertainty. On Wednesday, the BOE minutes from the MPC (Monetary Policy Committee) will be released. Where there could be a hint of an increase in Quantitative Easing (QE) to help the spluttering economy. On Thursday, UK Retail Sales and US Jobless figure will be reported. A move back towards 6,000 seems likely.
StratPro Group (SOG) – £65m at 107p
Computer Services Group StratPro provides asset management software and asset pricing to the global investment industry. A trading statement last week confirmed the strong (92%) renewal rate with 27 extensions to existing contracts as well growth with 11 new contracts. The commercial launch of the StatPro Revolution in March should generate a growing pipeline in the second half. StatPro Revolution is the new cloud-based portfolio analysis and research service and substantially broadens the potential market by targeting front office and smaller brokers. Its low pricing and internet delivery speeds up the sales and implementation cycle. The speed of the take of the news product is going to be hard to judge and the interims to June are to be reported on the 3rd of August. Currently forecast for the December 2011 year end are for a PBT of £5.1m on highly visible turnover of £33.4m which gives an EPS of 6.12p so a prospective P/E of 17x, which could prove to be modest.
Net debt, has declined by around £1m despite increased capital expenditure to £5.2m.
Tracsis (TRCS) – £13.9m at 58p
Tracsis provides resource optimisation software for the rail industry and it plans to be a consolidator in the sector, which has been built up since rail privatisation. The latest acquisition is MPEC, which develops data logging and remote monitoring technology for Network Rail. The technology monitors signals and points. Tracsis paid an initial £1m in cash and shares and there is potential deferred consideration of up to £1m depending on performance over the next two years. Tracsis also paid for the cash in the MPEC balance sheet on completion. The business made a profit of £266,000 in the year to March 2010 but it has been growing rapidly since then. A strong two month contribution from MPEC means that revenues are forecast to grow from £2.65m to £3.42m in the year to March 2011 and a PBT of £0.91mnn For 2012 revenue forecast of £5.58m should be low enough to be beaten if MPEC continues to generate revenues at its current rate. The shares are trading on 18 x 2011 earnings, falling to 13x 2012 earnings.
Tracsis raised £1.95m from a share placing at 45p a share at the time of the MPEC deal and. VCT manager Downing to increase its stake to 8.2%. The cash itself is not needed immediately and Tracsis should have net cash of £4m at the end of July 2011. The business is strongly cash generative and it can generate more than enough cash to cover deferred consideration on past acquisitions. The free cash will finance further acquisitions without the need to come back to the market for more cash.
Tracsis effectively knows the specific companies it wants to buy and will probably make one acquisition a year.
Clean Air Power (CAP) – £5.7m at 6p
Volvo’s announcement that it is opening a production line for engines incorporating the Dual-Fuel technology developed by Clean Air Power (CAP) provides additional credibility for the technology. This will help CAP to enter the US market, which has significant growth prospects. So far, the technology, which combines diesel and gas, has been retrofitted to Volvo engines but Volvo will begin full scale production of engines using the technology during the fourth quarter of 2011. There should be 100 trucks sold with the technology incorporated during the first 12 month period. House broker Seymour Pierce estimates that CAP will receive £19,000 per truck. CAP supplies software, gas injectors and other parts for each engine. In the UK, a typical truck operator can save around £15,000 a year from retrofitting Dual-Fuel technology which represents a payback on investment of less than two years. CAP has a concept development agreement with Navistar in the US, where interest is increasing in gas power vehicles due to the low price of gas and the abundance in the country. In contrast, significant amounts of oil have to be imported to the US, which is worried about fuel security. The Volvo deal will help CAP to move towards profitability. Seymour Pierce forecasts a small operating profit in 2013. Chief executive John Pettitt has acquired 100,000 shares at 5.5p a share taking his stake to 1.45%.
CAP has raised £1.5m at 7p a share in order to finance working capital. CAP still needs to invest in product development but it plans to get its partners to pay for most of the development costs. The cash should last until 2013.