The two main drivers for the panic…

…have been known for some time; Euro Sovereign Debt and US GDP growth. These two perils are unlikely to be fixed soon”                  from the Sunday Times


Last two weeks…

… glad that I was not there! The FTSE 100 dived 13.3% over the last two weeks and 5.2% last week with the FTSE 250 down 14.4% and 6.5%. Investor’s view of a rather inert world economic slowdown changed to a strong double-dip feeling. In the second Qtr Euro land GDP grew 0.2%, Japan only shrunk -0.3% while the US grew 1.3%. Sovereign debt, recovery and bank ratios are combined in a worrying spiral. The balance of evidence for an elongated recovery may have shifted outwards, but perhaps the markets are at least poised to react to improving news.

This week …

…there are Euroland confidence surveys and perhaps more importantly Purchasing Managers Indices on Tuesday. In the US there is House prices, Mortgage while on Thursday there are US jobless claims. The UK and US report revised GDP growth measurements on Friday.  Although these are not going to be joyful, markets may benefit from a Libya and drift- upwards.


Company Reports

Prologic (PGC) – £3.05m at 30p

Retail software systems  provider reported reduce profits in –line with April’s Trading Statement. Prologic made a small profit before intangible asset write downs last year and it has started to make £1.1m of cost savings. Revenues edged up from £9.75m to £9.86m in the year to March 2011 with underlying profit fell from £61,000 to £16,000. That was after a rise in the amortisation charge from £1.2m to £1.4m. A move towards a SaaS model has held back short-term revenues. The market remains tough but Prologic is winning new business. Recurring revenues accounted for 54% of last year’s revenues so the company starts the year with a strong base. The impairment figure of £7.8m includes £2.72m of net development costs written off. Prologic capitalised £2.32m of development costs in 2010-11. There is £3.08m of development costs left on the balance sheet. These are written off over a seven year period. Although it has not been indicated how much the amortisation charge will fall it will certainly be lower this year.  House broker Arbuthnot has been forecasting a profit of £420,000 for the year to March 2012, which would give a prospective P/E of 7.7x. That is effectively underpinned by the likely reduction in amortisation. The cost savings were started recently so there will not be a full year of them this year and there will also be restructuring costs that will offset some of the cost reduction that will come through. Arbuthnot says that it may adjust its forecast later in the year (perhaps lower). If Prologic can build its revenues while benefiting from the cost savings then its valuation could start to look modest.


Net cash fell from £1.41m to £1.23m by the end of March 2011.


Motive Television (MTV) – £4.16m at 0.26p

Motive Television it has already started pilots and trials with broadcasters. Its TV Anytime Anywhere technology uses spare capacity on the channels transmitting to TV set top boxes to transmit other programming and enable the viewers to watch it when they want to. The broadcasters like the technology because it gives them a chance to generate additional revenues from subscriptions. Motive TV took control of the technology when it bought 67.7% of Barcelona-based Adecq Digital for £4.75m – part funded by convertibles. It can buy the rest for €2.1m in April 2012. Motive TV is changing the revenue strategy so that it will generate revenues based on a share of revenues from each subscriber. Italian TV broadcaster Mediaset and an unnamed European satellite operator have signed up for the service but these are not revenue share agreements. A number of pilots and trials are already underway and there are more to come. The broadcasters in Motive TV’s potential pipeline have more than 100m viewers.  It is difficult to assess how fast the pilot s will turn into commercial agreements.

Motive TV generates revenues from a one-off engineering fee, an annual support fee and a fee per subscriber. XCAP assumes 120,000 subscribers signing up in the first year of a deal with a broadcaster and then 60,000 a year for three years. As this is a new service this can only be an educated guess. Revenues rose from £371,000 to £1.09m in the six months to June 2011. This includes the remaining TV production activities in Dublin. The loss more than trebled from £536,000 to £1.71m. The full year loss will be much higher but it should fall sharply next year 2013 as revenues approach the breakeven point.The shares in issue will be more than doubled by the conversion of the company’s 9% convertible loan stock.  House broker XCAP believes that Motive TV could move into profit by 2013. Even on a fully diluted basis, a 2013 profit of £1.4m could generate earnings of 0.05p a share.


Further funds of around €2.1m may be next April in order to pay the deferred consideration for the remaining stake in Adecq. Net net debt of £7.5m is forecast for  the end of 2011. That includes convertibles and deferred consideration. Eventually this should be a significantly cash generative business because overheads should not need to rise significantly and more of the increased revenues will flow through to profit.


Powerflute (POWR) – £76.8m at 26.5p

Powerflute sold its graphic papers business in the first half so its remaining business is the packaging board business in Finland. Revenues rose 15% to €58.3m and the operating profit jumped from €200,000 to €6.9m. Capital investment is improving the quality of the packaging board and that is helping Powerflute to push up its prices. That offset a 4% decline in volumes. There is more improvement to come through in the second half.  Profits for the year to Dec 2011 are forecast at £7/9m giving a prospective P/E of 11.2x


The graphic papers disposal helped Powerflute to move into a net cash position by the end of June 2011. Gross debt was €25.8m but there was net cash of €2.1m. Capex was nearly €5m in the first half and it will be lower in the second half. That means that the business will be cash generative. Net cash could be more than €10m at the end of the year.


Powerflute is looking for another paper manufacturing acquisition but it is in no hurry. It wants to make the right acquisition and it took its time to acquire the graphic papers business. The plan would be to buy an underperforming business and turn it round.


Altona Resources (ANR) – £29.2m at 6.75p

A report confirmed  Altona plans to mine coal at the Arckaringa project in South Australia and then put it through a coal to liquid process that will turn it into diesel or other liquid fuels. A part of the system will be a combined cycle power plant which could significantly increase South Australia’s generating capacity. The CO2 will be removed in the process and that may also be turned into a fuel. There are other by-products of the process which can also be sold.

At the moment the operational costs should be less than $38/barrel, or $53/barrel including the investment costs. This is well below the current oil price.  Altona is also interested in developing other projects.


The bankable feasibility study (BFS) for the project will be financed by Chinese partner CNOOC-NEI in return for a 51% stake. This is expected to cost A$40m. Altona just needs enough cash to finance its overheads until the project is started. The BFS should be completed in 2013.  The capital expenditure is expected to be $3bn. CNOOC-NEI can increase its stake to 70%. Altona will have to come up with 30% of the equity for the project although how much that is will depend on the level of debt the project can raise.

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