A key reason for the economy not bouncing back is the existence …

… of zombie companies that earn enough to pay interest on debts but not enough to pay down debts.

Financial Times  


Last week …

… the ricochet from the US Budget cliff-hanger, EuroZone Recession and missiles in the Middle East caused the FTSE 100 to drop 2.8% which at 5,606 is the lowest level for three months. The FTSE 250 fell 2.2% while the Aim All Share at a 680.6 was down 2%. Other bullets investors had to  dodged,   included a 0.8% fall in UK Retails Sales and a jump in inflation as CPI (without housing costs) cleared  2.7% from last month’s 2.2%.

This week …

… it’s most likely that shooting will stop in the Middle East. It could still distract attention from the BOE Interest Rate Meeting on Wednesday, which could see a change in policy direction as QE is eased out. On Friday we will know if the rest of Europe will drag Germany’s GDP down. Markets are not expensive but there is likely to be no cause for improvement.

Company Reports

AdEPT (ADT) – £11.7m at 53p

Broader Revenues pays dividend

Interims to September from AdEPT,  the providers of voice and data solutions reported a 16% increase in EPS and a 50% increase in dividend.  The Company provides a complete communications portfolio of fixed line calls, line rental, mobile, VoIP and data connectivity products. Revenue was 1.5% lower at £10.9m as cost pressures remains on calls but 15% growth was reported in data  and broadband products  and a 17% increase in cloud based  solutions. The on-going focus is on larger customers, generally businesses with 50 to 1,000 employees giving better cross selling opportunities with revenue from customers taking 2 or more products increasing to 93%.  Interim PBT was 32% higher at £0.86m and the EBITDA was £1.97m. The forecast for the full year to March 2013 are forecast at (an adjusted) £1.8m for a prospective P/E of 9x while yielding 2%.


Net borrowings were reduced by £0.52m to £4.4m giving gearing of 46% free cash flow was £1.57m.


Trifast (TRI) – £48m at 45p

Value Added Bolt-on

Interims from this principally Asian based designer, manufacturer and distributor of industrial fasteners, showed continuing revenue growth, increasing margins and overhead costs under control. Profits were up 52% to £3.6m with revenues ahead by a more sedate 10.5%, as operating margins increased from 4.8% to 6.5% as a result of tight control of overheads. There is a clearly defined strategy to increase revenue from major accounts and to develop the product offering with new services and skills, both organically and by acquisition. Last year’s Malaysian acquisition has been assimilated remarkably well and further deals are likely but could take time to close. Profits for the March 2013 year end are forecast at £7m for an EPS of 4.6p so a prospective P/E of 9.8x while yielding 1.6%


Borrowing fell by £0.7m over the half year to £7.7m giving gearing of 12.6%. Banking facilities are currently under renegotiation and better terms could be announced in Q1 2013.


600 Group (SIXH) – £10.5m at 12.5p

Marathon over

The new management team is to concentrate on key strengths  of machine tools and laser marking equipment and  has disposed of non-core activities. The full benefits of the restructuring will show through in the next the financial year. Revenues from continuing operations were nearly 10% higher at £19.9m in the six months to September 2012. The underlying profit on continuing activities improved from £185,000 to £1.34m. If, however the pension adjustments are excluded, the interim loss was reduced from £655,000 to £383,000. There is a lack of working capital particularly of the laser marking division, where the profit was lower as there was less production. Precision engineered components had a strong first half. The discontinued operations lost £501,000. Progress was reported in new product development in particular on an upgrade the proprietary software control system across which will be available for launch in the next financial year, and will provide substantial new opportunities. Non-executive director Derek Zissman acquired 50,000 shares at 10.75p each.  The forecasts are for a return to profit this year with a sharp jump to £1.9m for the year to March 2014 giving A prospective P/E of 7x.


Interims net debt was reduced to £6.9m helped by a £1.47m share placing and disposals. Headroom on the bank facilities was £2m. Property sales will help to improve the balance sheet and the latest is a former playing field in Batley, which has raised £390,000.


StratPro (SOG) – £71.5m at 106p

Cash Deposit

The recent funding at  101p raising £6.1m was well -up  from the year’s low of  75p.The recent share price strength has been on the back of new customers,  broader distribution channels  and ahead of the launch of Revolution Plus. This is a Software-as- a-Service (SaaS) model which should lead to a strong improvement in margins. The new funds more than clear debt and will help the roll-out of Revolution Plus to the existing client base and the current sales force of 27 is likely to be increased. The new investment is to be split roughly evenly between development, client services and sales and marketing. Profits for December 2012 remain unchanged at £4.5m for a prospective P/E of 20x but for 2013 EPS could reduce but there should be room for an up-grade as new business is closed.


The net cash position is estimated at £1.7m for the year to December 2012, which was previously net debt of £4.4m.

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