… is also central to attaining the Federal Reserve’s other mandate objectives of maximum sustainable employment and moderate long-term interest rates.
Last week …
… the FTSE 100 at 5852 was -0.8% marginally lower while the FTSE 250 slipped -0.6%. The Aim All Share at 795 improved 1.7%. Inflationary pressure at 4.1% is declining but higher crude oil prices are a concern. The prospects of Greek debt default on Friday, which was resolved over the weekend stressed the markets upward trend while a further £50 billion of QE may help to ease the pain.
This week …
… there will be further evidence of declining inflation when the Consumer Price Index is reported on Tuesday and the BOE Inflation Report on Wednesday. Also on Wednesday, the UK Unemployment rate will be reported, which at 8.4% is increasing at an uncomfortable rate. There are US and Eurozone reports on prices trends and growth and it maybe that the robustness of the US will not negate the weakness of the Eurozone. The Greek relief relay may last the week as markets not seem dear compared to holding cash.
Allocate Software (ALL) – £51m at 80p
Set for Stronger Growth
Interims sales were flat at £16m but the positive underlying performance is partly disguised. There was a a strong performance in licensing last-year from the multimillion pound HealthRoster deal with the state government of New South Wales. The second half seems set to show stronger growth as an Australian defence deal comes through. Allocate Software is a leading provider of workforce and compliance optimisation solutions. Its primary focus is on healthcare but also in defence and maritime. It now supplies 45% of all NHS trusts, all of the Australian army and is a market leader in the Australian healthcare market. Recurring revenues accounted for 47% of sales and were up 42% although large licensing deals still heavily affect earnings. Allocate retains considerable scope for expansion both domestically and internationally. For the May year-end to 2012 the PBT forecast is for £5.7m giving and EPS of 6.5p so a prospective P/E of 12.2x dropping to 10.8x.
There is no debt and the £8m drop in net cash is due to various payments relating to two deals but strong cash generation is expected to return in the second half. A dividend payment would certainly help the rating.
Transense Technologies (TRT) – £8.5m at 4.75p
Bridging the Earnings Gap
An order from Brazil for the iProbe,is a user-friendly wireless solution for cost effective monitoring of tyre pressure and tread depth. Bridgestone began work on integrating the iProbe into its systems in April 2011 and this work is now complete and, following a successful field trial and positive feedback from Bridgestone’s customers, it is anticipated that further orders will follow. Surface Acoustic Wave (SAW) technology group Transense has been around for two decades and it still has some way to go before it starts generating any significant revenues from the automotive sector. However, there are newer markets that could generate revenues in the near-term. Transense has already started shipping the intelliSAW wireless sensor system for temperature monitoring of electrical switchgear. This can help to prevent equipment being damaged and fatalities. There is no power required for the wireless device so no batteries are used. This can be retrofitted or put in the equipment when it is manufactured. Measuring tyre pressure on giant construction vehicles used in mining is an area that could yield orders in the next year or so. The technology is being tested and it is marketed on the basis that it improves health and safety. The data is live and enables the vehicles to be tracked. Another potential market is for the gear boxes of wind turbines. The technology can be used to help to control the speed of the turbine. Transense is still working with General Motors on the SAW torque sensor technology.
Transense raised £1.33m in December at 3p a share from a combination of a placing and the exercise of warrants.
Brady (BRY) – £44.8m at 81.5p
Acquisitive Growth reduces risk
Trading and risk management systems supplier Brady has boosted its exposure to the electricity and carbon trading markets through additional acquisitions. These acquisitions supplement the recent acquisitions by Brady as a way of broadening its offer to clients. Brady is paying £17.1m for Navita Systems, a Norwegian software company that fits well with Brady’s late 2010 acquisition Viz. This puts Brady in a strong position in the $2bn Energy Trading and Risk Management (ETRM) market, which is growing by 11% a year according to Commoditypoint. Navita generated flat revenues of £11.5m in 2011 because it lost three clients to Brady and EBITDA dropped from £1.8m to £1.1m. Navita is moving from a software licence sales to a recurring revenue model. More than 50% of Brady’s revenues will be recurring. There will be cost savings from integrating Navita into Brady Energy. Brady has also bought Switzerland-based syseca, which will broaden the group’s product range and take it into physical electricity trading and connectivity to European Transmission System Operators. Navita and Syseca will not be included for a full year to Dec 2011 but forecasts are set to rise in Brady’s revenues from £19m in 2011 to £27.8m in 2012, while profits are expected to improve from £3.5m to £4.9m although the EPS may decline marginally this year to December 2012 from 5.4p to 5.3p for a prospective P/E of 15.1x with a 1.8% yield.
The Navita acquisition is being financed by a £16.7m net placing at 77p a share. Brady already had cash in the bank but it wants to retain a strong balance sheet in order to reassure its customers that it has a strong balance sheet.