… many economists think that the Office for National Statistics has got its sums wrong, also the performance of equity markets are not correlated with economic growth.
Last week …
… the FTSE 100 closed at 5777 which is virtually unchanged. The FSTE 250 increased by 0.3% while the AIM All Share was -0.6% lower. A week of contrasts, with Consumer Confidence at a 9 month high, while the -0.2% fall in GDP make this technically a double dip recession, the first since the 1970’s. US GDP is at an annualized 2.2% but with falling Consumer Confidence and there can always be Euro concerns. Investor sanguinity can be explained by a focus on specific companies rather than the contradicting general woes.
This week …
… the UK and US economy will take a back seat to Eurozone economic and political uncertainty. There are German, Spanish etc. Unemployment and Retail sales figures as well an ECB Interest Rate meeting. It may become clearer that the Eurozone austerity will create political instability and make slow recovery to economic health. Markets are likely to fall back this week.
Dillistone Group (DSG) – £13.5m at 74p
Integration ahead of expectations
Recruitment and executive search software provider Dillistone Group achieved organic revenue growth of 12% to December 2011. It has two divisions: Dillistone Systems, which targets the executive search sector; and Voyager, which is focused on other recruitment markets and was head of expectations. Overall revenues grew 28% to £5.45m, including a £689,000 contribution from Voyager Software, which was acquired in September. Recurring revenues increased from £2.54m to £3.25m. Pre-exceptional profit rose from £1.18m to £1.41m. The American market is recovering but Europe is still weak. The .NET version of FileFinder executive search software is being rolled out. Voyager’s software is also being updated. There are £200,000 of annualised savings from the integration of Voyager and the full benefit will come through in 2012. Recently appointed broker WH Ireland forecasts a rise in full year profit to £1.57m. The shares are trading on a prospective 2012 multiple of 11x, while yielding 4.8%, which falls to 9.1x in 2013.
Net cash was £1.62m at the end of 2011. Cash generated from operations is robust and covered £580,000 of product development costs capitalised and £609,000 paid out in dividends, as well as part of the cost of Voyager. Further acquisitions seem likely.
Plastic Capital (PLA) – £23m at 84p
The Chairman, “expects performance for the full year to 31 March 2012 to be in line with market expectations” and that “new business, particularly in international markets, is in the pipeline and this should underpin solid growth over the next financial year”.
This update on the 25th of April from Plastics Capital follows a 2nd April announcement of a strong performance from the company’s largest division, BNL. This, plastic ball bearings, business achieved a 10% increase in its incremental annual sales, secured a first project win with substantial Chinese textiles machinery manufacturer, Jen Haur Company Ltd (further evidencing an “encouraging start” made by the group’s Shanghai sales office) and noted a “stronger” new projects pipeline – “with a particularly high number of excellent opportunities emerging within the automotive sector”. With customers seemingly becoming increasingly sensitive to the advantages – such as weight, design flexibility and cost – associated with high specification plastic ball bearings, Plastics is “confident that we will see further significant success in this area over the next 12 months. Profits to March 2012 are forecast at £3.9m for an EPS of 10.4p giving a prospective P/E of 8.1x while yielding 1.1%. To March 2013 the P/E falls to 7x.
Net debt of £12m is likely to drop below £10m as cash is generated and a dividend is forecast. The management may look to fund further acquisitions/ integration externally.
ECKHO (ECK) – £22.6m at 11.25p
Profoundly loss making the trading update o 23rd April and new contract win suggest profitability will be achieved to March 2012. Eckoh provides a hosted speech recognition platform for the customer contact centre market. Eckoh also provides web, mobile and smartphone self-service applications. The first local authority contract was signed with Essex County Council to supply automated customer care services. The first phase of the service was delivered this month. The two year contract was won in conjunction with Azzurri Communications, an independent provider of managed communication solutions and a new reselling partner. This could act as a reference point to other local authorities. The company continues to invest in growing the business, expanding the size of its VoiceXML platform, taking 50% more office space, and building a customer contact mobile apps development team. Profits are forecast at £1.2m for a Prospective P/E of 19x dropping to 13.8x
There is net cash of £5.9m and surprisingly a nominal dividend is paid.
Corac (CRA) – £32.3m at 10.5p
Compressor technology developer Corac’s revenues of £320,000 remain modest but it acquired two profitable businesses after the year end. This will transform the business and help cover some of the company’s losses. The £5.67m loss to December 2011 did include some costs relating to the acquisitions.
Portsmouth-based Wellman Defence was acquired and supplies atmosphere management systems for submarines and surface ships. The outlook for the market for submarines is better than for the defence sector as a whole. 49% of revenues come from recurring service contracts and the order book is worth more than £10m. EBITDA improved from £1.5m to £2.4m.
Manchester-based Wellman Hunt Graham manufactures heat exchange equipment. Last year, revenues grew from £6.9m to £9.4m, while EBITDA doubled to £600,000. The order book is worth more than £6m. One of the big attractions of this business is its oil and gas related customers, such as BP, Shell and Chevron.
This is synergistic with Corac’s gas compression (DGC) and in-pipe gas compression technology, which helps oil companies to extract more oil and gas from their wells. The reliability of the electronics of the DGC technology is improving and field trials with existing partners should commence later this year. Group Revenues for the Dec 2012 yearend could grow to £15m but losses of £6m seem likely.
Corac paid £10.75m to Wellman Group for the two businesses – equivalent to 3.6 times 2011 EBITDA. A placing at 10.5p a share raised £6.35m before expenses and the rest of the cash came from Corac’s existing cash pile. There was £15.3m in the bank at the end of 2011.
The cash outflow from the enlarged group should be much lower even though Corac will continue to invest significant sums in technology development. There could even be opportunities to use Corac’s accumulated tax losses. Corac still has a couple of years of cash even if its own technology takes time to build its revenues.