… when the US announced further $40 bn a month of ‘QE’, as it is seen as an inflation hedge. FT Weekend
Last week …
… main market’s skipped. The FTSE 100 was up 2.2% to 5871 with the FTSE 250 improving 2.8% although the Aim All Share at 706, was unchanged. In the world of relativity, economic prospects are improving with UK Construction PMI (Purchasing Managers Index) up 0.5 to 49.5 and Consumer Spending was 3% ahead of the same time last year. Europe’s Manufacturing PMI rose 1 to 46.1 while US Unemployment fell from 8.1% to 7.8%. An early report suggest that the UK may have come out of recession in the Third Quarter although the official GDP figures will not be released until 25th October.
This week …
… there are factual UK numbers will be reported on Tuesday, Balance of Trade, Industrial Production and Manufacturing production with relative improvements likely. There are a number of EU reports during the week and on Thursday US Consumer Confidence and further US Employment figures will be reported. It could be a good week.
Fairpoint (FRP) – £36.6m at 87.25p
The share price improved 6p since this advisor to financially stressed consumers reported interims, last week. Individual Voluntary Arrangement (IVA) revenues stopped falling and the rest of the business continues to grow. Interim revenues rose 19% to £14.1m with most of the growth coming from financial services, where Fairpoint takes a percentage of PPI compensation. Pre-exceptional and amortisation profit of £3m in the first half of 2012 compares with breakeven. The profit improvement came from the recovery in financial services and the original IVA business helped by the acquisition of debt management plans. Fairpoint wants to build up its financial services operations. Although the PPI compensation work has a limited life Fairpoint believes that there are other opportunities in this area. It is setting up a new legal services unit and the organic growth is likely to be supplemented with acquisitions. As the directors feel that that there will be value enhancing opportunities to consolidate the debt solutions market with scope to acquire further books of debt management plans. Profits for the Year-end Dec 2012 are forecast at £7.5m for and EPS of 12.7p giving a prospective P/E of 7x while yielding 6.1%.
Net debt is down to £2m and this is set to fall further as the cash flow improves. Fairpoint has a credit line of £13m that lasts for four years.
DDD (DDD) – £34.3m at 25.5p
US buy 3D
Interims showed a 74% increase in turnover and given that gross margins are 95% this 3D technology developer has sustained its profitability. The company’s technology enables 3D viewing without specialist glasses and the license with Samsung televisions continue to represent the majority of volumes, while the computer market is growing rapidly. DDD has shipped more than 20m units of its technology which shows that it is beginning to become significant in the global market. Mobile remains a minority contributor to revenues but it is set to continue to grow rapidly. Interim revenues grew from $2.32m to $4.03m and a loss of $387,000 was turned into a profit of $663,000. DDD has developed the Yabazam 3D content portal and it is adding to the films and TV programmes available. In the future a subscription version is planned. This move could also spark demand for DDD’s 3D conversion services. Profits are forecast at £1m for Dec 2102 but growing to £2.6m with EPS growing from 0.55p to 1.56p the prospective P/E falls from 46x to 16x. The company is exploring an OTC US listing which would allow US Investors a low cost access to the AIM listed shares and so improve liquidity.
The balance sheet is healthy and although net cash fell from $3.14m to $2.46m this should be enough to achieve the growth forecast.
Bond International (BDI) – £19.2m at 52.5p
Lower interims were reported from this recruitment software and services provider. High margin software sales were hit by a lack of new software licence deals in the UK so profit’s dropped from £533,000 to £177,000 while revenue slipped from £18.4m to £17.4m although re-occurring revenue improved by 6% to£11.7m. As nearly all new deals in the first half were longer term SaaS contracts rather than one-off software licence sales so the benefits of the deals take longer to show through. Strong growing revenues were reported from Asia Pacific, which improved 63% helped by a major order from Japan. HR and payroll software revenues fell 5% as older products get closer to the end of their life although outsourcing grew revenues by 10% to £5m. There are a number of significant contracts under tender but the lead time for decisions is taking longer consequently costs may need to be cut in the UK operations. Profits for the December 2012 year-end are forecast at £2.95m, little changed from the pre-exceptional profit made last year giving an EPS of 4.45p so a prospective P/E of 11.8x while yielding 2.6%.
Cash generated from operations fell to £1.1m and net debt was £1.98m. Product development remains a significant proportion of revenues although expenditure fell slightly to £2.5m from £2.6m.
Ultimate Finance Group (UFG) – £9.38m at 16.25p
Finals reported recently show finance provider Ultimate Finance Group remains in a strong position as banks continue to be reluctant to lend to its small company customer base. Stripping out one-offs and exceptionals, pre-tax profit for the year June 2012 improved from £1.21m to £1.91m, EPS at 2.38p up from 2.1p, as turnover increased 16% to £11.2m. There was a reorganisation cost of £572,000 relating to the closure of the Tunbridge Wells and Birmingham offices and the relocation of the Bristol office. More back office operations have been centralised in the Manchester office but there is an increased local sales presence. Bad debt levels remain below 1%. The asset finance business started two years ago is already making a positive contribution to the figures. Ultimate is starting a trade finance business to provide cash to bridge the gap in import and export payments and hopes to build it up organically in the way it has done with asset finance. Two managers have been recruited. Recruitment has always been an important sector and Ultimate is tailoring an offering to this sector which includes the provision of additional back office work, including credit control and payroll. A similar service is planned for the transport sector, which would also include an Ultimate-branded fuel card offered by a third party. Profit are forecast at £2.25m giving EPS of 3.2p so a prospective P/E of 5.2x while yielding 5.4%.
There is plenty of room for growth with £8.7m of the £34m bank facility available. The asset finance business has funding of £2m. There is cash in the bank of £1.48m, although there is also contingent consideration of £1.29m that could become payable. Acquisitions to bulk up the business and add new products are possible.