“I once brought my kids a set of batteries for Christmas …

… with a note on it saying, toys not included.”

Bernard Manning


Last week …

markets stood still, with the FTSE 100 virtually unchanged at  5921,  the FTSE 250 gaining  a mere 0.5% and the Aim All Share flat at 688. UK Jobs improved more than expected increasing by 3,000 rather than declining but house prices edged lower. There were some relative robust Production figures from China and Germany, although Japan’s GDP is falling at an annual rate of 3.5%. The US continued with QE but still have a fiscal cliff to climb.

This week …

besides being party time there are inflation figures being reported on Tuesday. A continuing decline makes the policy decisions easier for the New Governor. The BOE Interest Rates Minutes are reported on Wednesday followed by Retail Sales and Consumer Confidence on Thursday and Friday.  In Europe and the US there is a flurry of confidence and jobless figures. These are the last set of reports before many economists finalize predictions for 2013. The US Fiscal Cliff has a January 1st deadline and the play off between tax and budget cuts are likely to need extra time. Flat books over the next weeks   give stock pickers a good opportunity.


Company Reports

Driver (DRV) – £19.8m at 75p

No Dispute Strong Growth

Finals reported from Driver, the provider of commercial dispute services to the construction and engineering industries worldwide, materially outperformed market exceptions. The shares are at a year’s high.  While gross profit margin remained at 26.8% revenue improved by 51%  to  £26.3m and PBT up 220% to £1.75m for the year to September 2012. The best performers are  the Middle East, up 58%, Africa which improved 143% and UK Power and Process whose revenues increased 147%. The successful integration of a geographically complementary acquisition also helped the strong performance. The key services provided are Project Services, Dispute & Advisory, Strategic Project Management and Expert Witness & Litigation Support. These seem to be developed successfully into new countries and industrial sectors such as oil services. The company is delighted the way the current year has started. Profits for September 2013 are forecast at £2.3m for an EPS of 7.3p which gives a prospective P/E of 10.3x while yielding 1.5% assuming an unchanged dividend. There seems to be strong chance of an upgrade.


Following the acquisition of Trett for £2.3m there is debt of around £1m but £1.4m of cash was generated from operations last year.


Datong (DTE) – £4.36m at 31.5p

High IQ Recovery

A sensitive export licence has now been allowed for a £0.8m order for this provider of covert intelligence information gathering.  The announcement helped the share price recover after recently reporting depressed finals to September 2012. Where trading was impacted by delayed US orders as a results of the Government’s failure to agree budgets there was also a sharp decline of sales from austerity Europe.  Sales fell 17.8% to £9.7m, with a loss of £31k compared to a £48k profit. This does exclude the exceptional gain of £300k from a written back litigation provision.  Intelligence strength continues to play an increasingly central role within governmental agencies and police forces, supporting the fight against terrorism and organised crime. Reacting to the flat performance the new chief executive is undertaking a strategic review. He starts with net cash of £2.5m in a debt free balance sheet to develop the product range and geographic sales expansion. Product development continues with £1.78m spend last year increasing the range of services and develop an intelligence software system that will provide more analytical information. Acquisitions are targeted at established businesses in communication surveillance, cyber security and commercial tracking, which will take Datong into markets outside of defence and homeland security.  While there are no firm forecast for 2013 it seems that the bottom has been reached and the newsflow should increase.


An exceptional gain and a reduction in debtors helped the cash position improve from £1.27m to £2.48m.


Redstone (RED) – £45m at 1p

Profits Mission Critical

Interims showed a strong recovery despite tough markets so validating the success of the strategy of focusing on two divisions; Manage Services and Infrastructure Projects. For the six months to September an operating profits of £0.6m was made against a loss of £0.4m while EBITDA was £2.6m against £1.8m and turnover dropped 21% to £28m as non-core contracts ended. The Managed Services Business has been expanded with a recent acquisition and a £3m fund raising at 1p. There are advanced post acquisition plans for cross-selling and integration. The current order book is £23m as new contracts won such as the £6.2m mission critical project to deliver a managed Wan set-up and connectivity to over 1,900 sites.  A trading improvement seems underway and will be evidenced by further contract wins. Profits of £3.9m are estimated for the full year to March 2013, which would give a prospective P/E of 9.3x. It would seem sensible to consolidate the shares as there are 4.4billion in issue.


Total borrowings are £11.4m financed with Barclays Bank which increased  5.9% to give gearing of 42.7%.


Cohort (CHRT) – £49.9m at 123.5p

Attacking Defence

Defence and security technology supplier Cohort reported an improved profit in the six months to October 2012 even though revenues fell. Group revenues declined from £37.4m to £33.8m, pre-tax profit jumped from £1.8m to £4.32m. That profit was boosted by a £1m earn out release, lower amortisation and positive currency movements but underlying profit still improved from £2.97m to £3.37m. Although its revenues fell, the growth in profit came from the surveillance systems engineering business SEA, whose main markets are defence, space and transport. Defence and information systems business MASS remains the main revenues and profit generator. This business also generates revenues from training although its performance has been improved though some space contracts have been delayed. Defence technical advisory business SCS has reduced cost to offset lower revenues. The order book is worth £103.2m and £27.3m of those orders are deliverable in the second half – half of which is in the SEA business. The defence market remains tight and the diversification into other sectors has improved prospects. Profits for the April 2013 year-end are forecast at £7m for an EPS of 14.3p and a prospective P/E of 8.6x while yielding 2.8%.


The balance sheet is strong with net cash of £12.1m and the company is buying back its own shares.

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