“In China 300 million people are expected to move from rural to urban areas within the next 15 years.”

Economist Intelligence Reports


Last week …

… market performance was negative; as the FTSE 100 was 1.9% lower at 5742, the FTSE 250 fell 1.8% while the Aim All Share at 705 declined 1.5%. The economic evidence continues to show that the Euro-zone is slowly drifting into recession. Clearly, sentiment was not helped by austerity statements and Spain’s Bank bailouts costs. The UK’s GDP decline by 0.4%, which was slightly less than first estimates.

This week …

… in the UK Mortgage Lending is reported on Monday to be followed by Construction PMI on Tuesday. Elsewhere, there are Unemployment figures from Europe on Monday, with the US reporting theirs on Thursday. There is also EU and US consumer confidence surveys reported on Thursday and Friday. We have been too positive for the last couple of weeks, partly as we feel  that much of the negativity is already discounted in share price valuations and so remain hopeful.


Company Reports

SCISYS (SSY) – £16.4m@57p

Profit Acceleration

A new broker and improved interim profits could suggest accelerated progress. SSY is a provider of e-business and technology solutions primarily to space, government & defence and media/broadcast sectors. Interim profits improved to £1.3m (£1.2m), while EPS improved 9% to 2.4p on reduced revenues at £19.6m (£22m). The fall in revenues is due to reduce hardware sales and adverse foreign exchange. The software development is generally customer funded through projects and the board is placing a greater emphasis on re-using software that has been developed in previous projects. The order book at £25m is 8% head of last year and particularly strong in Space and Defence.  The formal launch of new branding at the beginning of June was another large step on being recognized as a tightly integrated pan-European IT solutions group.  Profits for the December 2012 year end are forecast at £2.5m for an EPS of 6.87p giving a prospective P/E of 8.3x while yielding 2.4%.


There is net cash of around £1.5m and the company are looking for add-on acquisition to help boost the short term performance.


DILLISTONE (DSG) – £12m@67p

Growth Voyage

A 58% leap in interim revenues and the launch of new software make this cash rich recruitment software company worthy of investor attention. Revenues leaped to £3.6m of which are 63% is reoccurring which is highly cash generative and currently there is net cash of £1.6m.  There are two main trading businesses;  Dillistone Systems, which targets the executive search industry and a newly launched version of  Voyager Software which targets other recruitment markets. PBT at £530k included an exceptional cost of £170k. Dillistone is seeking to broaden its target markets, boost its customer base and drive synergies through greater scale. The new products are also going to be targeted at the wider international markets, through Dillistone’s international network. This provides significant growth potential for Voyager, since this business has traditionally been UK focused. Profits for the Full Year to December 2012 are forecast at £1.3m for an EPS of 6.6p so a prospective P/E of 10.2x while yielding 5.6%


Healthy cash flows helps maintain a strong balance sheet with £1.6m of cash set to fund the organic growth.


eg solutions (EGS) – £8.86m@62p

Filling the Pipe-line

A director increased his holding in back office optimisation software supplier eg solutions after reporting a moved back into interim profit. Interim revenues grew 7% to £2.85m, while pre-tax profit fell from £279k to £178k. Gross margins have fallen from 64.7% to 55.2% due to a higher amortisation charge relating to capitalised development costs and start-up investment in new contracts that should show increasing benefits.  Software licences, maintenance and services contributed 72% of total revenue although proportionally licence sales fell while implementation services made a much larger contribution. New contracts with existing customers should come through in the second half and 76% of anticipated revenues are already contracted. A major focus was on new projects following significant new client wins, including those with the potential to transform eg’s financial performance. Further recovery in the second half could easily see the EPS at 2.8p so giving a prospective P/E of 22x.


Net cash stood at £309,000 and cash flow is improving so the £147,000 of convertible loan notes can be repaid in October.


Cello (CLL) – £34m@41.5p

Over concerned by debt

After reporting interims the CEO purchased shares at 40.75p suggesting that the restructuring at this acquisitive market research and marketing services provider is progressing.  There are now two distinct divisions; health and consumer, Health is the main focus of growth with the consumer division having a tough first half of 2012. Overall revenues were 3% higher at £63.3m, while the profit before reorganisation costs was 2% ahead at £3m although EPS at 2.7p was 12% lower. The health division benefited from a full six month contribution from last year’s US acquisition, included for three months last time. Health revenues grew from £13.2m to £16.4m. There was like-for-like growth in gross profit. Gross margins were 25% but this could be difficult to maintain as Cello supplies services to most of the top pharma companies and it is gaining business as the number of suppliers is reduced. A slump in profit in the consumer division wiped out most of the contribution from this division and also offset the health improvement. Trading started to improve in June and the improvement has continued. Profits are forecast at £7.5m for the December 2012 year-end giving EPS of 6.45p for a prospective P/E of 6.4x , while yielding  4.8%.


Interim debt stood at £13.8m which could be seen as a concern but stronger cash-flow in the second half should see this reduce.

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