Geoffrey Dicks, Sunday Times
…at 5905 the FTSE100 improved 0.9% while the FTSE250 increased 1.3% and the Aim All Share at 810 was up 1.9%. The US S&P 500 closed at its highest level for 10 months as the US Unemployment rate of 8.3% is the lowest level for 4 years and Manufacturing Output improved by 0.7%. Eurozone GDP, however contracted by -0.3% which was bit better than many expected. UK business confidence is improving according to a PMI Index albeit from a low rate but GDP growth forecast for 2012 remain a sluggish 0.3%-0.9% range.
…Public Sector Finances are reported on Tuesday. These are running at a £1 trillion deficit, which is 64% of GDP and potentially ‘clipping’ our AAA rating. January’s figures are likely to show that the deficit is reducing quicker than forecast which is a timely political boost ahead of the March 21st Budget. BOE Minutes on Wednesday may signal the end of the need for QE. The Greek debt saga reaches another deadline this week but is likely to continue for the rest of our lives. Markets seem set for further improvement.
Electric Word (ELE) – £5.23m at 2.12p
Refocus online for recovery
Electric Word went through a period of restructuring and refocusing in the year to November 2011 but it still managed to make an underlying profit. Overall revenues moved ahead from £14.6m to £15.1m, while the adjusted profit dipped from £1.94m to £1.39m. The reported loss was £4.68m but that is mainly due to asset impairment and restructuring costs. The business has been restructured into three divisions: education, health and sport and gaming. All of the business is being refocused with online increasingly replacing print product.
It was the education division that had the main problems last year as schools were uncertain about their budgets and cut back spending. Education made an operating profit of £81,000 on revenues of £5.91m. Conferences performed poorly and the conference portfolio is being reduced. Some publications have been discontinued and a training operation started. The move to online will help margins to recover and should help to improve yields from schools. The gaming division continues to go from strength to strength with the full benefits of the acquisition of the rest of the affiliate business showing through. The profit contribution was £1.34m, with more than one-quarter relating to the additional affiliate profit, on £4.72m of revenues. The US provides long-term potential for the gaming division. It appears that online gaming will be allowed in the US and casino operators are already seeking out information about the sector. A US publication is on the cards. The health division is the newest and last year was a period of integration for the recent acquisitions. Even so it made a profit contribution of £774,000 on revenues of £4.5m. Sales and marketing are being improved and niche health communities are being built up. Assuming profits of £1.43m then the shares are trading on 7x prospective 2011-12 earnings
Net debt was £820,000 at the end of November 2011.
MBC Finance (MCRB) – £11.52m at 69p
It is not clear why this online provider of short- and medium-term loans to customers in Finland, Estonia, Latvia and Lithuania, is listed. The historic rating that puts them on an historic P/E of 4.6x shows that few investors are accessing the risk of this tightly held stock with 17% free float. Profits of Euro 3.7m were reported for the December 2011 year end. The attractive business model is highly automated and centralised as clients use the internet to apply for loans. Credit is assessed centrally using credit score cards with internal and external data input. The average loan is small and short for around six months. A majority of business is repeat lending to existing customers. The customer is typically a mid-to low-income earner with an instant cash need, ie the non-bank consumer credit market for which there is strong demand. Forecast for 2012 are for Euro 5.2 giving a P/E of 3.9x but there is no yield being offered. The strategic dilemma remains; why be on Aim unless it helps funds to be raised to increase the loan book.
Gearing is 110% with net borrowings of £11m
Amino Technologies (AMO) – £29.8m at 51.25p
Reset for growth
IPTV software and settop box developer is growing on the back of the widening use of the technology and its performance last year was better than expected. Revenues grew 18% to £51.8m in the year to November 2011, while the business increased its underlying profit. The reported loss fell from £882,000 to £619,000 but stripping out the goodwill impairment and the previous year’s onerous contract provision the profit improved from £794,000 to £1.66m. Much of the growth in full year revenues came in the first half but the profitability was better in the second half because revenues were much higher than the first half. The US and Italy were important markets last year.
Older products are being phased out and the product range simplified. The order book covers 102,000 units. Obtaining components can be difficult and Amino has managed to ride out supply problems in the Far East. Hard disc drives supply has been a problem but further supplies have been obtained at a higher than normal price. Forecast for the November 2012 year end are for PBT of £2.7m giving an EPS of 5p for a prospective P/E of just over 10x.
Cash generation was particularly strong last year as working capital was reduced. A maiden dividend of 2p a share was announced, which shows that the company expects to maintain and build upon its profitability.