… ; for the next 10 or 20 years I am convinced that biopharma is the place to be.
Jim Mellon, Fund Manager
Last week …
… helped by Euro-debt repayment confidence but ignoring lack of world economic growth, the FTSE 100 closed up 1.6%. The FTSE 250 improved 1.3% while the Aim All Share at 693 was the week’s best performer with a 2.6% rise. Positive Euro Debt news, a reduction in ECB interest rates to 0.75% and a further £50b of QE beat the negatives of US slow employment growth, falling PMIs (Purchasing Managers Index) and consumer confidence.
This week …
… there are fewer economy indicators being reported while details are likely to be added to the Euro-debt compromise In the UK on Tuesday, Industrial and Manufacturing production will be reported. Elsewhere more market sensitive news will be on Thursday from the US when Jobless and Consumer Confidence figures are announced. Corporate news may help but market seem set to drift lower.
International Greetings (IGR) – £28.8 at 53.75
Cardiac not rested
Well played, as finals to March 2012 were ahead of the trading update given on the 24th of May. Before exceptional cost IGR’s profits would have been up as PBT was reported at £3.1m compared to £4.3m. Clearly with this economic background revenue growth of 2% was difficult to achieve, but the improvement in gross margin to 17.4% to 19.3% shows some management strength of purpose. The commodity end of the market such as giftwrap, where the key to success is efficient manufacturing and the investment in manufacturing, with the new high-speed press in the Netherlands and the relocation of the Chinese plant, should start contributing to operating margin. Global sales of single card purchase improved 33% while the overall balance of the business is now 56% outsourced against 44% manufactured in-house, with just over half of sales reported for the UK and Asia region. The real potential lies in the further development of the North American market, where market share is estimated at around 6% and ratings for similar business are higher. Forecast for the March 2013 year end are for £8.3m for an EPS of 8.2p giving a prospective P/E of 6.6x.
The operational cash flow improved and net debt fell to £41.7m but being a global card business may make delivering shareholder value hard work.
Omega Diagnostics (ODX) – £13.9m at 16.25p
Finals and Directors dealings at allergy and infectious disease diagnostics products supplier Omega Diagnostics increased confidence that investment in products and automation in recent years as well as new licence agreements. Much of the growth in revenues came from the German acquisition at the end of 2010, although like-for-like growth was 8%. Underlying profit improved from £740,000 to £1m, although due to new share EPS fell from 1.7p to 1.2p. Last year, revenues of £402,000 were generated in India. The new Indian operation is unlikely to do better than break even in this financial year. Third party products are being sourced so they can be sold via the new distribution network. New partners will be signed up in Brazil, Russia and China. In the year to March 2012, revenues grew 41% to £11.1m. A HIV treatment CD4 I set to be launched and Omega is licensing a syphilis test from the same source. Omega plans to launch 40-50 allergy tests on the iSYS automated platform by the fourth quarter of this financial year. Omega has also set up its own distribution operation in India following disappointing sales. Profits of the March 2013 year –end are forecast at £1.8m which gives an EPS of 1.7p and a prospective P/E of 9.5x.
Net debt was £0.1m against net cash last year of £0.45m.
Trakm8 (TRAK) – £2.52m at 13p
Recent finals show that Trakm8 has moved from being a telematics hardware manufacturer to a full service provider over the past five years . Revenues increased 25% to £5.22m although profit fell from £323k to £84k in the March 2012 but excluding government grants there was a swing from a loss of £39,000 to a profit of £79,000. Annualised recurring revenues have grown from £1.5m to £1.96m and roughly cover just over two-thirds of overhead costs.
There are 30,000 vehicles on the SWIFT platform around the world and the majority pay monthly. These customers include the AA, Jewson and e.on. SWIFT can help to analyse driving and improve fuel efficiency by more than 10%. Trakm8 plans to launch additional modules to provide additional services to clients.
The telematics market is growing at 16% a year but the UK market penetration is still less than 20%. Further international expansion is likely to be through partners such as the contract with Motarola for 2,300 units. Profits are forecast at £0.3m for the March 2013 year-end giving an EPS of 1.2p and a prospective P/E of 11x
Net cash was £868,000 at the end of March 2012 and it should be cash generative this year. Suitable acquisitions are being sought.
Wynnstay Group (WYN) – £64.2m at 385p
Positive long term
Agricultural products distributor, retailer Wynnstay did slightly better than expected in the six months to April 2012. Much of the growth in revenues came from the initial contribution from grain trading business GrainLink overall revenues rose from £164.6m to £193.7m, with GrainLink accounting for £23.8m. Pre-tax profit improved from £3.97m to £4.52m and the interim dividend is 10% higher at 2.85p a share. Lower feed materials demand was offset by higher fertiliser demand. Seeds demand is increasing. The retail side generated revenues of £1.5m from solar installations for farmers but this business is likely to decline in the second half. There are other renewable energy products that could be sold to farmers, such as heat recovery systems for milking parlours. Country stores grew like-for-like sales by 4% and another site has been acquired. Just for Pets has 20 stores and is growing its sales but is finding that the smaller sites are struggling and reducing the profit contribution. The forecasts a full year to October are profit of £7.6m, up from £7.4m this give an EPS of 33.3p so a prospective P/E of 11.6x while yielding 2.2%.
There is always a cash outflow in the first half and that is reversed in the second half. Net debt was £15.7m at the end of April but this should fall to £7m at the end of October 2012.