… a big challenge and progress would be a bright spot for the World Economy.
Last week …
… the upward trend accelerated with the FTSE 100 improving 2.9% to 5901, the FTSE 250 increasing 3.5% and the Aim All Share at 781 was 2.3% ahead. There are reasons to be cheerful as PMI surveys on both Manufacturing and Service providers showed higher levels of confidence and orders than expected. On Friday declining US unemployment figures were reported at 8.3%, down from 8.5% which contrasts with the Eurozone average unemployment of 10.4%. On balance the evidence seems to be pointing towards the likelihood of a mild double ‘skip’ recession.
This week …
… the BOE Interest Rate meeting is on Thursday where agreement could be reached on a further round of £50bn QE to stimulate the economy. Other UK reports will be Balance of Trade, Shop Price Index and on Friday, Producer Price Index. Further Eurozone statistics may be a drag on the nascent better feeling about prospects. The stockmarket last peaked in February 2011 and a downward bend seems likely in the upward trend particularly if there is a Greek tragedy.
Dillistone (DSG) – £13m at 72.5p
Growing its reach
Despite caution from traditional SME customers, a trading update reported business was inline due to some bigger than average orders. Dillistone is a developer and vendor of software for the international recruiting industry and until recently seemed a single-product company. Expansion into product and regions seems to be increasing growth prospects. Its core product, FileFinder is an integrated executive search database, CRM system, research tool, report writer and project management solution. This has been extended with the launch of FF10 in March 2011, which achieved its 50th customer by August. FF10 is a significant upgrade with over £1m invested and would seem to be generating cross- selling opportunities. Voyager was acquired in September for an initial £1.5m and was supported with a placing at 72p. It is being integrated with increased scale and broadening the offering into the recruitment agency market through its four-product suite. The Trading update implies that trading for December 2011 year end is on track for PBT of £1.3m giving an EPS of 5.3p so a prospective P/E of 13.7x. Further out for the current 2012 year-end the prospective P/E drops to 12x with a 3.2p dividend so yielding 4.4%.
There is net cash of £1.6m and because of the recurring nature of licence revenue, operating cash flow is robust. Dillistone is well place for further add-acquisitions in this fragment relatively niche sector.
KBC Technologies (KBC) – £40m at 71.5p
Refine the pitch with a deal
KBC’s trading statement in January was on balance slightly below expectations for December 2011, as the lower margin consulting division improved but slippage was reported on a couple of software deals. KBC is a consulting, process engineering and software group. The pitch to clients in oil (and gas) refining and petrochemicals industries is helping these process industries to optimise operating efficiency and to improve financial performance. Consulting revenues at £44.8m is the highest level since 2008 as a number of gas projects in Australia are compensating for the disruption caused by Middle East ‘revolts’, Japan’s tsunami and generally a weak European refining market. Software deals could close in H1 2012 so interims could be stronger a view perhaps shared by a director recent buying of shares. Profits of £6.1m for the Dec 2011 year-end would give an EPS of 6.8p so a prospective P/E of 10.4x dropping to a P/E of 9.6x for 2012. The yield is 3.2%.
There is around £5m net cash. There is always the prospect of winning a major new deal but product diversification and acquisitions could also help the rating improve.
Ultimate Finance Group (UFG) – £8.73m at 15.25p
Increasing demand restricted supply
Invoice discounting and factoring services provider to SMEs, Ultimate Finance Group has raised £1m at 13.4p a share. The cash will strengthen Ultimate’s balance sheet but it dilutes forecast earnings per share by 7% this year and 13% next year. New non-executive directors Roger McDowell and Matthew Cooper have acquired shares in the placing. McDowell has invested £200,000 for a 2.61% stake and Cooper has invested £125,000 for 1.63%. Helium Special Situations Fund has also subscribed for shares and it owns 22.1% of Ultimate. As bank lending to SMEs is increasingly restricted in the current climate, the benefits of ultimate finance’s flexible and fast-moving solutions become even more compelling. The company operates from a number of offices in the South East as well Manchester and Birmimgham..
House broker WH Ireland forecasts a 2011-12 profit of £1.9m rising to £2.3m in 2012-13. The shares are trading on 5.6x 2011-12 prospective earnings. The prospective yield on a dividend of 0.8p a share is 5.2%. Jeremy Coombes, the only remaining founding director of Ultimate, has taken over as chief executive from Richard Pepler
Minoan (MIN) – £5.92m at 5.75p
Journey end in profits ?
Minoan is changing its focus from developing a leisure resort in Crete to the distribution of holidays. Minoan has already acquired four travel operations which are focused on niche markets and it would like to expand geographically from the current Scottish base. Acquisitions will be in regional clusters but the company will avoid the London market. Former MyTravel chief executive Duncan Wilson is heading the new travel business. He has 25 years’ experience in the travel sector and well-connected s in the sector. The travel agency business is not as risky as being a tour operator because even if prices are reduced the travel agency still makes its commission on any sales. Although many customers research online they still go to travel agents to buy holidays.
Changes in regulations mean that many smaller travel agents may decide it is no longer worth going it alone and decide to close or sell their business. This provides opportunities for Minoan, as does the problems of Thomas Cook. Minoan may be able to pick up some non-core Thomas Cook assets, Parts of the travel market fell sharply in January but Minoan managed to maintain its sales. The travel business is profitable but corporate costs have moved the company intol losses but that should change this year.
Management still has high hopes that planning permission will be gained for its Crete leisure project. The project has had to be changed but planning permission could come through in the near future.
Minoan is likely to sell at least part of the project to investors able to finance the development. There are potential Middle East buyers.
So f0r £3m has been spent on travel acquisitions. If part of the Crete development is sold then some of the cash could be returned to shareholders but some of it will be used to finance acquisitions.
Frontier Mining (FML) – £68.9m at 3.7p
10,000 tonnes a year of copper
Frontier Mining’s main asset is its 100% stake in the Benkala copper project in Kazakhstan. In April 2011, Frontier completed the acquisition of the stake in Benkala it did not own. There is a resource of 1.56Mt of copper, which makes it one of the top six copper reserves under development in Kazakhstan. The South Benkala deposit has been acquired for $2.5m. This has 590,000 tons of contained copper. Frontier has received construction approval and permits for the Benkala plant. First copper cathode production should be in the first quarter of 2012.
The initial capacity is 7,000 tonnes a year rising to 10,000 tonnes a year. This will be increased to 20,000 tonnes a year in the next phase. Long-term the capacity could be increased to 30,000 tonnes a year. The oxide part of the project should last seven years with South Benkala potentially add at least three years to that life. The rest of the resource is sulphide copper. Management says that redomiciling the company from the US to the Cayman Islands has made it easier to trade the shares and improved liquidity. The Baitemir copper project is in east Kazakhstan not as developed as Benkala. There is 500,000 tonnes of contained copper. Frontier has to spend $3.1m over three years and most of that will be spent this year.
Frontier has a small gold producing mine that makes a contribution towards overheads but this has a limited life. The sale of the Maminskoye gold deposit for $37.5m provided the cash required to fund the development of Benkala.