The market is too sceptical about the outlook for smaller companies, …

… which are much more international than they used to be.

Investors Chronicle


Last week …

… after a sharp fall the FTSE 100 improved to end down -0.4% at 5887. The FTSE 250 was off -0.1% with the Aim All Share at 810 falling by -2.2%. The beginning of the week was blighted by Greek debt drama but it turned out well with 85% of Private Investors accepting the Bond Swap.  Towards the end of the week, better than expected US Employment figures were reported.  UK production and Manufacturing figures during the week tended to be disappointing no-growth dullness.


This week …

… there are fewer UK Economic figures.  Critically, however unemployment will be reported on Wednesday which is likely to show a slight decrease from January’s 2.67m. Private sector job creation seems to be working and growing faster than the Public sector layoffs.  US inflation measurement figures are reported on Thursday and Friday. Marginal falls seem likely this week.


Company Reports

Stadium (SDM) – £20.7m at 70.5p

Moving from organic to acquisitive growth

Electronics manufacturer Stadium is going through a period of transformation under its new boss. Materials purchasing has been centralised and manufacturing capacity is being optimised.

Finals for the 12 months to December 2011 showed revenues were flat at £44.9m, while profit rose 38% to £3.96m. However, if pension related gains are stripped out the underlying profit fell from £2.91m to £2.64m. There was a weakening in demand towards the end of 2011. The power supplies business continued to prosper and made a larger contribution. Growth areas include cleantech, LED lighting and medical.Recent business wins mean that the second half of 2012 should be strong.

N+1 Brewin forecasts a 2012 profit of £3.5m as operational improvements begin to pay off. This gives EPS of 8.2p so a prospective P/E of 8.6x while yielding 4.4%.


Net cash was £2.94m at the end of 2011 helped by the sale of an old factory. The total dividend increased from 2.5p a share to 2.8p a share. The pension deficit is £4.8m net of deferred tax.


Stadium wants to make acquisitions where the target has IP and it can utilise the Stadium manufacturing facilities. This is similar to the strategy of the previous management in the power supplies sector but Stadium is widening its focus. Stadium plans to have a number of satellite businesses around the manufacturing core.


Plant Health Care (PHC) – £30.4m at 57.5p

Cash+New Broker + six field trials= ?

PHC is increasing sales of its natural plant growth products and the pace of product sales should accelerate over the coming years. Revenues for the 12 months to December 2011 improved from $7.09m to $7.85m in 2011 and the loss was reduced from $7.55m to $5.1m, although this was helped by a $1.9m disposal profit. PHC has reduced its admin expenses over the past five years but almost trebled its R&D spending. Part of the overhead reduction is due to disposals of landscaping operations but there is an underlying reduction. The R&D spending is focused on the next generation of products and formulations of the Harpin technology. Six products are going into field trials. There are no forecast for the current year.  Although the new Advisor Nomura Code maybe working on them.


There is $13.8m in the bank. This figure is slightly higher than at the end of 2010 because a small cash outflow was offset by disposal proceeds.


K3 Business Technology (KBT) – £56m at 196.5p

Seems cheap subject to DD

Enterprise software provider K3 continues to make good progress and has not allowed itself to be distracted by the potential takeover. Investment in growth areas of the business has held back short term profit growth but the benefits will come through in the next couple of years.  Interims for the  6 months to December  showed revenues  up  35% to £33.4m, while underlying profit was 7% ahead at £6.23m. The acquisition of a low margin Sage business hit group margins but there will be benefits from selling managed services to the client base. Although managed IT services is one of the main focuses of growth it reported a lower profit as additional staff were taken on in anticipation of future growth. The division’s revenues grew by 55% to £2.61m. There was also increased investment in the Microsoft AX product which held back that division. The main profit growth was in the international business thanks to the  relationship with IKEA and new business wins. Profits for the year end to June 2012 are forecast at £10m for a prospective P/E of 6.7x


K3 tends to turn its profit into cash and last year was no exception. Net debt was £13.4m at the end of 2011 and there are plenty of spare bank facilities.


K3 continues to look for acquisitions but they will not happen while it is in a takeover period. It is currently considering proposals from a number of sources  and the process is set to close on the 27th of March.


BATM (BVC) – £67.8m at 16.75p

Cashed-up to make an impact

Telecoms and medical equipment group. BATM reported better than expected second half revenues but underlying profit was in line with expectations due to higher finance charges. Overall revenues  for the 12 months  to December 2011 rose from $120.6m to $127.6m although telecoms revenues were lower. Telecoms remains the biggest revenue generator but medical is the part of the business that is growing. Medical revenues grew 16% which helped to reduce its loss, which is due to development spending on diagnostics products. BATM reported a loss after more than $9m of exceptional and amortisation but the underlying profit slipped from $6m to $5.2m. Both division should move into profit this year. Older, copper-based telecoms products are being phased out so telecoms revenues will continue to fall this year but new products and services are to being launched and should make an impact this year. House broker finnCap forecasts a 2012 profit of $7.1m for a prospective P/E of 15.2x.


The balance sheet is strong with net cash of $47m and Henderson Global recently increased their holding to 17%. However, reporting losses of $4m under means that BATM is not allowed to pay a dividend. The expected return to reported profitability means that there should be a dividend for the 2012 figures.


Share (SHRE) – £31.6m at 22p

Technology the way forward for  Private Client growth

Reported revenues and profit fell at retail stockbroker Share but the underlying performance improved. Share owns broker the Share Centre and trading platform Sharemark. It took out an interest rate floor policy which ended in November 2010. This means that the 2011 figures did not benefit from this policy hence the decline in overall revenues from £15.6m to £14.3m. Share says underlying revenues improved 7% to £14.3m. The underlying operating profit moved ahead from £1.1m to £1.6m. Share believes that its service and value for money will help it to grow substantially. It already has 220,000 customers and £1.5m under administration but trail commission is only 3% of revenues. As revenues grow the cost base should not and margins will improve. Shareholders with 500 shares or more get a 30% rebate on internet dealing commissions.  Profits of £2.3m are forecast for the December 2012 yearend which gives EPS of 1.1p and a Prospective P/E of 19.4x yielding 1.9x.


There is £11m in the bank and capital adequacy is six times its required level. The dividend was raised 20% to 0.36p a share – in line with the stated policy.


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