The Greeks should pay more tax.
Last week …
… the FTSE100 improved by 1.6% to 5351, the FTSE 250 was nearly unchanged with a -0.1 decline while the Aim All-Share at 700 improved 1.0%. Greek debt contagion, default and crisis remain and EU leaders are verbally supporting the Greeks who owe a trifling Euro 107 billion. Moving onto more prosaic matters, the BOE Committee are not divided on providing further QE with only 1 of the 9 members voted in favour. April’s Retail Price rise of 3% was lower than expected, but Retail Sales fell by 2.3% rather than the slower expected fall of 0.8%.
This week …
… with the bonfire of credit still likely to smoulder until the Greek election on the 17th of June and Diamond Jubilee Celebrations markets may be distracted from economic reports. Further GDP figures already revised to -0.3% are on Wednesday should not surprise but PMI Manufacturing on Friday is not likely to be optimistic. German Consumer Confidence on Thursday could be worth noting. Markets could be flat this week.
Lombard Risk Management (LRM) – £18.5m at 8.75p
Gaining from Bank Controls
Finals showed that trading and regulatory risk software provider Lombard Risk Management will benefit from regulatory changes over the next couple of years. A strong end to the financial year meant that Lombard reported an 8% increase in revenues to £12.8m in the year to March 2012 even though there were no significant new regulatory drivers to the business in the period. Pre-tax profit jumped from £565,000 to £2.49m. That is partly down to the capitalisation of £3.32m of development costs. If a similar policy had been in force in the previous year there would have been more modest growth in profit. Late in the period Lombard acquired the owner of the North America-focused REG-Reporter reporting software business. This fits well with the European focused reporting software operations. US-focused Dodd Frank transactional reporting regulations will boost this year’s sales of software and European Banking Authority Common Reporting (COREP) requirements will continue to provide additional software demand into 2013. On top of this Lombard is releasing new versions of its software and additional modules. Profits for the March 2013 year-end are forecast at £4m for EPS of 1.6p and a prospective P/E of 5.5x while yielding a nominal 0.7%.
A working capital outflow meant that the cash figure fell during the period. On top of that £2m was borrowed to help pay for REG-Reporter. Net debt was £2.4m at the end of March 2012. The cash position has improved since then. The final dividend was increased from 0.03p a share to 0.035p a share.
Mwana Africa (MWA) – £43.5m at 4p
Cash for Production
Mwana , the pan-African miner has three main mining interests: gold mine Freda Rebecca in Zimbabwe, nickel miner Bindura and the DRC-based SEMHKAT mine. Production of gold at Freda Rebecca is being built up and it is running at around 50,000 ounces a year. Recovery rates are not as good as previously but these are being improved. Cash cost is around $900/ounce but higher production should reduce this. This mine was 100%-owned by Mwana until the recent sale of a 15% stake to a Zimbabwean investor. Mwana owns 52.9% of Bindura Nickel Corporation but production was stopped in 2008. It will cost up to $300m to restart production but Mwana intends to recommence production in stages. Nickel prices have recovered and an offtake agreement has been signed with Glencore. Production could restart in the second half. The reopening of the smelter and refinery are further away. Mwana is spending $6m-$7m a year on exploration of the SEMHKAT prospect but it would invest more if it had more money. The exploration area is in a region known for copper. The long-term strategy is to reach the point where Mwana is producing 5,000 tonnes of copper, 7,000 tonnes of nickel and 70,000 ounces of gold.
Mwana’s progress was hit by the global financial downturn but raised $35m in April at 5.5p with £13.3m from China International Mining Corp. This leaves it in a strong financial position to develop its nickel and SEMHKAT mines while Freda Rebecca is cash flow positive and should generate $11m of cash each year.
Accumuli (ACM) – £16.6m at 11.75p
IT Secure Cash Model
Following the positive Trading Statement in April, Managed IT security services provider Accumuli full year results to March 2012 show that its business model can be highly cash generative . Accumuli’s figures for the year to March 2012 are the first in its current form. The Boxing Orange acquisition is included for 49 weeks and the rest of the business was included for the full period. Revenues were £12.6m and there was a small reported pre-tax profit, although adjusted profit was £2m. Accumuli is trying to increase its recurring managed services revenues and it is focusing on SIEM (Security Information and Event Management), which provides information about potential security threats delivering multi-layered security services that protect customers’ networks and their users from targeted assaults on resources and data. Using leading edge technologies, Accumuli has created solutions that can identify and eliminate irregular patterns that could otherwise lead to disruption and financial loss for its clients. These clients are all sizes across a range of sectors, including financial services, utilities, telecommunications, manufacturing and government. House broker finnCap forecasts 2012-13 revenues of £13.8m and underlying profit of £2.4m this gives an EPS of 1.2p and so a prospective P/E of 10x.
There was £2.59m of cash generated from operations. Net cash was £1.96m at the end of March 2012. Further acquisitions, fitting the investment criteria are likely to be considered.