“When you are taking the country through difficult times…

… and decisions- you have to take the country with you “.

David Cameron PM


Last week…

…the FTSE 100 improved 1.3% to 5965. The FTSE 250 increased 2.3% while the Aim All Share lost 0.4% to 807. US Employment is improving with a further 227,000 new jobs and the Unemployment rate at a political acceptable 8.3%. There was also a surprising lift in German Economic expectations to the highest level since June 2010. It seems that Portugal budget problems are a lesser issue than Greek debt.

This week…

…demonstrating a believable strategy that reconciles potential contradictions is George Osborne’s challenge in Wednesday’s Budget.  A strategy  to increase growth, lower inflation and meet debt repayments as well as being politically sensitive is a tough PR task. On Tuesday Inflation (Consumer Price Index) will be reported and the long term target remains 2%, although inflation peaked at over 5% it’s likely to be a robust 3.3%. Wages are increasing at an estimated 1.7% as the Annual Survey on Wages and working hours may reveal. We were mainly wrong last week but again suggest modest falls this week.


Company Reports:

Metalrax (MRX) – £10.73m at 8.95p

Back to growth

Following four years of restructuring the bakeware manufacturer  Metalrax has reached the point where it is seeking acquisitions to expand the business.  The most recent acquisition is in the medical equipment sector and it has performed well. The December 2011 figures will be published on 19 March. Metalrax has already said that it will meet expectations for 2011. A profit of £1.4m is forecast which gives a prospective P/E of 10x with no yield.  The bakeware business has been hit by weak consumer spending so its contribution will be lower than expected but the engineering businesses did better than originally forecast. For the 2012 year end without further acquisitions a PBT of £1.9m would give EPS of 1.2p and a prospective P/E 7.5x.


Metalrax has agreed new facilities of up to £14m with the Royal Bank of Scotland. They last for four years. This will reduce interest costs by £300,000 a year. The finance comes from the asset finance part of the bank. Net debt was £5.5m at the end of 2011. The pension fund deficit has been reduced.


Metalrax is looking for niche engineering businesses to acquire and it has spare facilities to help finance the purchases. Metalrax is seeking higher margin businesses in the engineering sector.


Access Intelligence (ACC) – £8.54m at 3.75p

Directors confident of growth

Access Intelligence appears to be well on the well to sorting out the problems of its compliance software business Cobent and a new structure will make the group more efficient. Flat turnover of £7.23m was reported in the year to November 2011 and was due to a poor performance from Cobent and a fall in business with RBS. There was a rise in private sector revenues as public sector spending declined. There was a pre-tax loss of £279,000. The company made a profit the previous year if goodwill write-offs are excluded.  The new strategy pulls together the operations in a more coherent structure. Development is being centralised in York and the sales side is being boosted. Northland forecasts 2011-12 revenues of £8.2m and a £300,000 profit a fancy P/E of 38x. The real benefits will show through in the following year, November 2013 with a profit of £1.2m forecast and an EPS of 0.4p. Directors recently  brought 5.7m shares  at 3p a share.


Net cash is just under £3m helped by the proceeds of the sale of Solcara. The main debt is convertibles. There are £1.18m worth of convertibles in the balance sheet. These are convertible at 4p a share and mature on 30 June 2014. The company has bought back some of these convertibles which carry a 6% annual interest charge.  A maiden dividend of 0.2p a share has been announced.


M&A is on the back burner for this year but it is likely to come to the fore again in 2013.


Kefi Minerals (KEFI) – £12.6m at 2.95p

Planned drilling already financed

Kefi Minerals has a joint venture with Saudi construction company ARTAR which is applying for gold and base metals exploration licences in Saudi Arabia. Three have already been awarded and more are on the way. There have been gold mines in these regions in ancient times. There are also some newer mines being developed by the likes of Barrick and London Mining. Five drill targets have been identified for this year. Two of these are on licences not yet granted. Newsflow will be generated by results from surface mapping of the existing licences, new licences and drilling.


Kefi has around £2m in cash which is enough to finance planned drilling.


Cello (CLL) – £35.2m at 45p

Cheap acquisitions required

Shares in market research group, Cello have risen by more than one-quarter since it released its 2011 figures. Gross profit rose 7% to £64.3m with most of the growth coming from the pharma sector business. Underlying profit was 10% higher at £7.1m with slightly lower EPS at 6.7p giving a P/E of 6.7 while yielding 4.9%. The operating profit contribution from the communications division was flat as Scottish revenues were hit by the Scottish election. There is a £150,000 loss for each new office that is opened but they should become profitable relatively quickly. Profits are forecast at £7.5m for the year to December 2012 as earn-out targets are meet which gives a prospective P/E of 6.9x to yield 4.2%


Net debt edged down to £7.7m and it should fall more quickly from now on. Earn out provisions have fallen from £7.3m to £3.2m. The bank facilities last until March 2016.


Cello is looking for acquisitions particularly in the pharma market research sector. Management points to the purchases of competitors for up to 9 times EBITDA, which is double Cello’s own rating.

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