… the March 21st Budget to reduce Taxes and retain a AAA rating.
Last week …
… saw a -0.4% fall in the FTSE 100, with modest gains of 0.1% in both the FTSE 250 and AIM All Share Indices. Euro debt faults are becoming less of a concern, although there remains room for doubts with Portugal’s 14% interest rates and Ireland calling for a, ‘no-more-austerity’ referendum. Eurozone unemployment is averaging at 10.7% with inflation at 2.7%. UK Consumer Confidence was reported to be at a seven month high and prospects of a double dip recession recede.
This week …
… on Wednesday the BOE Interest Rate meeting will almost certainly leave rates unchanged at 0.5%, which it has done since March 09. The rate of inflation’s decline could well be slowed by Middle East tensions and the inflationary pressure of higher oil prices. New Car Registrations and BRC Sales Monitors will be reported on Tuesday. Balance of Trade on Thursday is followed by various encouraging Production figures on Friday. Marginal gains are expected this week
Goals Soccer Centres (GOAL) – £52.5m at 108p
Cash to start kicking in
Goals Soccer Centres has had a tough couple of years but from now on it will show just how cash generative its 42 centres in the UK can be. Revenues were 9% ahead at £30.4m in 2011, with like-for-like growth of 1%. Pre-tax profit was one-fifth higher at £9.2m. The tax charge was lower than expected which helped to offset the dilution from the most recent share issue. The core football revenues are holding up well but revenues from the bar, birthday parties and corporate events have declined. Bar sales were lower because the company decided not to pass on the VAT increase.
Goals has taken full control of the US business and it has moved into profit. There are opportunities to expand in the US but they are not likely to happen in the near future. This year’s figures will benefit from the Euro championships. The underlying like-for-like trend is slightly positive with overall revenues 6% up so far this year. Peel Hunt forecasts a December 2012 profit of £9.7m for an EPS of 13.9p giving a prospective P/E of 7.8x with a 1.8% yield.
The reduction in the pace of opening of new centres is enabling Goals to cut its borrowings. A modular building system will also help to reduce the cost of those centres that are opened from £2.2m to £1.5m. Net debt was £53.2m at the end of 2011. A new four year banking agreement provides a facility of £56m. The net debt figure could fall to £45m by the end of 2012.
AI Claims Solutions (ACS) – £12m at 19.25p
Uncertainty in the price
Interims from ACS showed this car accident management service provider to be performing relatively well in a tough trading environment. Revenue is under pressure but improved gross margins from 17% to 21% reduced the impact on earnings. Revenues were 21% lower and PBT is 30% lower but because it hires its fleet there is no pressure to chase volume and measures to improve efficiency. Normalised EBITDA margin is 4.8% in the first half, up from 4.5%, which limits the EBITDA decline to 14%. Disappointing as the slowdown is, the flexibility in the cost base means that the business is expected to remain profitable. For the Year-end June 2012 profits are forecast at £3.0m giving EPS of 3.4p and a prospective P/E of 6x while yielding 3.8%. Low uncertain growth may however have attracted some consolidation initiatives. There are likely to be joint commercial opportunities with the new major 29.9% shareholder Quindell, which is active in business process optimisation as well as personal injury medical reporting. There is an agreed acquisition of personal injury law firm Silverbeck Rymer which is subject to regulatory approval.
Progress has been made on debtor collection and a block settlement with the help of a leading insurer helped net debt fall by £3.2m to £19m with an NAV of 31p.
Lo-Q (LOQ) – £47.8m at 275p
Queuing –up for these growth prospects
Queuing technology developer and supplier Lo-Q managed to grow revenues even though the theme park market was weak last year. There was a 9% increase in park customers using Lo-Q systems and a 17% like-for-like increase in average customer spend. This year there are a larger than normal number of new installations, including more water park customers for the Q-band. Revenues grew by one-fifth to £24.5m in the year to October 2011. Pre-tax profit improved from £2.32m to £2.7m. There were four installations in the period. Lo-Q has renewed its deal with its biggest customer Six Flags for a further six years and the Q-band will be installed in nine water parks.
Lo-Q is developing a version of its core product for smartphones which should help to boost margins by removing the requirement for separate hardware. Mastercard’s contactless payments technology is also being integrated into the system. There are already 11 installations planned for this year. Water park revenues are lower margin than normal revenues and that is why gross margins are expected to fall.
House broker Canaccord Genuity forecasts an October 2011-12 profit of £3.2m, rising to £3.7m the following year. The shares are trading on just over 18x 2012- 13 prospective earnings. This reflects the potential long-term growth of the company in existing and new markets.
Net cash improved from £6m to £7.5m. This is a high point for the year, although October revenues were relatively strong trade debtors increased. Net cash could be more than £10m in two years time which is despite the substantial investment in new installations. As the balance sheet is strong so a dividend ought to be planned.
Chaarat Gold (CGH) – £76.4m at 30.5p
A developing goldmine
Chaarat Gold remains on course to start gold production in the middle of 2013 and it has increased its gold resource to around 5.5m ounces even though only a small part of the exploration area has been drilled. Chaarat owns 100% of its Chaarat gold project in the north west of the Kyrgyz Republic, which was discovered by Soviet geologists just over two decades ago, and last year it raised £50m to develop the mine. The Chaarat mine is on the Tien Shan gold belt. Mining will commence later this year so that a stockpile can be built up before the processing plant comes on stream. The initial rate of production will be 30,000 ounces of gold a year at a cost of production of around $350 per ounce. The low share price could attract the attentions of potential bidders, possibly from neighbouring China, but Chaarat boss Dekel Golan is not willing to sell at such a low price. The company has three other exploration assets to the west of Chaarat. They are Chontash, a copper, molybdenum and gold prospect, Mironovskoye, a copper, gold and silver project, and an iron oxide deposit at Kyzil Ompul. There has been drilling at Chontash and Mironovskoye is ready to mine but Chaarat is looking for a partner.
The £50m raised is sufficient cash to develop the first phase of the Chaarat mine. Further cash will be required to increase the production rate to 200,000 ounces a year. The Kyrgyz Republic has a 10% tax rate and royalties of 7% of revenues.