Last week …
… there was a 0.5% increase in the FTSE 100, which rose to 5935 but beaten by the FTSE 250’s 1.9% increase and the winner with a 2.3% rise was the AIM All Share at 828. Banks held the FTSE 100 back but generally the main economic themes such as Greek debt and US Growth were positive. In the UK, GDP contracted by 0.2%, Public Sector Borrowing was in surplus and Manufacturing and Services showed growth. To mix the rosy picture was the worrying fall in Business Investment and the consequent likely negative impact on employment prospects.
This week …
… Consumer Confidence is reported on Wednesday and may show an increase helped by the reducing inflation. On Tuesday, if the CBI Survey on Distributive Trades shows improving confidence then the spectre of a Double Dip recession may be fading. Europe debt is in an expensive box but on Tuesday Markets may be reminded that Euro growth has stalled. On balance further modest gains seem likely this week
Sanderson (SND) – £16.2m at 38p
Cash-up to go
Enterprise software provider Sanderson Group transformed its balance sheet by selling its Sanderson RBS high street retail software In the year to September 2011, RBS generated an operating profit of £1.41m on revenues of £12.4m. Sanderson will focus on online and ecommerce software for the multi-channel retail sector and software for the manufacturing sector. RBS had lower margins than the rest of the business. Order intake in the continuing businesses was 10% ahead in the first quarter of the latest financial year. House broker Charles Stanley has reduced its 2011-12 revenue estimate from £26.9m to £15.3m, while the pre-tax profit forecast is cut from £3m to £1.8m. The shares are trading on 11x September 12 prospective earnings.
Sanderson received £11.5m and £150,000 is payable on 6 April. A further £100,000 is payable depending on receipt of customer payments by RBS. The cash will pay off borrowings and leave Sanderson with £4m in the bank which could be spent on acquisitions and investing in the existing operations. Sanderson had a pension deficit of £2.76m at the end of September 2011 and some of the cash could be used to reduce or eradicate this deficit. The dividend currently yielding 2.6% could also be enhanced.
Avingtrans (AVG) – £17m at 64p
Steady Growth globally
Despite the uncertain economic environment interims reported robust growth partly as a result of the international expansion. Revenues were up 20% to £20.2m driven by a strong performance in Aerospace and Industrial more than offset a slightly sluggish H1 from Energy and Medical. Gross margins remaining relatively stable and EBITDA increased by 26% to £1.8m, while adjusted EPS increased by 66% to 3.0p. Reflecting the board’s confidence in the outlook, the group expects to pay an enhanced dividend with the final results.
Avingtrans is a supplier of highly engineered components and services to OEMs in various end markets. It has three divisions: Aerospace (39% of H112 sales), Energy and Medical (32%) and Industrial (29% industries worldwide. There are a number of long-term contracts in place, such as the recently announced three year contract with Goodrich resulting from the strategic approach to supplying global blue-chip OEMs a policy that diversifies the risk of regional economic uncertainty. Profits for the May 2012 year-end are forecast to give a PBT of £2m for an EPS of 6.2p so a prospective P/E of 10x while yielding 1%. Moving forward a year the P/E drops to 7.5x and the yield increases to 1.6%.
After acquisitions and further CapEx debt has increased by £1m to £9m giving gearing of 37% and perhaps less room for further non-dilutive acquisitions.
Victoria (VCP) – £22m at 317p
Pulling the Rug
Carpet manufacturer Victoria is the subject of a shareholder revolt with rebel shareholders claiming the backing of 46% of the share capital wanting four directors appointed and the existing two non-executives, Nikki Beckett and Peter Jensen, removed from the board. The general meeting is on 6 March but shareholders have until 2 March to make sure their proxies are lodged in time to make sure their vote counts.
Former chairman and member of the founding family Ian Anton is heading up the rebel group. He is one of the proposed directors along with Geoffrey Wilding, Lady Katherine Innes Kerr and Sir Bryan Nicholson. Wilding is an investor in Australian flooring retailer Flooring Brands, a customer of Victoria in Australia, but he has stated that there is no intention to merge the two businesses. Members of the Anton family are backing the rebel’s move although there are some against it. The main family shareholders own around 30% although there are some others with stakes of less than 3% on top of that. New Fortress Finance is the largest single backer with 13.68%. Outside of the family the other main shareholder is Small Companies Dividend Trust. By replacing two directors with four new ones the rebels would have a four to three majority on the board and thereby have board control.
The rebels complain about the return on capital employed of Victoria but one of its quoted peers, such as Gaskell has gone bust . The relatively conservative way the company is run goes some way to explaining its continued existence and profitability. It is also argued that working capital requirements can be reduced.
Hardman & Co points out that privately-owned Abingdon Flooring has a much higher return on capital than Victoria but it also has higher gearing. Victoria has made mistakes, such as its Irish operations which have been closed, and it has failed to widen its range of floorcoverings until recently. Victoria says that it is considering the sale of its stake in its Canadian associate plus surplus property in the UK. It has also undertaken a process of seeking out potential purchasers of the business.The share price has risen since the current spat began but it is still trading at a 43% discount to net asset value of 565p a share.