A 7% Unemployment rate requires 750,000 net new jobs to be created and could be three years away.
By keeping Interest Rates at 0.5% there is an inflation risk.
Last week …
… the apparent predictability given to UK Monetary Policy created uncertainty. The FTSE100 was down 1% to 6583, the FTSE 250 unchanged and the Aim All Share at 738 improved 2%.The BOE correlated Interest Rates to a 7% Unemployment Rate which currently stands at 7.8%. The recovery is gathering momentum particularly in construction and the service sector. Chinese Industrial Production grew in July by 9.7% up from 8.9% which was faster than expected. The Aim Market out-performance may have been helped by its new attraction of qualifying for ISAs.
This week …
… on Wednesday, the July UK Unemployment Rate is reported. This follows the CPI and RPI Inflation Reports on Tuesday with Retail Sales on Thursday. Elsewhere German GDP is reported on Wednesday with US Unemployment on Thursday. The flat trend is likely to broken with bouts of optimism.
Share (SHRE) – £30.2m at 21p
Share, the owner of execution only broker The Share Centre, had a strong first half of 2013 and it is set to benefit from the recent change that enables AIM shares to be put into Individual Savings Accounts (ISAs) helping it to continue to gain market share. Revenues were 4% higher at £7.3m but the underlying growth was 8% because Share has shed its non-core activities, such as funds administration. The growth came from dealing commissions which were 21% ahead. Pre-tax profit improved from £600k to £693k. Relative to its peers Share has done better in terms of growth in commissions. The broker’s market share has improved from 6.56% in the first half of 2012 to 7.07% in the latest six month period. Seven years ago the broker’s market share was 4.61%. Trading in AIM shares accounts for nearly one-third of The Share Centre’s share deals. There is anecdotal evidence that trading in AIM shares has already increased. “We saw significant uplift in trading in AIM shares on Monday (5 August) as well as an increase in the number of ISAs being opened”, according to chief executive Gavin Oldham. Share should also benefit from proposed share issues by Royal Mail and the next tranche of Direct Line plus the sale of some of the government’s shares in Lloyds. Profits for the December 2013 Year-end are forecast at £2.1m for an EPS of 1.2p and a prospective P/E of 17.6x while yielding 2.5%
There was £12.4m in the bank at the end of June 2013 and stripping out cash held in trust for clients the figure is £11.7m. Share would like to secure a transformational broking acquisition that can be consolidated into the company’s existing infrastructure.
Pennant International Group (PEN) – £22.2m at 84p
Interim’s to June reported a 50% EPS jump and a 33% increase in dividend. The shares were 82p a month ago. Pen provide integrated logistic support solutions, products and services, principally to the defence, rail, aerospace and naval sectors as well as Government Departments. Revenues improved 38% to £9.8m with profits of £1.14m up 51% with EPS up to 3.31p. A contract worth £16m over 5 years was won from BAE Systems Australia as well as a £5m five year contract for support of training aids for UK Ministry of Defence. New business has also been won for a virtual Reality Parachute Flight Simulator for Singapore Defence. The order book provides good visibility through to 2014 and beyond. During the period there has been significant ongoing activity with a broad global spread of potential customers on a number of significant opportunities, particularly in the defence and rail sectors. Profits for the December year-end are forecast at £2.25m on revenue of £19.5m, which gives and EPS of 6.6p so a prospective P/E of 12.8x while yielding 3.2%.
Cash was used in funding growth so net cash fell to £1.17m from £2.7m but there are no borrowings.
Cyprotex (CRX) – £14.4m at 6.5p
Cashing-up for growth
A £7m open offer underwritten by Harwood Capital LLP perhaps highlights the optimism that the development stage of this specialist ADME-Tox Contract Research Organisation is moving fully into commercialisation. The circular will be issued shortly and is likely to include loan notes . The interim’s to June reported a 22% increase in revenue to £4.5m with EDITDA at £703k compared to £83k, and cash generation of £590k from a negative outflow. Cyprotex provides services to pharma companies that enable them to choose the compounds most likely to be effective and assess their potential toxicity. The core capabilities include high quality in vitro ADME screening services, mechanistic toxicology and high content toxicology screening services and predictive modelling using PBPK and QSAR techniques. New service ranges have been delivered such as for determining hepatotoxicity and a new cardiotoxicaolgy assay. There are 78 new clients signed up in the last year including the US Environmental Agency on a multi-year and million dollar contract with expansion opportunities in Asia opening up. A Research agreement with Pfizer adds creditably and reduces R&D costs while £1m was invested in up-grading instrumentation. The new funds will be to invest in the US to give a significant increase in operational capacity while there may also be acquisition opportunities particularly in Europe. Revenue for the December 2013 year–end is forecast at £10m and a PBT of £0.7m- clearly however it will be the success of the open offer and the careful application of these funds that will determine EPS growth over the next two-three years.
There is net debt of £0.4m but the present underwritten £7m fund raising gives a ‘war-chest’ for accelerated organic and acquisitive growth.
Mobile Tornado (MBT) – £38.8m at 21p
Instant messaging technology for mobile developer Mobile Tornado is cleaning up its balance sheet so it is in a better position to take advantage of growth opportunities. A placing will raise £4m at 20p a share and £4m of debt owed to InTechnology is being swapped for shares at the placing price and the other £2.7m owed to InTechnology will be swapped for preference shares. Mobile Tornado has signed deals with tier 1 mobile operators in France, Italy, India and the Americas. This covers millions of subscribers but it is too early to assess how many of them will take up the service. At the moment the majority of revenues come from installing the technology. This generates around £600k with one-third from hardware and the rest from professional services. The long-term business plan is to generate recurring revenues. In the first half recurring revenues were 27% ahead of the same time last year. The monthly run rate is 34% ahead of the level at the end of 2012. There should be launches with operators in the second half which will help to boost recurring revenues although it may not show through significantly until next year. There are other potential customer bases for the technology including homeland security.
The consolidation of the £6.7m of debt owed to 49.9% shareholder InTechnology combined with the £4m raised in the placing will help to finance further development and working capital. Mobile Tornado is not expected to become profitable until 2015.