The Dow Jones is at All-Time high having topped 15,000 and remains bullish as company earnings growth is supported by the Fed’s money printing.
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Last week …
… the prospects for stagflation died. As Sir Mervyn King, the ‘soon’ to retire Governor of the BOE stated for the first time since the financial crisis, that prospects for growth were stronger with a weaker inflation outlook. The FTSE 100 improved 1.5% to 6723, the FTSE 250 increased 2.6% while the Aim All Share at 727 was up 1.2%. UK GDP growth for 2013 could be above 1% although unemployment increased to 7.8%. Eurozone GDP shrunk by -0.2% which was better than expected while the US Consumer Sales improvement of 0.1% also beat expectations.
This week …
… on Tuesday Inflation should be reported to be waning. On Wednesday the BOE Minutes could start becoming less predictable a d declining Retails Sales could be reported. UK GDP should be holding at 0.3% growth when it is reported on Thursday. Elsewhere on Thursday EU Consumer Confidence is reported as well as US Unemployment. Markets are more likely to be driven by corporate events and should remain positive.
City of London (CIN) – £12.3 m at 61p
Early Stage/high returns
The reincarnation of this former PR Company and then investment fund was highlighted by its appointment at the beginning of the month to advise for a £5.6m litigation fund. CIN has evolved into a niche SME financial services group with specialist skills in clearly identifiable markets where banks fear to tread, mainly early stage. The latest deal gives the litigation fund £30m capital available to invest in commercial litigation, complex disputes, international arbitration and divorce litigation. Each case is negotiated on a bespoke basis and the fund may provide all or part of the legal expenses, disbursements and other costs in return for a multiple of its investment (typically ranging from 2.5-3.0x) or a percentage of any award if the case is won. The other markets targeted are Trade funding, Credit Asset Management, Professional Funding. Each business requires a specialist skill and offers a diversified range of returns. The SME businesses takes an equity participation and focuses on particular borrower needs and is benefiting from banks’ lack of appetite to lend. Losses of around £0.5m are forecast for the year just ended to March 2013 but should soon be trading profitability.
The portfolio is being sold to release cash to invest in the funding platforms and was last valued at £2.8m mostly in around eight resource stocks. Last year £1.3m was raised at 70p a share.
Lombard Risk Management (LRM) – £25.6m at 11p
Good Reasons to be Cheerful
Regulatory financial software, provider Lombard Risk Management managed to achieve expectations even though the European Banking Authority delayed new regulatory reporting requirements. A strong second half meant that revenues increased 31% to £16.8m in the year to March 2013 and pre-tax profit rose from £2.49m to £3.9m for an EPS of 1.63p and a historic P/E of 5.4x. These reporting requirements will need to be satisfied during the coming year and recurring revenues already provide a strong base for 2013-14. There is a record order book and potential revenues of nearly £14m for this year before additional software sales. Lombard is looking for partners to help it enter additional markets and it has appointed a director to focus on this. The European regulatory reporting requirements will contribute this year, as will the proposal that UK banks should have to comply with FINREP. Transactional reporting software sales will be expanded into Asia. There are also plans to sell additional modules for the COLLINE collateral management software. The challenge the management report will be to keep up with demand. Profits for the full-year to 2014 are forecast at £4.6m for an EPS of 1.7p and a prospective P/E of 6.5x while yielding 1%.
Last year’s net debt was £1.87m and after a £1.5m share issue at 7.5p and as the company is now cash generative there is net cash of £194k.
African Eagle Resources (AFE) – £2m at 0.3p
A depressing update and a 61.3% fall in price, as it was announced that there is no further funding currently available for its nickel project. In April 2012, £9.5m was raised at 4p a share and in May 2013 cash was £1.15m which is enough to ‘keep’ going for 6 months while projects are sold or closed. The search for a Strategic Partner continues for its Dutwa nickel project in Northern Tanzania. The resource drilling programme was conducted between 2008 and 2012. The discovery of visible sulphide mineralisation and the strong values achieved should be potentially very exciting. The Dutwa’s laterite deposits were significant and the presence of nickel and PGEs in sulphides in the strata immediately underlying these deposits is further evidence of the strength of Dutwa overall. African Eagle without development funds is restructuring and the Dutwa nickel project is on hold, although it will retain the main nickel asset licences. The end of the road is November 2013.