My contribution to economics

“My contribution to economics has been to urge the inclusion…of features of the economic system so obvious that…they have tended to be overlooked.”

Ronald Coase, died on September 2nd, aged 102.


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Last week …

corporate news was encouraging and the FTSE 100 closed up 2.1% at 6457; the FTSE 250 improved 2.9% while the AIM All Share at 765 increased 1.7%. In the UK, record PMI growth in July for Manufacturing, Construction and Services would if annualized equate to GDP growth of 4%. There is however an opposite cause and effect of good economic news being bad for markets because as the recovery builds the monitory support will be reduced. This has created the hedging game of predicting the speed and timing QE Taping. This will eventually become less unsettling as data increasingly shows a robust recovery.

This week …

UK Unemployment, currently 7.8% is reported for August on Wednesday. An analysis of the type of jobs being created, it is argued, shows that many are short term contracts so should not be included, by the BOE, when setting Interest Rates. Elsewhere, China report Production figures on Monday as does the EU on Friday. Also on Friday the US publish Retail Sales and Consumer Sentiment reports. The poison ivy of Syria is likely to be ignored until oil markets choke. Markets have a forward momentum.


Company Reports

Empresaria (EMR) – £15.8m at 35.5p

Efficiently Earning

Interims to 30th June, from this the international specialist staffing group, illustrated the success of the focus on improving operational efficiency. As PBT increased 21%, despite a 2% reduction in revenues, PBT was £1.7m, up from £1.4m while revenue at £95.6m was down from £97.8m Permanent Staff revenues improved while Temporary Staff revenues were 3% lower. The Rest of the World represents 30% of net fee income and performed well, while the UK was fairly stable it is showing improvement.  The markets in Continental Europe (cir.32% of revenue) was the most challenging, but cost controls and restructuring particularly in Germany helped offset lower net fee income. Empresaria operates in 18 countries with over 800 internal staff and has a strong focus on the development of emerging markets and specialty niche staffing sectors. The Group has focused on improving its operating performance, in particular with the recent investments in Singapore and Hong Kong, where losses in the previous two years have been turned into break-even. In Chile the results improved significantly following internal restructuring and a change in the client mix. Profits for the year to December are forecast at £5.4m for an EPS of 5.9p giving a prospective P/E of 6x while yielding 1.1%.


Cash generated from operations increased to £2.5m from £1.1m, although net debt increased to £8.9m from £8.5m, as a minority interests was acquired. The available banking facilities is  £29.4m.


Hydro International (HYD) – £15m at 104p

Waste water needs a new pool?

Hydro International is a provider of environmentally sustainable and innovative products for the control and treatment of water. Interims to June reported a slight fall in revenue to £15.1m (£15.3m) helped by adjustments the PBT increased 29% to £490k. The reduction in revenues from major Thames Water contracts nearing completion are yet to be replaced and will cause earnings to fall. There is however a growing order intake in the Americas Wastewater division, including $3.6m Dallas contracts and the first major orders secured in Saudi Arabia with the award of £2.4m storm water storage contracts. The new CEO’s strategic review is likely to focus on reducing the cyclical environment within certain sectors and developing new business to reduce the uncertainty caused by major projects. This could include looking for strategic partners and acquisitions.  Hydro use a range of technologies including award-winning advanced vortex technology. Outside of its core North American and UK markets the Group has a growing presence in the Middle East, Mexico, Brazil, Russia, European Union, Malaysia, Singapore, Korea, Australia and New Zealand. Profits for the December 2013 year end are expected by the management as a result of the Thames Water contract falling away, to be ‘materially’ lower than 2012, and weighted significantly to the second half-year.  The forecast is for a fall to £1.7m from £2.3m for an EPS of 8.1p giving a prospective P/E of 12.8x while yielding 3.3%.


Cash generated from operations was £1.6m compared to a £0.9m outflow while net cash fell to £2.9m after making deferred payment and a capital repayment. The NAV is £14.0m of which only £4.2m is goodwill.

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