“The UK will be the fastest growing country in Europe for at least the next five years.”
JP Morgan’s Market Strategist
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Last week …
… the FTSE100 closed at 6550 which was 0.4% lower. The FTSE250 improved 1.8% with the Aim All Share 1.2% higher at 827. GDP in the UK was confirmed at 0.8% for the 3 months from September. There was a slight decline month-on-month in Consumer Confidence as measured by the GfK Index for the first time since 2011, perhaps due to confidence fatigue. The US Service Sector PMI jumped to 57.1 from 50 perhaps a statistical anomaly.
This week …
… the developing UK recovery will continue with PMIs in Manufacturing, Constriction and Services. The BOE’s no change Interest Rate Decision is on Thursday. Also on Thursday the Chancellor gives his Autumn Statement where the economic priorities can be positively reset. Eurozone GDP is reported on Wednesday and its 0.1% growth is fragile. In the US, GDP is on Thursday and the dial that tapers QE is about be turned and it is hoped that the growing economy should have established corporate growth. The sequence of US new market highs in the large caps may not yet be adjusted to rational growth expectations. We expect a moderate Xmas Rally in smaller companies.
Pilat Media (PGB) – £40m at 65p
The 3rd qtr results highlighted the continuing recovery and profits growth from this media business management software company. Revenue increased 18.4% to £6.29m turning a comparative loss into a profit. For the 9 months so far for the year to December 2013, PBT is £0.94m which is 38% ahead and most of the year’s profits will be booked in the last qtr. A new contract with IBMS-Express has been signed which is the sixth new contract this year, while existing clients are commissioning new projects. The sales pipeline includes additional opportunities that may be converted in the coming weeks and months. The capacity to service this growing demand is being increased with the hiring of delivery staff such as business analyst, software engineers and quality testers. There is relatively small but recurring high margin revenue stream from a Cloud based SaaS Business Model. Pilat Media are seeking appropriate acquisitions to increase the functional and geographic reach of its product range. Profits are forecast at £2.5m for the current year that gives a prospective 21x.
Cash generation increased to £1.78m and net cash is £12.6m. This gives an ample acquisition war-chest or would even allow the first dividend to be paid.
Sanderson Group (SND) – £38m at 74p
Finals to September from this software and IT services business specialising in multi-channel retail and manufacturing showed increased turnover, gross profit margin and PBT. In a ‘toughish’ environment turnover improved a marginal 3.4% to £13.8m, gross margins increased to 87.6% from 83.6%, while PBT at £1.9m grew from £1.48m. Sanderson provides comprehensive IT solutions to businesses operating in the ecommerce sector, wholesale distribution, cash and carry and retail stores and the contracted order book grew to £1.94m. The emphasis for growth is on further developing a range of solutions for ecommerce as well as for the food and drink processing sector, while mobile commerce solutions are being developed for all its markets. Sanderson’s aim is to provide customers software and services that achieve cost savings and to make business efficiencies utilising the latest technologies. It is a ‘Value for money’ proposition which demonstrate a good return on investment. Profits for the September 2014 year end are forecast at £2.6m to give an EPS of 4.3p and a prospective P/E of 17x, while yielding 2.4%. Once recent acquisitions of Catan Marketing, PRIAM and One iota are successfully integrated further deals seem likely.
Cashflow from operations improved to £1.78m and after a £3.5m placing at 55p in October net cash is around £4.5m.
Omega Diagnostics (ODX) – £17.3m at 15.88p
Interim revenues to September were flat at £5.59m, profits however increased 14% to £164k. The increased sales of the main food intolerance tests were offset by continued decline in older products and a drop in the sales of bacterial tests because of a customer’s problems. Sales improved from the new Indian distribution business by around 40% to £233k. Visitect CD4, which tests the immune status of HIV patients is set to be launched. The low cost CD4 product can test a finger prick blood sample and provides a result in 40 minutes, which is faster than rival products. The IDS-iSYS allergy diagnostics system could be launched next spring. This depends on the development of a suitable number of allergens. There are 13 at the moment with a further eleven in development and round 40 are required for a launch which is expected to be in 2014. Each of these product could cause a jump in profits. Profits are forecasts to March 2014 at £1.0m, then jumping to £3.4m in the year to March 2015 mainly due to Visitect CD4, but with IDS-iSYS following, which give a prospective P/E of 14x dropping to just over 5x.
Cash flow is positive and there is net cash of just over £2m.