We will go right up to the point of extreme idiocy but will not cross it

 “The markets are not going to fall apart. We will go right up to the point of extreme idiocy but will not cross it”. 

WARREN BUFFETT 

 

Last week …

markets were lower with the FTSE 100 at 6453 down 0.9%, the FTSE 250 minus 0.6% and the Aim All Share at 782 falling 1.7%. A US debt default catastrophe just could not happen, so can be brushed away until the new seemingly critical date of 17th October. Manufacturing results were reported with growth in the US but stable in the Eurozone. Eurozone unemployment was unchanged at 12% while Italian Government managed to survive a vote of confidence.  In the UK House prices increase by 0.3% in the last month to a three year high.

 

This week …

UK Industrial and Manufacturing Production figures are reported on Wednesday. The BOE Interest Rate Meeting, which now subtlety sets forward expectations on inflation and employment rates, is on Thursday. Eurozone GDP is on Monday with German industrial production on Wednesday. US Jobless and Confidence reports are on Thursday. Markets may drift up slightly but a flat week would be more reasonable.

 

Company Reports

Parallel Media Group (PAA) – £2.58m at 5.25p

Singing a new song?

The interims to June from this mainly sports marketing group continued the series of surprises; this time with a leap ahead in profits. Turnover increased by 39% to£7.63m with PBT at £0.657m from just £0.09m the EPS was 3.1p compared to 0.9p. The first half is traditionally stronger and five new events were delivered. PAA maintain strong golf links with Asian championship golfing events but have now established music festivals into Hong Kong and Singapore including Justin Beiber who is booked to perform in Seoul on October 10th. The Seoul office is mainly responsible for the Ballantine’s Golf Championship which will be re-launching in 2014 in partnership with the European Tour, but revenue from music should quickly feed into profits. These new music concerts are being developed and could eventually even-out the seasonality. Although set-up cost are being capitalised.  A new Non-Executive Director has been appointed who had a private equity background which may help lead to improving earnings and corporate visibility. Profits are forecast for the full year to December at £0.48m which is lower than the first half due to second half losses as there are fewer tournaments.  This gives EPS of 0.8p as there is little tax payable because of around £15m of tax losses.

Financials

There was £256k cash generated from operations although current liabilities at £4.5m out-weight current asset by 1.3x or £2.6m. Since the year end a total of £1.29m has been raised (less around £150k costs) with £0.5m as equity the balance as debt conversion at a ‘headline’ price of 5p.

 

Rethink (RTG) – £8.9m at 7.63p

Managed with Talent 

Interims to June were reported last month showing increased revenue and a return to profitability. Revenues improved 27.4% to £56.2m while PBT was £0.53m compared to £0.3m with EPS at 0.37p (0.27p). There are currently three divisions; ‘margin’ improvement being the emphases in the traditional recruitment division were revenues improved 34%. The Talent Management and Technology Services divisions fared less well but are the potential raising stars. It remains the board’s strategy to transform into a talent management company within three years. The target areas are Business & Technology, Pharmaceutical and Life Sciences and markets are UK, Europe, US, Middle East and Asia Pacific. The restructuring continues and the business will be simplified into Transactional Services characterized by lower margin and less predictable income and Talent Management Contracts with longer term relationships and the potential for higher margins. The previous CEO left the Board in January and the former FD became CEO the board is likely to be strengthened as acquisitions are being sort.  Profitability should continue during the restructuring phase and if £0.9m is made to the December 2013 year-end the prospective P/E is around 10x.

Financials

No interim dividend is being paid and cash flow absorbed by operations increased by £0.8k. The group entered into a new £20m invoice discounting facility with Bank Leumi ABL and the board are confident that these facilities are adequate to support its working capital demands. There is no structured debt.

 

Dillistone (DSG) – £18.1m at 99.5p

Growth Drive

Interims to June showed that this recruitment software provider was moving ahead.  Revenues increased by 6% to £3.81m  of which 63% is reoccurring, while pre-tax profit improved 17% to £817k with EPS  up 11% to 3.69p. Since June, FCP Internet which supplies Evolve software used in the permanent recruitment market was acquired for £0.75m with a maximum differed  payment of £1.2m. It has a SaaS model and made a profit of £170k on revenues of £940k in the year to October 2012. This acquisition is immediately earnings enhancing and will be merged with Voyager Software, which is the previous acquisition. There is scope to sell Voyager software outside of its core markets of UK and Australia and the recent product development means that the software range is ready to be sold as an upgrade and to new clients.  For the December year–end profits are forecast at £1.8m for an EPS of 7.6p which gives a prospective P/E of 13x while yielding 3.8%.  The company is well set to pursue its organic and acquisitive growth strategy.

Finance

The business is cash generative and there was £1.9m in the bank at the end of June 2013 less the acquisition cost. Further acquisitions could be funded.   

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