When QE is reversed all risk assets will fall as borrowing cost raise

“When QE is reversed all risk assets will fall as borrowing cost raise”.



Last week …

calamity was adverted as the US debt ceiling was lifted until February 7th 2014. The FTSE 100 improved to 6622, a rise of 2.2%, the FTSE 250 was up 2.8% while the Aim All Shares at 799 increased 1.6%.  In the UK, key indicators were unchanged, Inflation (CPI) at 2.7% and Unemployment at 7.7%, while UK Sales volume grew faster than expected at 0.6%. Ernst at Young followed other forecasters by upgrading UK GDP growth to 1.6% and 2.4% next year.


This week …

Unemployment figures from the US are reported on Tuesday. If it reduces below the current 7.3% it is likely to accelerate the financial markets anxiety of QE tapering. There has been five years of monetary support increasing to $85b a month, if a contraction in GDP is to be avoided, QEs may need to be delicately scaled back.  US Consumer Confidence is reported on Thursday.   UK GDP figures are reported on Friday and it’s improving fast so the BO(R)E Interest Rates Minutes on Wednesday may hint at a policy change. Markets could be flat this week.


Dotdigital Group (DOTD) – £59.6m at 21.5p

Maturing Growth

Over the last 12 months DOTD shares have improved 59%. The finals to June 2013 from this provider of intuitive email Software as a Service (“SaaS”) and managed services to digital marketing professionals showed growth despite the closure of the web design division  Turnover increased by 16% to £13.8m while PBT was  18%  up at £3.3m for an EPS of 1.32p giving an historic P/E of 16.2x . Net Cash was £6.1m while operations generated £3.3m of cashflow. This allowed a maiden dividend of 0.1p to be easily paid and so a significant stage in its growth cycle has been passed. As economic confidence grows clients such as BBC Worldwide, BP International, ITV, Odeon and Michael Page are increasing budgets and as DOTDs gross margin is 92% profits should also increase. A key product dotMailer has 70,000 users in 150 countries with 300m sends per month. Its market is set to be accelerated in the US having recently opened a New York office where further product and infrastructure investment is being made. The strategic focus is on organic growth although acquisitions will be considered. Profits for the June 2014 year should show around 15% growth for a prospective P/E of around 14x.


The maiden dividend gives a 0.5% yield and covered over 13x by earnings allows plenty of room for growth. The Directors have taken the opportunity sell shares have reported strong institutional demand.


Tristel (TSTL) – £12.2m at 30.5p

Starting to Clean-up

Infection control products supplier Tristel seems to be recovery from its disruptive first half. In the year to June 2013, revenues dipped from £10.9m to £10.6m but there was a sharp recovery in the second half. A loss of £1.75m was reported after £2.23m of non-recurring costs which were mainly non-cash write-downs. The dividend has been cut from 0.62p a share to 0.4p a share.  Growth in the core wipes businesses has offset most of the decline in endoscopy cleaning products revenues and the ending of contract manufacture. The endoscopy revenues fell from £2.98m to £1.25m, while £1.4m of contract manufacturing revenues were lost. After establishing it own brand bBoth animal health and contamination control revenues grew strongly from a low base. There was also strong growth in international revenues. The Newmarket manufacturing facility has been increased from 22,000 square feet to 50,000 square feet.  Sales of Tristel Fuse , used to disinfect cystoscopes may improve after a report showed that it is more cost effective than its rival Cidex OPA. Profit to June 2014 are forecast to recover to £900k giving an EPS of 1.8p and a prospective P/E of 17x with a 2% yield.


Net cash was £509k at the end of June 2013 and this could rise to £900k in a year’s time.


Fusion IP (FIP) – £74.4m at 68p

University Challenge

University commercialisation company Fusion IP reported a loss in the year to July 2013 but the value of its investments has increased. There were net gains on investments of £1.11m. Five investments gained in value due to follow on fundraisings, while three investments were written-down. There were also gains on disposals of £1.37m, which reflect the reduction in shareholdings in vaccines developer Absynth and fault current limiter developer FaultCurrent to below 50%. The NAV is £52.1m a 42.8% premium to its NAV. Fusion IP has yet to reap the benefits of its recent tie ups with University of Nottingham and Swansea University.


Cash in the bank has risen to £21.3m after the £20m placing at 55p in March.  

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