Miners and Investors face a bottomless pit of pain

Market Snapshot:   

OMIP 8.5p – Increasing Volume

CLL 99.5p- Valuable Marketing

CLST 51.5p-Slower than hoped

OPM 68p- Lending growth


 

This week …

UK Gross Domestic Product (GDP), is reported on Tuesday and  is forecast to increase by 0.7%, which is up from the first quarter’s 0.4%. The implied annualised rate of 2.8% could reflate rumours of the first Interest Rate rise for seven years. Consumer Confidence is reported on Friday and it’s likely to be strong.

The economic picks from around the world would be:

  • US Consumer Confidence on Tuesday, an FOMC (Federal Open Market Committee) Interest Rate meeting on Wednesday and GDP on Thursday.
  • -The Eurozone have an economic statement on Thursday followed by  its unemployment report on Friday.

Last week …

the Aim All Share  is virtually unchanged at -0.05%, the FTSE 250 lost -0.76%, while the FTSE 100 at  6,579 a fall of -1.74%.

A mixed picture in the UK; with the housing market heating up, as mortgages approvals are at a 15 month high, UK Car Manufacturing was at a 7 year high but Retail Sales grew by a disappointing 0.2%. The Greek turmoil put some of the members of the MPC off from voting for an interest rate raise, but clearly some fingers are twitching.

In the Eurozone GDP growth slowed slightly as did Manufacturing PMIs.

Copper, fell to a six year low after concerns of weaker Chinese growth where the Manufacturing PMI fell to 48.5 showing contraction. The Bloomberg Commodity Index fell by 3.3% on the week to its lowest level since 2009.

It’s a twilight time as the markets start discounting interest rates rises in the US followed by the UK.  We expect UK Smaller Caps to continue to outperform as the summer stupor drowns news flow.


 

Pause for Thought

Miners and Investors face a bottomless pit of pain. The Sunday Times states that the China ‘slump’ in demand for raw materials of all kinds is bad news for big mining companies. Anglo American shares have halved in the past year and are not alone in laying off staff.


 

1 Recommendation 4 U:  Wednesday 29th July

Preview ‘Lite’

Share PLC (LES:SHRE): 31.5p, Mkt Cap £45m

Interims on Thursday

A founding director sold nearly 11m shares at 33p.  The Share Centre which is an independent stockbroker increased its market share to 8.35%, despite first quarter trading volumes being 11% lower due to election concerns.  It seems to be fairly valued.


 

One Media IP Group (LSE:OMIP): 8.5p ( 8/9), Mkt Cap: £6m

Next Results:  Report’s Interims on Monday.

A recent acquisition leaves OMIP well placed to benefit from the growth in music and video streaming, a slight fall in profits this year may lead to a strong recovery.

The acquisition comprises over 4,000 classical recordings and all corporate logos, registrations and distribution rights. It was signed on 2 July 2014 for a total consideration of USD1,600,000 which has been entirely satisfied from existing cash resources. The new Apple Music initiative supports the company’s view  that streaming will be the future of music monetisation and despite the ‘press’ surrounding the various ‘free periods’ being offered to new consumers of the service, in the longer term will add value to the One Media catalogue as the service gains traction.

The operation looks to exploit its catalogue of over 250,000 music tracks and over 7,000 hours of video by recompiling the content for sale through over 600 digital music and video stores worldwide. The focuses is on music performed by well-known artists from every genre, including; pop, rock, reggae, R&B, children’s music, karaoke, jazz, soul, blues, rap, hip-hop, gospel, world-music, plus stand-up comedy, spoken-word and over 1,000 hours of classical music. The Company has a team of Creative Technicians who digitize the content, create the metadata and re-compile and prepare the digital music & video releases using bespoke in-house software. Profits for the full year to October 2015 are forecast at £0.6m on turnover of £3m which gives an EPS of 0.54p for a Prospective P/E of 15.7x while yielding 1.3%.

Financials

There is no long term debt and at the finals net cash was £1.3m. The current ratio at 0.9x is low due to the acquisition of contends and rights. The next asset value is £4.1m.

Trading Strategy

Content is king in this space and new streaming markets will increase the volume.


 

REVIEWS

Cello (LSE: CLL): 99.5p (98p/101p), Mkt Cap: £84.7m

Next Results: Interims September

Marketing services provider Cello is trading in line with expectations but interim operating profit will be slightly lower.

The health marketing services business continues to do well but the overall performance will be held back by the non-health business Signal, which will not have a repeat of a one-off contract from last year and is investing in a new US operation. The Health division continues to build upon its strong position in the US and it has won a contract worth $7m a year. That is unusually high but Cello Health is winning larger projects.

Although the first half will be flat at best, the full year pre-tax profit is still expected to improve from £9.4m to £10.4m – a small upgrade. There could be a VAT payment of around £3m in the second half, which should cover the previous underpayments. Even so, net debt is forecast to fall from £7.2m to £5.3m.

Trading Strategy

The shares are trading on less than 12 times prospective 2015 earnings, which is relatively modest for a company with a strong market position in health marketing services that could make it a potential acquisition target.

Original recommendation: 89p/92p

 

ClearStar Inc (LSE: CLST): 51.5p (50p/53p), Mkt Cap: £18.7m

Next Results: Interims September

A poor trading statement by employment screening services provider ClearStar Inc (LSE:CLST) hit its share price. The disappointing outcome is mainly due to higher costs which management believes will help ClearStar to grow in the future. This means that ClearStar will not make a profit this year and the profit forecast for 2016 has been more than halved.

The company says that interim revenues have grown by 43% to $7.5m, however, this rate of growth is slower than the increase that had been forecast for the whole of 2016. Even allowing for better trading in the second half it would be difficult to achieve revenue expectations. On the plus side, gross margins are already 60% which was the expectation for the full year.

ClearStar has been building up a UK screening business and has signed a contract to licence its platform to an EU-based company based outside of the UK.

Based on the downgraded profit forecast of the equivalent of £1.45m for 2016, the shares are still trading on nineteen times 2016 prospective earnings.

Trading Strategy

The trading statement was a big disappointment even though the company tried to swamp the bad news with more positive statements. ClearStar has the ability to become a highly profitable business but the achievement of that has been delayed.

Original recommendation: 66p/70p

 

1PM (LSE: OPM): 68p (66p/70p), Mkt Cap: £25m

Next Results: Interims January

Small business finance provider 1PM (LSE:OPM) reported a pre-tax profit of £1.62m for the year to May 2015, which is a touch higher than the £1.6m forecast by house broker WH Ireland, which was upgraded less than two months ago. Revenues were 31% higher at £5.5m while bad debt provisions fell from 1.29% to 0.85% of the loan portfolio. The maiden dividend is 0.35p a share and the shares go ex-dividend on 6 August.

New loan business written during the year increased by 49% to £16.1m. The lease portfolio was one-quarter higher at £25.2m and the business loans portfolio was built up from £480,000 to £5m. The HP portfolio was worth £200,000 at the year end. The plan is to build a total portfolio worth £75m in four years.

Monthly sales have doubled since the previous financial year with the newer products still in an early stage of development. Further financial products are likely to be launched. There is also potential for the acquisition of loan books or businesses, which could supplement growth.

A profit of £2m is currently forecast for this year with the rate of growth potentially held back by additional office and staff costs. The shares are trading on just over fifteen times prospective 2015-16 earnings and there should be scope for profit upgrades during the year.

Trading strategy

1PM is focused on small businesses which find it difficult to raise finance so there is plenty of potential for further growth over the coming years.

Original recommendation: 56p/59p

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