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Hoodless Brennan Daily Small Cap News Flash Hexagon Human Capital, Optos, Sabien, SmartFocus, Geong Intl, Quarto, TEG and others
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Hexagon Human Capital (HHC, 11p, £2.43m) The shares have more than halved following a trading statement highlighting EBITAD will be below market expectations and as a result tit will not be able to meet a number of scheduled payments. Most serious of these is the agreed repayment schedules with HMRC (tax) where negotiations are under-way. Similarly the termination payments to the ex-CEO and the ex-CFO will not be met and the proposed re-scheduling has not yet been accepted. Negotiations with the banks are now taking place on a better footing, noting previously they had been based on “over-optimism in the past regarding the Group’s cash position”. The group states it is confident it will be able to trade out of the current situation. Existing shareholder should await developments, so HOLD.
Optos (OPTS, 95p, £66.1m), the retinal imaging company reported prelims to 30 September 2009. Total revenue fell to $97.2m (2008: $100.8m) due to lower focus on capital sales, adjusted operating profit fell to $8.5m (2008: $11.7m) and adjusted PAT dropped to $1.5m (2008: $4,6m). The group has been going through a restructuring period. Tighter working capital and lower capex led to a reduction in net debt to $46.2m (2008: 454.8m). Management expect revenues to grow to c.$101m in 2010 from growth in PP customers and targeting renewal rates in excess of 80%. Management are confident about 2010, Current 2010 consensus forecasts are PBT of £4.9m and EPS of 5,74p, which puts the stock on 16.6x. We continue to believe the stock is highly rated and are less optimistic about 2010 than management. We retain our SELL recommendation.
Sabien Technology Group (SNT, 27.5p, £8.7m), the manufacturer and supplier of energy efficiency technology has been awarded an initial order for £163k to fit its M2G product on 22 sites for the UK's largest retail bank (with 4,000 sites). The order is expected to deliver during this financial year and is the result of a successful pilot where energy consumption and Co2 emissions were reduced by up to 15% across a number of buildings. The order in itself does not look terribly exciting but the implications of the project gaining traction within the wider banking group and further blue chip backing look to be significant moves in the right direction. Orders so far this year amount to £581k a 58% increase on last year and 86% of the last full year’s revenue. We stated in our last write up that the company would need to double sales to achieve breakeven and that now looks a realistic possibility. We maintain our HOLD for now but this is becoming more interesting.
SmartFocus (STF, 11.75p, £11.02m) has been selected by The Rank Group to provide its multi-channel marketing software to build a unified customer view. No financials are released relating to the contract.
Sceptre Leisure (SCEL, 63.5p, £35.16m) has announced the successful renegotiation of its overdraft facility and its extension from £3m to £6m as a revolving credit facility with a £0.5m overdraft. Our concerns regarding the renegotiation led us to a Sell recommendation at 75.5p on 22/10/09, so with this news and a lower price we move the recommendation to a HOLD – noting the still relatively high prospective PER of 16.3x.
GEONG International (GNG, 43.5p, £16.46m) the AIM listed China based provider of Enterprise content management software and solutions announces interims to September 2009 with revenues up 26% to £6.5m (£5.2m), gross margin: 44% (41.7%). PBT up 179% to £1.18m (£0.47m). Diluted EPS up 137% to 2.61p (1.10p). The net cash position (prior to fundraising) was £2.4m (£0.5m at September 2008), boosted further by the October £2.2m. The order book looks healthy at £14.0m (£12.9m) and its trade receivables up 35% to £11.9m (£8.8m) which reflects the increasing level of work with China’s major companies that tend to be slow but reliable payers. Results were strong but the company is still guiding toward market expectations, which are 5.4p of earnings for the year to March. The caution is merely because the group is winning long-term contracts that incur start up costs - but the implication is that next year should be very encouraging. Having achieved just under half of this year’s expectation in H1 and with positive headwinds heading into H2 this looks undemanding, at under 8x P/E the stock is cheap. We maintain our BUY recommendation, last iterated at 45p on 26/10/09, with raised price target from 52p to 62p.
Staffline Recruitment (STAF, 69p, £14.65m) announced the acquisition of Peter Rowley Limited a training provider. In the year ended 31 July 2009 Peter Rowley had 36 employees c.£2m revenues and a PBT of £0.5m, with a net assets of £0.8m. The deal looks cheap, the company having paid effectively 2 years PBT up front and, depending on the performance ramifications, another 1-1.5 years deferred. All things being equal incorporating the 2 year earn out will probably equate to a maximum P/E of around 4x. Consideration comprises initial cash of £1m (payable from Staffline's existing banking facilities), deferred cash of £0.5m, payable in January 2011, and 2 further deferred payments up to a maximum of £1m (based on 50% of the profits achieved in excess of £0.5m in the next two year. The company’s principal Peter Rowley is to remain with Staffline for a minimum of 2 years. A nicely enhancing move for Staffline which broadens its offering and is demonstrative of its strength as a consolidator. At an undemanding 6x P/E we reaffirm our BUY recommendation.
Opsec Security (OSG, 20p, £10.68m) Interims to September 2009 saw revenues of £16.3m (£18.9m), underlying pre-tax profits of £0.23m (£0.85m) with EPS of 0.4p (1.4p). The revenues fell due to economic conditions and the previous loss of a Middle-eastern tax stamp contract, though the group is confident of its traditionally stronger second half with a healthy sales pipeline. Bran protection activities was hit hard in the first quarter by lower consumer activity but that showed signs of recovery in Q2. Banknote and high security documents sales fell 49% with the absence of Eastern-Europe orders, which are expected to resume soon and aid an H2 recovery. The 3DCD joint venture sales fell from £0.26m to £0.11m as its major customer prepared for a new product launch and the group also incurred a greater R&D spend ahead of the event. With a multi-year licence signed with the same customer so securing future income. The group ended the period with £9.0m of net debt, up marginally £0.3m from the year end level. The bounce back in forecasts for H2 is pretty extreme to achieve the year end forecasts of £1.4m PBT with 1.9p EPS – and that would put the group on 10.5x prospective PER. For the time being HOLD.
Catalyst Media (CMX, 68.5p, £19.28m) Interims to September saw revenues of £26.88m (£29.47m) with £1.03m (£0.10m) PBT 8.32m and 4.2p (1.2p) EPS. The group ended the period with net borrowings of £3.8m (£6.68m) and an NAV of £26.58m or 94.5p per share. With dividend income from its investment in SIS of £2.92m to be received in December the net borrowings will fall to £0.75m and NAV rise to 104.9p per share. With the new agreements with Arena Leisure and Northern Racing covering 17 racecourses extending visibility to at least 2016 and the 2010 New Delhi Commonwealth Games production facility contract secured we see immediate upside to the NAV – if not ahead. Short term BUY to 104p – though that will put it on a heady short-term PER.
Quarto Group (QRT, 100.5p, £20.55m) has announced it has limited exposure to the failure of Borders. With forecasts to December 2009 of £6.9m PBT with 25.4p the group is sitting on a 4x prospective PER, we maintain our BUY recommendation with a 125p price target.
TEG Group (TEG, 41.5p, £22.01m) has been appointed preferred bidder for Perth & Kinross Council’s mixed waste contract with a start envisaged for March 2010. The contract is fro a minimum of 3 years with an option to extend for another 2 years. The value of the contract will be a minimum of £0.47m a year up to a maximum of £1.05m. Another contract, with Taywell Composting, has been delayed by planning permission, though the group notes this will not affect group results as other projects are ahead of their time-table. Still a BUY with a 75p price target.
Porvair (PRV, 51p, £21.5m) reports FY09 trading to 30 November 2009 will be in line with PBT expectations of £1.6m. Net debt is expected to better than expected at less than £14.5m. The Microfiltration division has had a good year with a good near time pipeline. The Metals Filtration division underwent severe restructuring in Q2 following a drop in market demand by c.35%. The division has now returned to cash generation and profitability. The challenging economic climate will continue throughout 2010, but management are encouraged by its near term order book. With a 2009 EPS estimate of 2.5p, growing by16% to 2.9p in 2010, the group trades on 20.4x falling to 17.4x in 2010. The stock is fully valued, we retain our HOLD recommendation.
Sceptre Leisure (SCEL, 61.5p, £34.1m) has agreed a £6m revolving credit facility and a £0.5m overdraft with Lloyds Banking Group, to replace an existing £3m overdraft facility, which was due to expire on 31 December 2009. The group has reduced net debt £2.6m to £16.7m, in the 6 months to 31 October 2009. The funding will provide investors with some more confidence going forward and will allow the group to further satisfy demand and grow its estimate of gaming machines. Since our Sell recommendation on 22 October 2009 (share price 75.5p), the share price has fallen 19%. The stock trades on a 2010 PER of 15.8x falling to 13.1x in 2011. We believe the stock is fully valued. We upgrade our recommendation from a sell to a HOLD.
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