Alterian (ALN, 168.5p, £98.68m) Trading statement for the year ending March 2010 confirms results will be in-line with market expectations. Revenues have risen some 14% or 10% on a constant currency basis. Operating profits have risen 25% which helped year end net cash rise 30% or so to £11m. The shares have fallen well below the 191.5p level when we took the shares to a Hold. The lower price and confirmation of trading conditions leads us to return the shares to a BUY with a 196p target.
Andor Technology (AND, 215p, £63.72m) has announced the acquisition of the trade and assets of Photonic Instruments Inc. and Imaginative Optics Inc, collectively referred to as Photonic, for $5m cash and 156,627 shares (approximately another $0.5m). There is a deferred earn-out of up to $1.95m dependent on an agreed order intake target over the next 18 months. Photonic is a developer, manufacturer and supplier of laser and lamp based illumination and ablation systems for use in microscopy. Photonic currently operates out of two US locations but its activities will be transferred to Andor’s Belfast location with sales via Andor’s existing US infrastructure. The management and founders will remain with the business which reported revenues of $3m and operating profits of $0.8m. With Andor sitting on some 18x this year, falling to 16.2 times, based on current forecasts, ahead of this acquisition the shares are well rated. The acquisition will increase EPS and the group has confirmed trading so far is ahead of expectations – so we will see underlying guidance increase. We see forecasts increasing by some 20% and raise the recommendation to a BUY with a 249p price target.
ATH Resources (ATH, 75p, £30m) warned of a slight shortfall in profits for the 6 months to 4 April 2010 owing to a delay in the start of the tip washing and reclamation project at Langton, Nottinghamshire. The project will be delayed by around 3 months for the finalisation of the planning with Derbyshire and Nottinghamshire authorities. The delay is expected to reduce FY production by around 50k tonnes. This setback demonstrates what we have highlighted as a key risk i.e. with a relatively short life span of its main properties future pipeline/planning is a key challenge. However, management believes that the issues are now resolved and that there will be no net loss in terms of project value with a long term contract for the sale of production said to be well advanced so any fall out is likely to be in timing. Sales volumes for the 6 months were c.775k tonnes 8% lower than the comparable due to the extremely wet weather in autumn 2009. The Group expects to make up for delayed production in H2 and for FY production to be at similar levels to 2009 at c.1.8m tonnes. H1 margin will be lower than reflecting weather affected sales volumes and operating costs. Average selling price improved to >£43 per tonne in line with expectations. Proven coal reserves increased by 0.5m tonnes. Progress to secure planning consents for the Netherton and Laigh Glenmuir extensions is ahead of schedule, if positive, these should increase proven reserves by between 3 and 4m tonnes. Proven reserves stand at 4.4m tonnes with total reserves of 7.4m. The price correction looks an overreaction. We maintain our Buy but reduce our price target to 95p (110p, 28/1/10) reflecting the potential impact of margin pressure on the earnings outlook. BUY
Bglobal (BGBL, 44.25p, £35.00m) has won UK regulatory approval for its Smart1 meter. The company remains a firm favourite and one of our “Thoughts for 2010” research document with a 75p price target. BUY
Bond International Software (BDI, 68.5p, £22.66m), the software provider for international recruitment and human resources industries, reports prelims to 31 December 2009. Revenues remained relatively flat at £32.5m, with recurring revenues up 11% to £17.4m (2008: £15.4m). However, a shift in the sales mix of licenses and services, saw adjusted pre-tax profits and EPS decline by 58% and 60% to £1.3m (2008: £3.1m) and 3.79p (2008: 9.44p) respectively. Net debt stood at £3.0m (2008: £0.8m). The renewal of the bank overdraft and revolving loan facility for £6m for a further 3 years provides the group with headroom. The 50% dividend cut to 0.8p (2008: 1.6p) was a negative surprise, sending a signal of deteriorating profitability. The challenging environment in the staffing industry in 2009 has encouraged the group to diversify into other areas of Human Capital Management. The latter combined with better trading conditions in the staffing industry provides management with confidence regarding prospects for the group. We continue to believe this year will be tough, but expect some recovery. The market forecasts 2011 PBT, EPS and DPS of £2.3m, 4.7p and 1.8p respectively. We believe there is scope to slightly downgrade estimates especially the dividend. The stock trades on a 2010 rating of 14.5x, an unwarranted premium to the software sector on 9.5x. We reiterate our SELL recommendation, but increase our target price to 55p.
Empresaria (EMR, 37.5p, £16.71m), the international specialist staffing company, has disposed of 60% of its Dutch staffing business, EAR Holdings, for a total consideration of €1 in cash, to OTTO Holdings. For the year ending 31 December 2009, EAR reported revenues of £4.7m, adjusted pre-tax losses of £0.7m and net liabilities of c.£0.3m The disposal will reduce the group’s net debt by £0.1m (FY09: net debt £8.0m) and result in a small accounting gain on disposal. The group is no longer exposed to the Dutch market and will focus on the UK and German markets, which have somewhat stabilised. We continue to believe positive sales momentum from temporary staffing (80% of group net fee income), especially in the UK and Germany, a lower cost base and international diversification will benefit 2010. Trading on a 2010 rating of 8.5x encourages u to reiterate our HOLD recommendation.
Innovation Group (TIG, 12.25p, £114.59m) A large vehicle management group has extended its contract with Innovation Group for three years, commencing in January 2011, for accident management services in the US. The contract is estimated to be valued at £10m over the period. The contract highlights the group’s strength position in the sector. Trading on 12.9x for the current financial year, we reiterate our HOLD recommendation.
Kea Petroleum (KEA, 16.25p, £74.7m) Good operational progress form Kea. The Ensign Rig 19 has now been released by Shell and is to start drilling the Wingrove-2 well this week. Drilling will pick up from the 300m drilled by the smaller Interdrill rig and target a TD of c.1600m and should complete before the end of April. The Interdrill rig has been moved to the prospective Beluga-1. HOLD
UBC Media (UBC, 4p, £7.81m) has launched a range of apps for the i-Phone that will enable its radio stations to be streamed via Wi-Fi or the internet while delivering additional services – such as advertising that will be sold via UBC’s Lynx Content business. We maintain the SPECULATIVE BUY recommendation.
Velosi (VELO, 111.5p, £54.4m) FY results to 31 December 2009. Revenue flat $183.6m ($182.1m); EBIT $14.8m ($14.4m); PBT up 13.0% to $16.8m ($14.9m); EPS up 5.1% to 22.8 cents (21.7c); net cash of $19.7m. Using £1/$1.55 results look marginally ahead of expectations. This was a good performance and while turnover was flat excluding Nigeria revenues actually increased by c.6.8%.The statement speaks of a strong forward order book providing excellent visibility of c.60% on this year’s revenues and a robust forward looking statement. Next year’s rating of 7x looks undemanding. We maintain our buy and increase our price target to 135p, only 8.5x 2010 earnings estimates. BUY
Zenergy Power (ZEN, 102.5p, £70.76m) has announced the R&D processes for the second generation (2G) wire with the development of an ink-jet process fro the deposition of chemicals. While the group indicates it will lead to lower costs by enabling greater volume production with less reject rate we remain dubious. Zenergy has protected itself from lower priced wires by only selling completed coils – but with no indication of the cost of their 2G wire or real temperature performance it is hard to get excited. A key concern must be the ever decreasing cost of refrigeration units that reduce the cost effectiveness of the more expensive 2G wires that operate at higher temperatures. We maintain a HOLD recommendation but note a probable bout of inevitable enthusiasm that could see the shares approach the upper end of the 125p trading range – so traders may consider a short term trade given the 2.7% spread.