HB Markets Daily Smallcap newsflash including Brammer, DQ Entertainment, EG Solutions, Pendragon and others

Brammer (BRAM, 131.25p, £139.5m) Prelims to 31 December 2009 are in line with consensus. Revenues down by 11% to £426.1m (2008: £478.4m), adjusted PBT down 30% to £13.8m (2008: £19.7m), adjusted EPS down 28% to 13.1p 2008: 18.2p) and DPS remained flat 5.5p. Following the completion of the rights issue and tighter working capital, net debt fell by 53% to £39.9m. Revenues have now stabilised and are beginning to see signs of a recovery. The Key Accounts business remains strong.   Customers are accelerating contract implementation to achieve the cost savings available and enhance productivity. The benefits of the cost savings fully come through in 2010. No acquisitions were made in 2009, but when the market recovers, the group will seek to consolidate the European market in bearings, mechanical power transmission, fluid power, and tools and general maintenance products. The market forecasts 2010 PBT of £17.4m, EPS of 11.3p and DPS of 5.2p. We believe the group is fairly valued trading on a prospective 2010 PER of 11.6x with a yield of 4%. We retain our HOLD recommendation.

DQ Entertainment (DQE, 95p, £33.99m) has announced it has pre-placed shares ahead of its Indian IPO, at a value of some £57m. This bodes well for our long held BUY recommendation and the 150p price target - which equates to £53.7m market cap.

Eatonfield (EFD, 1.6p, £3.72m) The group has updated regarding the short term need for £1.5m to replace a lost, previously agreed overdraft facility. A shareholder has approached with an offer of £0.25m funding so the group is now actively pursuing other major shareholders in an attempt to raise the further £1.25m required. Our recommendation is sensibly dropped to a Hold to reflect the funding concerns – but will return to a SPECULATIVE BUY assuming funding can be achieved within sensible dilution terms.

EG Solutions (EGS, 38.5p, £5.50m) has won a contract extension with one of the largest bancassurance groups in the Nordic region. The agreement follows the successful implementation in the group's claims area and is now being deployed in the customer service division. The contract is worth £0.265m in the year to January 2011 and a further £0.3m during the full 5 year contract term.  EG always commands a premium rating – but is now sitting on around 29.6x for the 2011 year, with 2010 still to be reported. Our last recommendation was a HOLD at 36p which we reiterate.

Forbidden Technologies (FBT, 16p, £12.66m) has announced ITV Manchester is using its web based video editing suite for a new production ‘May the best house win’. We still like and admire the technology but question whether FBT will achieve sufficient sales to justify the current price. We maintain our SELL recommendation.

Pendragon (PDG, 25p, £164.0m), the car retailer group operating 276 franchise points (2008: 301), reports prelims to 31 December 2009 are ahead of market consensus.  Despite a 24% decline in revenues to £3.2bn (2008: £4.2bn) driven by reductions in new vehicle sales and low margin fleet activity, stronger underlying gross margins and a reduction in overheads, led to underlying PBT of £10.1m (2008: -£33.6m) and underlying EPS of 1.1p (2008: -3.5p). Net debt fell to £315m – the business remains highly geared with an interest cover of 81%. It has ‘significant headroom on the overall facility’. The new car market will remain difficult throughout 2010, but there are signs of stabilisation in the used car market and for the aftersales to be resilient.  Pendragon seek to grow the number of franchises and maintain a diversified portfolio representing volume and luxury brands. The group is well positioned to take advantage of the market when it fully recovers. The group is currently trading in line with market PBT consensus of £23.9m and EPS of 2.5p, which puts it on 10x. The high levels of debt, encourages us to initiate with a HOLD. 

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