HB Markets Daily Smallcap Newsflash including Avacta, Cashbox, Lighthouse Group, Neovia Financial and others

Acta (ACTA, 14p, £5.74m) Sumitomo, already a partner and 10% shareholder, has agreed to relinquish the exclusive distribution for the Asian region, while it will continue to market the catalyst products to the Japanese automotive OEMs. This is a knock-back as ACTA has not announced a replacement distributor and has indicated it may include direct sales as a channel. Despite our concerns on what that means for short term cash burn we maintain our SPECULATIVE BUY recommendation based on the strength of the underlying technology.

Avacta (AVCT, 1.75p, £22.51m) has announced the acquisition of Reactivlab for an initial consideration of £0.08m, met by the issue of 4.432m new shares, plus a deferred element based on annual sales volumes in the second (30% of sales) and third year (100% of sales) post completion. Total consideration is capped at £5m. The deferred element will be met in shares at a minimum price of 1.5p. Reactivlab fits well as it has developed a range of veterinary diagnostic tests. To July 2009 Reactivlab had revenues of £0.142m, a pre-tax loss of £0.143m and net assets of £0.12m. Reactivlab had £0.083m net cash at December. The group’s rating is well up with events and we take the group to a HOLD.

Belgravium Technologies (BVM, 3.375p, £3.41m) Finals to December 2009 saw revenues maintained at £8.29m (£8.33m), PBT of £0.41m (£0.40m), EPS 0.43p (0.39p) and net debt fell to £1.42m (net debt £1.96m)m. The PBT was helped by a better software/hardware mix which helped offset the pressure from hardware prices, despite that gross profits fell 6.7%. With the group now in the traditionally weaker half of the year and forecasts for around £0.56m PBT with 0.4p EPS, the 8.4x PER seems appropriate – so for the time being we maintain our HOLD recommendation.

Cashbox (CBOX, 2.5p, £3.75m) Interims to December 2009 saw revenues of £3.37m (£3.43m), gross profits of £1.28m (£1.23m), a loss of £1.20m (loss£1.45m) before tax and net debt of £9.87m (net debt £9.27m). The group ended the period with 2,528 machines installed (2,438). The lack of progress in profitability is a concern – on this basis the group will need to add another 50% of machines at their current usage to reach breakeven. Until that time the group will continue to use cash – which it is now meeting with a convertible loan note at 12% interest. We have been too optimistic in our Speculative Buy and reduce to a HOLD, based solely on the group’s optimism on meeting the existing forecasts

Dialight (DIA, 284.5p, £88.88m) Final results have seen the shares soar to our 280p price target. Results for the year to December 2009 saw revenues maintained at £77.3m (£77.9m) with PBT of £5.28m (£5.64m), EPS of 17.5p (11.2p), net cash of £9.1m (£4.1m) and the declaration of a second interim dividend of 4.3p (3.9p final) - taking the year total DPS to 6.6p (6p). The results were driven by the signals and illumination operation that saw sales rise to £46.4m (£43.4m) with the £3m increase in sales driving operating profits up 94% to £3.3m (£1.7m). The group is confident of further significant growth, thus underlining the forecasts which are based on good translation of additional sales to profits.  With investors focussing on the second half performance and the recent contract wins the profit forecasts of £8.4m with 16.71p seem reasonable  - putting the group on a forward PER of 17x. While we regard this as high we believe sales will continue to grow and that the group will meet expectations. Comparisons of H1 will look strong and we see some further modest upside to 330p. BUY

Hydrogen (HYDG, 89p, £20.9m), the provider of professional recruitment services, reports prelims to 31 December 2009 below market expectations. Revenues fell by 23% to £74.1m (2008: £96.2m), adjusted PBT down by 92% to £0.3m (2008: £3.7m), adjusted EPS fell by 80% to 2.4p (2008: 11.8p) and DPS maintained at 4.1p. In the current financial year, the group are seeing signs of improvements in the UK, albeit at a lower rate than the prior year. Tight working capital ensured the group remained cash generative and ended the year with net cash of £3.1m (2008: -£0.9m). The group remains cautious optimistic in the outlook for 2010. The opening of an office in the Far East in January 2010 provides significant growth opportunities internationally. A yield of 4.6% is attractive and sustainable, given the cash generation and the strong balance sheet. .The market believes the group will return to profitability in 2010, delivering PBT of £1.0m and EPS of 3.1p. The group stands on a 2010 PER of 29x, which is expensive, but given the 4.6% yield, we believe this stock is attractive. Given the fragile state of the UK economy, we reduce our recommendation to a HOLD.

IdaTech (IDA, 73p, £37.53m) has announced the Oregon Department of Energy has not renewed its Business Energy Tax Credit (BETC), which as a result will increase 2009nlosses by $2.5m and increase the funding required in 2010 by a similar amount. While the group states it does not impact materially the shares will take a knock in anticipation of additional dilution to make up the potential funding shortfall. So with the warning of potential short term weakness we reiterate our SPECULATIVE BUY recommendation.

Just Car Clinics (JCR, 51.5p, £7.5m), the independent collision repair chain, reports prelims to 31 December 2009 are in line with market expectations. Revenues remained flat at £42.9m (2008: £42.6m), but LFL revenues fell by 4%.The group reported a 8% decline in adjusted PBT to £1.2m (2008: £1.3m), 13% decline in adjusted EPS of 5.6p (2008: 6.4p) and DPS up by 2% to 1.63p.  Revenues from mandatory vehicle insurance held up, but the group reported lower volumes of repairs impacted by reduced road usage and reluctance by retail customers to incur excess payments. Just Car has added business from the fleet and local business sectors, whilst extending its offering to include mobile light cosmetic repairs, tyre fitting and mechanical servicing at selected locations. Gross margins fell to 41.0% (2008: 41.7%),  negatively impacted by variability in weekly repair volumes resulting in reduced efficiency and the difficulty of passing cost increases on to customers in the prevailing economic climate. Net debt fell to £1.28m (2008: £1.82m). The group continues to seek acquisition opportunities. We believe the group has performed well, given the tough economic climate. The current financial year has started well, and the group has benefited from the recent adverse weather conditions.  The market forecasts 2010 PBT of £1.3m, EPS of 6.2p and DPS of 1.7p. The stock trades on 2010 PER of 7.9x with a yield of 3.3%. We continue to believe the group is fairly valued and retain our HOLD recommendation.

Lighthouse Group (LGT.L, 9.12p, £11.7m), the IFA business, has been appointed as the exclusive Financial Adviser to Royal Mint employees in relation to their deferred benefit pension transfer options under their new final salary scheme. The group has zero bank debt and net cash of £12.2m at the end of June 2009, exceeds the current market capitalisation - we believe the group is undervalued. There is scope for the group to be acquired. We upgrade our hold recommendation to a BUY.

Melorio (MLO, 116p, £45.3m), the provider of training and assessment services across the information technology, construction, logistics and healthcare sectors, reports the group remain confident it will achieve FY10 market estimates of PBT of £12.1m and EPS of 21.1p. The group remains undervalued trading on a 2010 PER of 5.5x and 4.5x in 2011. We acknowledge the debt is high, but it had an interest cover of 4.9x EBIT at the interim. We retain our BUY recommendation with a target price of 161p.

Neovia Financial (NEO, 58.5p, £70.15m) has announced premium TV service SeeSaw.com will use Neovia to facilitate subscriber payments. NETBANX continues to win customers and that supports our SPECULATIVE BUY recommendation.

Pursuit Dynamics (PDX, 196p, £128.97m) has announced the appointment as the SVP Business Development and Planning, who will model different lines of business and frame key strategic partnerships. PX has clear target markets already – this is just additional cost brought in by a CEO with no experience of this type of business. We maintain our SELL recommendation.

Sarantel (SLG, 2.25p, £6.55m) Sarantel continues to win contracts for its high performance aerial. This time a major US defence contractor has signed for a dual-frequency antenna for military satellite communications and, importantly, they are funding the project. We maintain our SPECULATIVE BUY recommendation on one of the most innovative and high performance aerials in the market

Vislink (VLK, 25.5p, £35.34m) has signed a global partnership with Fujitsu Frontech Media Solutions which will see its secure communications technology integrated into Fujitsu’s Advent, link & MRC systems for the transmission of HD broadcast images by satellite, terrestrial radio or IP networks. Investors will look past the 2009 results still to be reported and focus on December 2010 and beyond. With forecasts around 4.8p EPS on £9.5m PBT to December 2010, the group is sitting on a 5.3x 2010 PER, justifying the upgrade from a Hold to a BUY with a price target of 36p.

http://www.proactiveinvestors.co.uk/companies/news/13972/hb-markets-daily-smallcap-newsflash-including-avacta-cashbox-lighthouse-group-neovia-financial-and-others--13972.html