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Filtronic (FTC, 35.5p, £26.38m) Final results to May 2009 saw revenues from continuing operations down to £28.8m (£40.1m) and a pre-tax profit of on-going ops of £2.26m (loss £16.2m) giving an EPS of 3.04p (loss 21.8p). During the year the group declares a special dividend of 40p and has committed to paying a final dividend of 1p, giving a yield of 2.8%. Year end cash ended at £16.2m (£31.5m) though that is after the special dividend that cost £29.1m. The results were below the £2.8m pre-tax forecast and the group broadly achieved breakeven in H2 on revenues that fell from £18m in H1 to £10m in the second half, which led to underlying operating profits falling from £1.8m to £0.3m in the second half. The company is warning that point to point communications systems immediate outlook remains subdued. Forecasts of £1m would give an EPS of 1.33p, putting the group on a prospective PER of 26.7x. The rating is too high and should trade around 20x prospective, leading to a 26.6p price target, SELL.
Scotty Group (SCO, 42.5p, £8.59m) Has warned that contracts have not been delivered this side of the July year end so, although the group will be profitable it will be below that reported last year – i.e. less than £0.93m as opposed to current forecasts of £1.03m. The group does state that the contracts have benefitted the group in the period post July. The group is changing its accounting date to December to better reflect the buying patterns of its key customers, specifically the German Army. Taking a forecast of £0.7m would imply an EPS of some 2.74p, putting the group on a 15.5x prospective PER. Too high, SELL down to a 10x rating – or a price target of 27.4p.
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Metalrax Group (MRX, 6.15p, £7.37m) Has announced the sale of its ball-bearing business for £0.1m which made a loss of £0.081m on revenues of £1.5m and was seeing increased losses during the current year. The balance sheet does take a hit however with the assets being sold for £0.1m having a book value of £0.47m. We were sellers to 4.4p, the then NAV, on 13/07/09, which we repeat as a price target level, which on potentially optimistic brokers forecasts of £1.2m pre-tax profits with 0.7p EPS to December 2010 would put the group on a Yr2 PER of 6.3x, SELL.
Dialight (DIA, 150p, £46.86m) The group achieved flat revenues of £34.6m, pre-tax profits of £0.53m (£2.14m) and an underlying EPS of 1p (4.2p) with a 2.3p (2.1p) interim DPS. Key reduction was in the indication business which saw revenues fall from £9.5m to £8m, partially offset by the signals/illumination operations that saw revenues rise from £18.99m to £21.23m. More worryingly the group benefitted from the $ strength, with the rate moving from an average of $1.975 to $1.49, so on a constant currency basis revenues would have fallen to £28.2m with an operating profit of £0.1 V.S. the £0.6m reported. The group is beginning to see the benefits of US economic stimulation packages being used to reduce long term energy bills by the replacement of indications lights with LEDs, so expects a stronger H2 performance. The introduction of a white LED strobe light is leading to increasing levels of work in the obstruction business where the faltering financing for wind farms led to a slow down in the traditional red LED marker lights. Similarly the introduction of smart disconnect switches is beginning to see improving demand. Although we suspect forecast may slip slightly, this year to around £3.5m pre-tax profits with 6.9p EPS, putting the group on a 21.7x prospective PER, and to £6m with 12p EPS next year, we still see the shares as a buy – due to the surge in central & local Government as wells as commercial interest in reducing energy bills. While in the very short term the current rating of 21.7x may limit the share performance, next year the group is sitting on just 12.5x, leaving plenty of scope for performance over a year. BUY.
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Total Systems (TTS, 29.5p, £3.10m) Final results to March 2009 saw revenues of £4.88m (£4.05m) with pre-tax profits of £0.76m (£0.43m) with EPS of 4.24p (2.99p). The group has £3.35m of net cash in the balance sheet and an NAV of 43.24p per share. The group is looking forward to a closer relationship with partner Capita, with whom they are bring Sharia compliant insurance products to the market. However the uptake is dependent on general market conditions, which have deteriorated in leading to a lower order intake in H1, a level of uncertainty that looks set for the rest of the year. As a result the group is unable to give much guidance for the year ending March 2010, other than it will be “considerably” less than the 2009 level. The group does talk about a new sales team being recruited but does not expect any material benefit this year. The group has taken action to align its costs better with the lower revenues, so we expect losses for the current year around £0.5m on revenues of some £3m - which would lead to a drop in net cash to some £2.9m or some 27p per share. Not sufficient to sell so HOLD.
Inditherm (IDM, 8p, £4.09m) Trading update highlights that medical sales are still growing, albeit at a slower pace than originally anticipated, with first half orders up 5%. To encourage sales the group is now offering payment options to enable a clearer rationale in terms of immediate costs savings for the adoption of the Inditherm product. Industrial sales have been hit by the recession with orders taking longer, though existing contracts are still progressing, but there still remain a number of good prospects for conversion in the second half of the year. The group is taking action to reflect this lower potential outcome for the year with consultations underway regarding a 20% headcount reduction. The group has £2.6m of cash and it still believes this is sufficient to reach profitability. It expects to report sales down 30% at the half year. We anticipate pre-tax losses around £0.6m on £1.6m of revenues which would reduce NAV to around £3m – or 5.8p per share – SELL to a modest premium to the forecast NAV - a price target of 6.5p.
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Coe Group (COE, 8.5p, £3.12m) Has been awarded a major contract for CCTV systems for the Seoul Metropolitan Subway for lines 1,3 & 4 worth in excess of £1m with delivery starting within 3 months and completed by December 2010. The group operated at break-even in H1 and appears to be trading, on a forecast sales of some £3.8m, on around 0.8x marketcap:sales. HOLD.
Cyan Holdings (CYAN, 2.3p, £12.91m) Has won a global distribution contract for its configurable application software and production ready modules with Future Electronics. This is clearly a huge step forward for cyan as Future has 169 offices in 41 countries and is already active in the same areas, such as wireless metering. Back on 23/04/09 we made the company a “somewhat risky speculative buy” due to the $1.3m left in the balance sheet. This news goes a long way to establishing how Cyan will gain a market presence with limited cash resources. Still a SPECULATIVE BUY.
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Tracsis (TRCS, 50.5p, £9.58m) Has announced the acquistion of Peeping Ltd which provides research based activities to train operating companies, such as footfall surveys. Peeping generated £0.43m sales to April 2009 with an EBITDA of £0.15m with an NAV of £0.24m. Initail consideration is £0.260m in cash plus 172,744 new sahres (equivalent to £0.087m) - a total £0.347m. Deferred consideration of up to £0.255m is payable 70% in cash with the remainder in shares. So what appears to be a very healthy multiple and one that should enahnce EPS. The group has also released a confident statement underlining the management’s belief in increased spending in transportation and confirming each business unit will report increased profitability on the previous year. SPECULATIVE BUY.
Probability (PBTY, 56p, £12.10m) Final results to March 2009 from the mobile phone gambling specialist, saw net gaming revenues of £5m (£3.2m) with a loss of £0.06m (loss £1.045m) with net cash of £2.2m. In addition to the distribution deals signed during the year the group is now seeing a number of opportunities for the distribution of 3rd party products through its established relationships. The group has signed a number of contracts that will benefit this year and we repeat our 70p price target, last iterated on 17/07/09 at 51.5p, BUY.
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DQ Entertainment (DQE, 85p, £30.57m) Final results from the animation group to March 2009 saw revenues of $32.2m ($24.1m), pre-tax profits of $5.1m ($7.4m) and EPS of $0.12 ($0.60) with a healthy order book of $92.5m. The group was hit by the Rupee currency movement - so underlying sales growth was an impressive 54%. Our Buy recommendation is based on progress across a number of fronts, such as animation projects based on Laasie, The Jungle Book & Indian content for Turner as well as a discussion underway with Disney. Licensing & Distribution similarly had a good year that stands it well for an even stronger performance this year. The Merchandising operation will surely benefit from strong brands such as Lassie, The Jungle book and Iron Man. We repeat our BUY to the 110p target price.
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