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Monday 1st December
Market Snapshot: Slip down slowly
PLUS: Buy Recommendations are made in Company Previews and Reviews (Scroll Down)
On Wednesday 3rd
One Company… One Recommendation.
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…Last Week….
…….. the FTSE 100 slipped 0.5% to 6,722, the FTSE 250 improved 1%, while the Aim All Share gained 0.27%. The FTSE Small Cap at 4,368 increased 0.95%; as the UK economy improves we are expecting the small cap indices to start out-performing. Lloyds Business Barometer, which measures UK companies’ views on prospects for the economy, rose to 42 due to reduced financial volatility.
Internationally the news was mixed; US Consumer Confidence, unexpectedly fell in November to 88.7 after hitting a seven-year high of 94 in October. Opecs’ failure to agree a production quota fuels world growth with lower oil prices. In China Industrial profits fell by 2.1% which is the worse annual decline in two years. Eurozone inflation slowed to 0.3% perhaps putting pressure on reflationary polices.
……..This Week………..
……… on Wednesday the Autumn Statement will contain pre-election goodies, but it may not stand-up to much examination of reducing the budget deficit. There are a number of sector PMIs (Purchasing Managers Index) reports that are insights into UK growth. The BOE formal interest rate decision meeting is on Thursday. Evidence of slowing Chinese growth was reported early today as the Manufacturing PMI, barely grew. In the US Manufacturing and Employment numbers are on Tuesday, Wednesday and Friday. The Eurozone should continue to bounce along the bottom when reporting Retail Sales on Wednesday and GDP on Friday. Maybe a flat week but a slight decline seems more likely.
Pause for Thought
There is a record 5.2m Private Sector businesses in the UK, which is up over 330,000 in 2014. SMEs (Small Medium Enterprises) make up 99.9% of all businesses and account for 60% of employment.
Business Secretary, Vince Cable
REPORTS – scroll down for Previews and Reviews
Preview
PLA Integrating Value
TRI On the recovery watch
Review
TLA Strong Opinion
ULS Walking speed
SND Steady Growth is good
CMH Modest rating no sparkle
Plastics Capital (LSE:PLA)
120p (118p/122p)
Mkt Cap £43.8m
Next Results: Interims 2nd December
Interim figures due to be reported this week by plastic components and films manufacturer Plastics Capital will not include any contribution from the recent acquisition of films producer Flexipol, which has just been completed. There will be a contribution from the Chinese creasing matrix operations that were not part of the group in the first half of the previous year. Industrial demand has been weaker due to project delays. There are potential orders that could make a contribution to the second half and the next financial year. Even so, trading is broadly in line with expectations. In the six months to September 2013, the underlying profit was£1.74m and there may be a small improvement in the first half of this year with the potential for a much better second half. Cash generation should continue to reduce net debt although it will increase again following the acquisition. Plastics Capital is expected to increase its underlying profit from £3.59m to £4.48m in the year to March 2015. The shares are trading on ten times 2014-15 prospective earnings, falling to just over eight the following year.
Trading Strategy
The benefits of the Flexipol acquisition will show through in the second half and the shares are still too modestly rated and should move ahead once the shares in the £5m placing at 95p in October are assimilated.
Original price: 114p/117p
Tricorn (LSE:TCN)
13.75p (12-15p)
Mkt Cap £4.61m
Next Results Interims Tuesday 2nd
The cautious trading update in October, from this value added manufacturer and specialist manipulator of pipe and tubing assemblies to niche markets in energy and transportation, reflected slower than expected US growth. The longer term trading narrative is of recovery with an 8% improvement in revenue expected. The UK businesses are recovering, China’s revenue continues to grow; but revenue in the USA is at a lower than anticipated level so it is not hitting targets and appropriate actions are underway. The aerospace division is being disposed of which should give a comparative boost at the next year end to March 2015. We anticipate and underlying improvement but the interims to be reported on the 2nd of December are less likely to make this obvious. A new Non- Executive chairman was appointed last week and perhaps will buy some shares.
Trading Strategy
One to watch but we are slightly cautious as further funding maybe required.
Review
TLA Wordwide (LSE: TLA)
37p (36.5p/37.5p)
Mkt Cap £47m
Next Results: Finals March
There has been little share price reaction to the announcement that Real Madrid will play in TLA’s pre-season football tournament in Melbourne, Australia. The International Champions Cup (ICC) will be held next year and it is planned as an annual event – initially between 2015 and 2018. The fact that Real Madrid has signed up gives the tournament credibility and there are two other teams to be announced with one likely to be a major English Premier League team. The games will be held at the 100,000 capacity Melbourne Cricket Ground in July and be broadcast live to 150 countries. Not only will the ICC be a cash generating event it will also help TLA to move into the Asia Pacific market.
Trading Strategy
Everything appears to be going to plan and the shares remain a strong buy.
Original price: 36.75p/37.75p.
ULS Technology (LSE: ULS)
39.5p (38p-41p)
Mkt Cap £25m
Next Results: Finals to March
The first interims since June IPO at 40p reported a 12.5% increase in revenue which is to be applauded as is the 33% increase in operating margin but the PBT was a disappointing £34k. The net cash after (paying dividends and loans) is £3.7m. ULS is a B2B (Business to Business) provider of an Award winning SaaS online comparison service for residential conveyancing which is a large and growing market valued at £1.6bn. During the period, the Group was also able to secure a new long-term exclusive contract with Lloyds Banking Group, which is expected to deliver significant revenue to the Group over the next four years. Low Interest rates, however have diminished the incentive to re-mortgage and that house price inflation is running ahead of wage inflation which may also have slowed demand. IPO forecast for PBT have been massaged lower and at £2.9m still seem a highish.
Trading Strategy
The lowered expectations are already in the sub-float price – the reduced cash suggests a pedestrian pace of growth.
Last OMG! Price 37.5p
Sanderson Group (LSE: SND)
69p (67.5p/70.5p)
Mkt Cap £38m
Next Results: Interims May
Enterprise resource planning software provider Sanderson made further progress in the year to September 2014 even though there were delays in fulfilling contracts. There was a good contribution from One Iota, the mobile commerce software business acquired last year. The profit contribution from One Iota more than offset the continued decline in mail order software and a fall in the contribution from manufacturing. In the year to September 2014, revenues increased from £13.8m to£16.4m, while underlying pre-tax profit improved from £2.19m to £2.7m. The total dividend was increased by one-fifth to 1.8p a share. Net cash was £6.16m at the end of September 2014 and Sanderson wants to retain a positive cash balance but that still leaves scope to finance further acquisitions. One Iota has secured its largest ever order and the group year-end order book was £2.41m. On the forecast 2014-15 profit of £3.1m, the shares are trading on 15 times 2014-15 earnings.
Trading Strategy
Sanderson offers steady growth in earnings and continued growth in the dividend.
Chamberlin (LSE: CMH)
102p (98p/106p)
Mkt Cap £8.13m
Next Results: Finals May
There were no profit upgrades following the interims of castings producer Chamberlin despite the positive recent contracts news. This plus has been offset by the uncertainty around the Leicester and Scunthorpe castings sites. Leicester has suffered from a bad reputation for service and although the new management has improved efficiency and quality control it appears that it is difficult to regain the customers that were lost. In Scunthorpe, where a Crossrail contract was lost, the heavy castings order book also has to be rebuilt. The €6.7m contract over four years and the €26m contract over eight years are for turbo charger castings made at the Walsall site. In the six months to September 2014, an underlying loss of£639,000 was turned into a profit of £426,000 on the back of an improvement in revenues from £19.5m to £21.1m. The foundries returned to profit and the engineering businesses increased their contribution. Net debt was £3.8m at the end of September 2014. The full year profit forecast remains at £800,000 and then£900,000 for next year, which puts the shares on ten times prospective 2015-16 earnings. The new contracts will make some contribution to those figures but a significant contribution will come in 2016-17 when profit is expected to rise to £1.3m.
Trading Strategy
The shares are modestly rated but the uncertainty about the foundries operations means that this may not change in the short-term.
