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Steer clear of inefficient Antonov

Antonov has a few claims to fame. It is the proud possessor of energy-efficient patents relating to gear boxes/transmission for cars and trucks, it is one of the oldest companies on AIM and it hasn’t made much in the way of sales or profits for over ten years.

Indeed, according to my records, the group made a profit on negligible sales back in 1995 (the year it went public) and has consistently made a loss every year since. The accumulated trading loss since 1996 amounts to £22.74 million.

Unfortunately, after all this time, the group still seems a long way away from signing a meaningful deal with a car manufacturer that will see its technology embedded in a mass produced vehicle.

As ever, it is active on many fronts, trumpeting negotiations with Great Wall Motor, ‘one of China’s fastest growing vehicle manufacturers’ in relation to its six-speed automatic transmission. However, Great Wall has only taken an ‘option’ on the technology.
‘Production planning’ discussions are continuing with Shanghai Automotive for Antonov’s ‘Dual Clutch Transmission’, albeit at a slow pace, while ‘pre-production testing and assessments’ of its ‘2-speed supercharger drive’ are ongoing.

The other development of note is that its lawsuit with Toyota is likely to incur minimal costs (although given that Toyota’s collaboration with the company used to be touted as a reason to buy into Antonov, this is hardly a reason to jump for joy).

Despite the £3 million convertible loan facility set in place last January – and a further convertible loan facility of £6.75 million set up in June 2005 – another fundraising is likely. To this end, plans are afoot to set in place procedures to make this easier for directors.

The £32.16 million market cap is over 42 times the total revenues generated in the last decade. I might end up with egg on my face, but for me, this is not a stock to buy now. Avoid.

DA Group – heavy losses continue

Although set to celebrate its tenth anniversary as an AIM-listed company in July, DA (formerly Digital Animations) – the creator of bespoke 3D characters for media content providers and animated receptionists – continues to struggle.

Recent months have been fairly characteristic of the group’s performance since listing in 1996. A plethora of deals have been signed – including an agreement to develop an animated Geoff Boycott for UK broadcaster Five ahead of the launch of its test cricket coverage – yet revenues remain minimal.

September’s interims revealed a near 50 per cent slump in sales to £107,940, with losses reduced just two per cent to £959,980. In addition, a March trading update informed investors that while 58 contracts have been signed ‘with [mobile] content aggregators and network operators,’ performance in the increasingly non-core financial sector continues to be disappointing. This, chief executive Mike Antliff admits, ‘has had a significant negative impact on overall performance,’ leading to full year revenues ‘lower than current market expectations’.

Of course there are positives. Following a placing in May 2005, cash reserves currently top £3 million, while DA’s contracts (with the likes of Jamster, Ladbrokes and MTV) count for something. In spite of these factors, however, significant revenues would appear to remain some way off.

In the last three years DA has generated just £2.7 million of turnover in total and run up losses of more than £7 million. With house broker Daniel Stewart not expecting a profit next year either, the group’s current £14 million market valuation looks more than a touch generous. Sell.

Off-load this struggling recruiter

Despite announcing a bout of restructuring in November 2004, following ‘several years of poor performance’, 2005 saw losses at struggling IT recruiter and training specialist Parity Group continue to mount and debts soar.

Another blow came in March, when potential suitor Spearhead announced that it would not make an offer for the company following discussions with the board.

Results to end-March were apparently in line with expectations following the strategic review designed to slim down the company by terminating major international operations. However, in my view, the figures did not bode well for the firm. Turnover increased 4.6 per cent to £138.5 million (£132.5 million) but pre-tax losses grew to £8.4 million (£2.7 million). Losses per share increased to 3.23p (1.91p) and, most significantly, net debt swelled considerably from £13.7 million to £19.1 million.

This forced the company to issue 32 million new shares at 50p in order to raise £14.7 million, net of expenses, in an attempt to pull itself out of the red. An open offer of some 16 million shares, along with a firm placing of around the same number was announced at the end of March, but was somewhat undersubscribed.

Only 62.14 per cent of the open offer shares were taken up. Although the placing was fully underwritten by broker Arbuthnot, the relative lack of interest in the shares indicates a further dip in confidence in the company.

Parity said that the board views the prospects of the group with ‘cautious optimism’. I don’t share this view. Avoid/Sell.

Inter Link disappoints

A profit warning from cake baker Inter Link sent its shares crashing from a high-flying 747p to 456p, close to a two-year low. The market’s disappointment arose from news that despite significant promotional activity from Inter Link, trading volumes came in lower in the traditionally busy April period.

Inter Link’s management believe consumers in April bought the exceedingly well-promoted Mr Kipling products at Inter Link’s expense. FD Chris Thompson explains: ‘The consumer was accustomed to the Kipling promotion so when we ran ours they didn’t sell in the volumes we were anticipating.’ He doubts whether Kipling’s owner RHM (which also makes Cadbury’s and Lyons cakes) can continue with the ‘extremely aggressive’ strategy too much longer – ‘they’re a Plc too’. But he does reveal that profits were not only behind in April but also in previous months too, though to a lesser extent.

Despite all of this, final results out in July will show a record year for sales, profits and earnings. Year-on-year sales are likely to grow 34 per cent, with at least 25 per cent pre-tax profits growth and nine per cent EPS growth. However, consensus forecasts have been downgraded to £7.1 million pre-tax profits and around 42p of earnings for the year to April and approximately £8.7 million profits and 51p earnings for 2007.
For me, there are many more attractive offerings on AIM at present. Avoid.

Sell 4imprint after stellar run

Shares in 4imprint, the fully listed promotional products play, climbed steadily throughout 2005 and into 2006 as investors warmed to a major restructuring effected by chairman Ken Minton.

The revival in the group’s fortunes didn’t escape my attentions, having flagged up the transformation of the £102 million group in my support services column at 187p. Subsequent figures for 2005 were strong with sales lifted six per cent to £97 million and profits sparking up over 50 per cent to £5.6 million.

Although prospects remain encouraging at the cash-rich group, the share price has rushed to 347.5p and both Gartmore and AVIVA have pared back holdings in the company of late. Readers who followed my advice are now sitting on bumper gains and I feel it’s time to book the remaining profits and switch into a smaller, equally exciting emerging rival.

Dowlis came to AIM with a £4 million funding at 36p last November and the shares have trekked north to 51.5p, valuing the company at less than £20 million.

I believe the valuation of the group, which functions as a trade supplier and a distributor to customers in the fragmented promotional merchandise market, will grow dramatically under the direction of chief executive Martin Varley, formerly a senior figure at 4imprint itself.

Inaugural preliminary figures for the 12 months to December were encouraging, with pre-tax profits tumbling in at £1.2 million on £20.4 million sales and the group finishing the year with surplus cash. For December 2006, analysts predict profits of £2.1 million from sales of £23 million, giving earnings of 3.9p, ahead of 4.7p the following year.

Varley is a seasoned promotional merchandise industry mover and shaker and I feel a switch into this (as yet) underappreciated smaller rival, valued at less than one times 2006 sales and trading on a forward multiple of only 13.2, could reward.