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Marchpole – a re-rating is overdue

Having operations in ‘difficult’ markets continues to hamper the share price performance of Marchpole. We flagged up the group as a strong buy at 24.5p in July, and though the price has eased off to 18.5p, we remain bullish on
its prospects, largely because experienced fashion entrepreneur and chief executive Greg Tufnel has thoroughly revived its fortunes by successfully repositioning the business since taking up the executive reins three years ago.
Although it is lumped together with other clothing retailers, the company is a far more robust corporate animal than its rivals, as it acts as brand manager for six high-end labels – Emanuel Ungaro, Ungaro, Yves Saint Lauren (YSL), Boateng, Jean-Charles de Castelbajac (JCC) and Jean-Charles de Castelbajac/Rossignol. All of these quality designer labels continue to sell well and Tufnell remains on the lookout for other brands to add to the roster.
Last year to March, Marchpole scored an 84 per cent profits leap to £4.9 million, well ahead of forecasts, on turnover lifted 62 per cent to £32.5 million.
The news flow since our recommendation has been universally positive – the recent $5.5 million acquisition of Moda America, a US venture that licenses the Emanuel Ungaro ‘diffusion’ label for the US market, has given the group a high-growth US arm with an established distribution platform, and Tufnell is expanding the JCC brand in Japan.
Concerns over the impending cessation of Marchpole’s UK YSL distribution deal at the end of 2006 have also weighed on sentiment. However, GCI learns Tufnell is close to a deal that will replace the YSL licence. An update on this issue is due imminently.
For March 2006, Shore Capital forecasts profits of £5.4 million off £35 million sales, and earnings of 2.64p. At the current levels, the shares trade off a bargain multiple of 6.9 and sport a decent yield of 4.4 per cent. A re-rating is long overdue. Strong buy.

Watermark flies in with profits leap

In a similar vein, shares in airline in-flight catering, products and cabin management services counter Watermark are being hindered by its association with the much-maligned aerospace sector, despite the group’s tremendous track record of profitability.
Watermark recently landed record sales, margins and profits for an excellent half to June, with profits rising by 50 per cent to £2.35 million, on sales lifted 15 per cent to £35.2 million – investors were also treated to a maiden interim dividend.
Charismatic chief executive John Caulcutt explained that during the period the number of international passengers grew by eight per cent with average airline loads topping 70 per cent. Despite these trends, airlines are still struggling with the ‘ballooning’ cost of fuel and remain extremely keen on the low-cost model of Watermark’s catering division, as well as its ‘Encompass’ outsourcing package.
The company continues to win new airline and travel clients globally, especially in India and the Far East, where ‘there is a swathe of new carriers emerging’ notes Caulcutt. Since June, the group has submitted two sizeable single source product tenders to major airlines, and the recent Gate Gourmet unrest at Heathrow is providing opportunities, with Watermark having already taken on a Heathrow catering contract with Sri Lankan Airlines from Gate Gourmet. Caulcutt says others are in the pipeline.
Originally recommended by GCI at 104p – and currently trading on a forward multiple of 10.7 – we feel Watermark’s £48.5 million market price tag is decidedly measly. We remain fervent fans. Buy.

Shashoua shows the way

We drew attention to growth prospects of exhibitions and conferences group Expomedia in June, when the shares were changing hands for 137.5p, and, since hitting 142.5p in July, the tightly-held stock has drifted to 128.5p.
In our view, there is a still a compelling growth story and although the interim results revealed losses of €2 million (€1.35 million), turnover rocketed north by 65 per cent to €11 million.
Chief executive Mark Shashoua was keen to flag up the group’s strong forward bookings for 2005, up 80 per cent over the previous year, thanks to the continuing launch of exhibitions, conferences and publications.
First-half highlights included the opening of exhibition venues in Amsterdam and Cologne, and the lease of a new, state-of-the-art centre in a key emerging market, India, which Shashoua claims is ‘Russia ten years ago. The whole of India has less exhibition space than London and we are looking for substantial growth there in 2006.’
With Expomedia experiencing stellar growth in Poland and Russia, and partnerships with media groups becoming increasingly key, the future looks rosy.
Running in tandem with all of this is the recently launched innovative events licensing division for emerging markets. It is looking to offset start-up costs by securing local licensees for its brands and letting them bear the early costs. As well as royalties, Expomedia will have the right to buy at a later date when these businesses are established.
House broker Charles Stanley is forecasting a jump in revenues from €15.1 to €24.5 million for the year, with break-even on the cards. Hold.

AGM cheers ASOS faithful

Like-for-like sales at online retailer ASOS, which sells clothing and accessories imitating those worn by celebrities, increased 86 per cent in the six months to end-September. At the company’s recent AGM, chief executive Nick Robertson attributed the improvements to the company’s move to new, larger warehousing facilities. Logistical issues arising from its previous arrangement of four separate warehouses had hampered ASOS and in March profit forecasts had to be downgraded after delays in processing stock. July saw said profits reach record levels anyway, coming in over 70 per cent higher at £1.1 million.
Allied to the improved logistics, further investment in the buying team means 200 ‘hot new fashion lines’ appear on the website each week. Furthermore, a new website and back-office system have been introduced to cope with the ‘continued growth’ of online shopping and ASOS’ 675,000 registered users.
Former marketing director Quentin Griffiths has 8.4 per cent of the shares and Fidelity has been slowly increasing its holding, recently upping its stake to 9.15 per cent. Recommended on these pages back in February 2004 at 7p, ASOS has admittedly had a topsy-turvy ride. Nevertheless, the shares remain well above our recommendation price at 72p, and with the Christmas bonanza to come, there is scope for further advances in the price. If you’re still exposed to the stock, sit tight.

Charteris’ bumper year

Business and IT management consultancy Charteris, a GCI recommendation at 28.5p, has beaten forecasts with excellent results for the year to July.
These revealed a 63 per cent spike in profits to £1.2 million, due in part to the purchase of Cedalion, now a key fourth practice within the business. This October 2004 acquisition,
an Edinburgh-based technical consultancy, proved decisive in Charteris beating off rivals for work with ITV Broadcast.
Cedalion aside, Charteris enjoyed decent organic growth of 27 per cent in an industry still recovering from recession, and reported strong cash generation – £1.4 million from operations – closing the period with £2.1 million cash, despite funding the Cedalion deal.
Chief executive David Pickering’s view is that the company has returned to strong growth from a broader business base. The year’s best progress was in government and financial services & media, whereas in the previous year it was from retail, manufacturing and services.
Charteris’ skills are being deployed on some of the largest technology-enabled change programmes in the industry, and its expertise in the strategic application of Microsoft technologies is throwing up stirring opportunities. This year, Pickering reckons he will deliver further sales advances and gradual margin improvement.
For 2006, analysts have shaded in profits of £1.5 million off £21.5 million sales, giving earnings of 2.5p and a forward p/e of 15.8 at the current 39.5p, handsomely ahead of our recommendation price, although the shares did stop-loss out after hitting a 59p high. Nevertheless, we feel there is more growth to come. If you’re still in, hold firm.

Numbers still add up at Accuma

Accuma is the personal debt advice provider specializing in Individual Voluntary Arrangements (IVAs) – GCI backed the company at 181.5p last month. Encouragingly, the group hit forecasts with maiden figures for the year to July, with pre-tax losses coming in at £473,000, better than expected, on a 191 per cent turnover leap to £2.85 million.
Like quoted peers Debt Free Direct and Debtmatters, Accuma operates in an attractive growth market. UK consumers owe over £1 trillion between them – £185 billion of which is unsecured borrowing outstanding on credit and store cards, personal loans and overdrafts. Following the recent acquisition of Blackburn-based personal insolvency practice Wilson Phillips, the group is currently handling more than 200 new IVA clients a month.
For the year to July 2006, analysts are forecasting a move into the red – investors should brace themselves for pre-tax profits of £2 million on revenues of £9.86 million, leaving the 171.5p shares trading off a racy forward p/e of 23 times. This is justified because Accuma is
on a good growth curve. We
remain buyers.

Hold at Hallin

Our October Company Profile Hallin Marine has slipped slightly from our 65p recommendation price, with the shares currently treading water at 57p. Chief executive John Giddens cheered investors recently with news of a $2 million deal from a key client. Hallin announced receipt of a letter of intent for the work, which will involve subsea repairs and inspection works offshore Indonesia. ‘We are delighted to be supporting this key client, once again,’ teased Giddens. If you bought on our advice, hold firm. If not, the shares are well worth a look.