Companies: CHU    EMH    ENN    FAN    HIF    KBT    PCF   

Private & Commercial Finance has been one of the most consistent performers among our Company Watch recommendations over the past 18 months. Touted as a 'Buy' at 55p in June 2001, the shares have been as high as 86.5p this year, and currently rest at 70p. If recent developments are anything to go by, the price should soon attain, and surpass, its recent heights.

Chief executive Tony Nelson unveiled strong interim results for the six months to June, with pre-tax profits surging 28 per cent to £755,700, despite turnover only improving 7.4 per cent to £15.97 million. Earnings per share rose 29 per cent to 3.6p and the interim dividend was lifted 5 per cent to 1.05p per share.

Nelson expects to see a sustained performance from the business in the second half, following the completion and implementation of two operational procedures.

Firstly, the group has agreed a new five-year financing facility with Barclays Bank, worth £75 million. This will allow the group to increase its capacity and undertake some additional acquisitions, as and when the opportunity arises.

Originally the company wanted to securitise its loan book to enhance its business capability but, after extensive enquiries, finance director Scott Maybury said this proved too expensive to complete given the business' current size.

The finance house has also launched a new in-house electronic proposal system. This Web-enabled process allows the company to give a loan decision to potential clients much quicker than previously, and, as such, should increase volumes and improve efficiency. Margins should also improve with this system in place.

For the full year the market is expecting PCF to hoist profits to £1.9 million and deliver earnings of around 7.5p. The 70p shares, trading as they are on a forward p/e of 9.3p, should not be sold. Hold.

OneMonday's alternative fundraising

Profits at OneMonday, the public relations and corporate communications group, exceeded all initial expectations for the year to July when the Aim-listed group delivered £4.07 million before tax.

However not all of this very welcome profit came from operating activities. As has been well documented, OneMonday sold the 'Monday' part of its name to PricewaterhouseCoopers for £3.1 million. It has since changed its name to Next Fifteen Communications (after the famous Andy Warhol comment that everyone will be famous for at least 15 minutes).

Despite the windfall, chief executive Tim Dyson drew attention to the fact that the company had improved operational profits from 13 per cent to £2.2 million and reeled in significant new business from AXA, IXOS and TotalFinaElf.

It was not all plain sailing though. Next Fifteen endured a necessary bout of reorganisation (involving office and brand closures and redundancies) which cost it a total of £997,000. But Dyson says all the changes needed to cope with the advertising and public relations downturn have been made, and that none of the company's PR brands are now loss-making.

Next Fifteen is also debt-free and cash-rich, which puts it in a better position than many of its competitors.

Beeson Gregory is expecting full-year pre-tax profits for 2003 to hit around £2.4 million, while ING Barings is slightly more conservative, pencilling in £2.2 million. Either way, the 33.5p shares (market cap: £15 million) remain attractive. Buy/Hold.

Chaucer continues to spin intriguing yarn

Recommended as a 'Buy' in the August 2002 issue of Growth Company Investor, Lloyds insurance syndicate manager Chaucer has since enjoyed a strong three month's trading on the market. This is mostly due to its figures for the six months to June, which revealed a pre-tax profit of £300,000 had been achieved, its first in three year.

A £6.9 million operating loss in 2001 was converted into a profit of £5.1 million, as gross premiums underwritten rose by a third to £183.3 million.

Managing director Ewen Gilmour was extremely bullish on the back of these figures, heralding a 'radical improvement in the insurance market' and claiming the current environment represented 'the most exciting underwriting market conditions for many years'.

To take advantage of these conditions, Chaucer recently completed a £39 million placing and open offer, affording it greater funds with which to underwrite new business.

Like Gilmour, Nick Johnson of house broker Numis is upbeat about the company's short-to-medium-term prospects.

He describes Chaucer as 'a sound business', forecasting operating profits of £9.2 million for the full year and a pre-tax profit of £700,000. By 2003 he expects these figures to rise to £18.1 million and £16.6 million respectively.

'The reason we really like Chaucer, however, is the valuations,' confides Johnson. 'The average company in this sector trades at 1.5 times its net tangible assets. We forecast assets of 31p at Chaucer for the year-end, so with the shares at 32.5p there is currently no premium in the share price.' Buy/Hold.

Ennstone building well

Another firm lingering around its recommendation price (it has slipped from 34.5p to 30.25p) is fully-listed building materials supplier Ennstone.

Initially highlighted by the Growth Company Investorteam in April, the Derby-based firm recently published strong half-year figures – growing pre-tax profits 23 per cent to £1.7 million and revenues 21 per cent to £36.7 million during the period. This was a record result for the company.

The one worry for investors, though, is Ennstone's high level of indebtedness. At the half-year stage the company owed £47.2 million, just £570,000 down on its borrowings at the start of the period. These debts saw it pay a hefty £1.5 million of interest in the first half alone, heavily restricting pre-tax profits.

Despite this, chairman Vaughan McLeod remains 'confident of increasing growth in the second half' and expects the company to 'deliver' on analyst expectations.

These expectations are for a profit of £6.6-£6.8 million for the full year and predicted earnings of 3.1p, affording the company a prospective p/e of 9.8. Buy/Hold.

First Artist slumps

Fellow April recommendation First Artist has been a big disappointment thus far – in share price terms at least.

Shares in the Aim-listed sports management agency, which counts Arsenal stars Freddie Ljungberg and Kanu, as well as England defender Danny Mills, among its clients, have been falling since mid-June – taking them from our recommendation price of 55p down to a lowly 13.5p.

This occurrence has left chief operating officer Phil Smith baffled.

Smith attributes his company's decline purely to the market. By way of an example, he notes that the company's share price had begun to pick up in recent weeks. 'Then Leicester [City] went into administration and we dropped back down again – why should it affect us?'

Certainly October's full-year results suggest First Artist has been treated harshly of late. Prior to £1.4 million of goodwill, relating to a major acquisition, it recorded a £2 million (£700,000) profit before tax in the year to June. And with sales also surging 300 per cent to £6.7 million, Smith reckons 'we couldn't really have done much better'.

As for the year ahead, Catherine Bond of house broker Seymour Pierce forecasts a reduced profit of £1.5 million due to the shadow ITV Digital's collapse has cast over the football sector.

Smith meanwhile says First Artist is on the verge of diversifying through the acquisition of 'quite a large, mainstream talent agency'.

On balance, we think the shares are still worth holding.

K3 guns for profit

Like most software vendors, K3 Business Solutions has been hit by uncertainty and contract delays as result of the prolonged bear market. Yet, unlike many, it continues to improve its performance at both the top and bottom line.

At June's half-year stage, the enterprise resource planning and business management software developer reported a 14 per cent hike in revenues to £3.9 million. Meanwhile a near £850,000 reduction in losses left it just £49,000 short of breakeven.

Encouragingly the main reason for the loss, sports television rights subsidiary Touchline (which contributed a £137,000 loss during the period), has since been disposed of.

Despite these improvements, K3's management admits the first half was below expectations.

Chairman George Matthews reckons that, while the second half is traditionally stronger for K3 (on account of repeat revenues), significant new sales will have to be made for the company to match forecasts.

Nevertheless, Barrie Newton of house broker Rowan Dartington remains 'very positive' about the group's prospects. Newton has trimmed his full-year profit forecasts slightly, but still expects a profit of £1.05 million this year (£1.37 million loss), rising to £1.4 million in 2003. These estimates put K3 on an undemanding forward p/e of 5.5.

At 11.5p, K3's shares are 0.5p down on May's recommendation price and, while topping up your stake before the release of full-year results would be a speculative move at present, investors should keep holding.

Hidefield's promise

Backing young mining companies is always a speculative business, and so it remains with North American-focused gold and coal hopeful Hidefield.

Recommended alongside K3 in May, at a price of 3.5p, there was little development from the company over the summer and early autumnal months, and the shares drifted back.

But good news arrived in late October, as the management announced the sale of its 40 per cent stake in the Merritt coal and methane project in British Columbia. In return Hidefield has received a 5 per cent shareholding in Gosfield, the stake's buyer.

The sale enables Hidefield to keep an interest in the project, while continuing to focus its attention on seeking 'a major gold acquisition'. Hold.

EMH motors ahead

Investors who followed our advice last month and bought into car dealership European Motor saw their shares rise 7.5p to 132.5p on the day of its sterling interim announcement.

Although the price has eased off from a 12-month high of 153p, EMH still looks a first-class firm.

In the half to 31 August, pre-tax profits sped up 17 per cent to £6.4 million, on a turnover of about £230 million. Earnings per share edged ahead 20 per cent to 8.4p, and the first-half dividend was lifted 7 per cent to 3.2p.

Dynamic chief executive Richard Palmer has shown his confidence in the business once again, snapping up 10,000 shares at 131p, with finance director Ann Wilson also wading into 5,500 shares at the same price. This helped push the price on another 5.5p to 138p on the day after the figures.

The enthusiastic Palmer says trading has remained strong in the motor retail sector, buoyed by low interest rates, new models and changes in company car taxation. During the half, 1.365 million shares were repurchased and cancelled and the group is sitting on net cash of £18 million. Still a 'Strong Buy'.

Screen – sell and move on

Security systems developer Screen shocked the market in early October when it requested an immediate suspension of its shares.

The reason for this unusual move was simple: while preparing its overdue interim report for the period to June, its management concluded that it would have to make a £2 million provision against 'certain debtors'. Rather bizarrely, these debtors relate back to the year ended December 2001.

In a rather terse statement, the company also said impending interim figures would no longer match market expectations – even though it had previously assured investors they would. Adding insult to injury was the news that 'discussions with the group's bankers are also underway'.

Unsurprisingly, the revelations left investors baying for blood. A menagerie of bulletin board commentators immediately began questioning Screen's ability to survive, while demanding the heads of those responsible.

Shortly after the announcement resignations rained down. Finance director James Shand was dismissed with immediate effect and chairman Owen Williams tendered his resignation. Williams maintains an 11.8 per cent holding in the company.

Former chief executive Claes Bergstedt stepped down back in July. Conservative MP Ian Taylor has taken the chairman's seat and is now charged with leading the company forward.

Both Screen and its broker, Collins Stewart, remain tight-lipped – offering only the promise that further information will be supplied to the market as soon as possible. As such, and with trading still suspended, investors have little choice but to watch and wait. As soon as you get the chance, you should get whatever you can for your shares in this severely compromised entity. Sell.