Scope for upside at Ultimate

Scope for upside at Ultimate

Trade finance specialist Ultimate Finance sees ‘green shoots’ after lifting first-half profits from nothing to £140,000 pre-tax.

The Bristol-based invoice discounting specialist for small and medium-sized companies, which increased revenue five per cent to £2.2 million in the six months to December and financed a 14 per cent rise in client turnover to £99 million, is ‘in better shape than a year ago’, declares chief executive Richard Pepler. Despite the credit crunch and recession, the AIM-quoted concern has fewer bad debts and distressed clients than a year ago, he insists, suggesting that new clients are bringing business to Ultimate because they are nervous about bank-owned invoice discounters.

He explains this by pointing out that the nature of Ultimate’s business gives it early indications of the way the economy is going. Pepler claims the company started ‘lightening up’ its underwriting in January 2007 and has been ‘very choosy’ ever since, which explains why a 64 per cent increase in inquiries in the first half produced only a 14 per cent increase in financing.

Now, he says Ultimate is looking at client turnovers averaging £200,000 more than expected, which he interprets as a possible ‘green shoot’ for the economy. Analysts see the company making £350,000 pre-tax in the year to June, with £400,000 on the cards for 2009-10.

Pepler says the company would like to make acquisitions, but ‘now is not the time – it is still too risky’. Floated at 24p in 2002, the shares now languish at a grudging 5.5p, which gives scope for potential upside.

Stick with tough Tikit

The Tikit board were in bullish mood this week as the legal and accounting software concern posted record results for 2008. Says chairman Mike McGoun: ‘We’re resilient in tough times and we’re making real profits in terms of cash generation.’

Adjusted pre-tax profits moved 12 per cent north to £3.8 million on turnover up eight per cent at £28.5 million, boosted by last April’s acquisition. The full-year dividend was increased by 20 per cent to 6p.

Cash generation increased from £2.1m to £5.7 million, while long-term recurring managed services and support revenues grew by 30 per cent to £12.5 million. In addition, margin expansion was driven by a doubling of high-margin, own-developed software sales to £1.6 million, with lower-margin third-party revenues reducing as certain clients deferred spend and total software sales waned by 15 per cent to £6.9 million.

Demonstrating the robustness of its model through the downturn, Tikit’s focus for 2009 will be on growing own-developed software sales and repeat revenues, while tightly managing costs and cash.

Charles Stanley’s Ian Mitchell forecasts growth in profits and earnings per share to £4.2 million and 20.58p respectively this year, ahead of £4.5 million and 22.19p for 2010.

Tipped here last August at 213.5p, the shares rose above 230p before a long slide to a low of 102p. Bouncing to 112.5p, Tikit now trades on a prospective p/e of 5.5, offers a yield of 5.3 per cent and represents excellent value. Buy/hold.

ReNeuron slides on discount placing

Stem cell therapy developer ReNeuron, tipped here at 13p in January, has had to offer a large discount to attract institutional investors to its hoped-for £3 million fundraising.

We flagged up the company’s potential in January after it won approval to begin maiden clinical trials of its ReN001 stroke treatment on humans. At the time, ReNeuron’s chief executive officer, Michael Hunt, warned that further funding would be sought. As such, Hunt has lined up nominated adviser and broker Collins Stewart to handle the placing, supported by Daniel Stewart and Matrix Corporate Capital.

Subject to shareholders’ approval, the placing will have four closing dates between 3 April and 1 June, enabling investors taking up the placing to take advantage of Enterprise Investment Scheme tax reliefs.

However, the placing price of 3p is a far cry from ReNeuron’s 195p float price in 2000 and represented a 65 per cent discount to the company’s quote of 8.62p the day before the news. The sector has recently been boosted by the Obama administration’s relaxing of restrictions on stem cell research, and the current price may offer upside on further newsflow. Keep your powder dry for now though, as the fundraising may see the share price unravel further. Hold.

Kalahari agrees Extract board

Uranium and copper play Kalahari Minerals has ended its dispute over board composition at 39.8 per cent-owned Extract Resources.

Down Under-quoted Extract is the company through which London-headquartered Kalahari has its exposure to the key Rossing South uranium deposit, holding an estimated 108 million lbs of U3O8 within Namibia’s Husab uranium prospect. Mining giant Rio Tinto, which operates the long-standing Rossing uranium mine nearby, holds 14.6 per cent of Extract and 15.8 per cent of Kalahari.

Having been in dispute over the composition of the Extract board, these various parties say they have now reached agreement. Steve Galloway, a former Kalahari director, will now become non-executive chairman of Extract, while John Main, originally recommended by Rio and whom Kalahari had wished to remove, becomes a non-executive director. Two non-executives, Steve Sikirich and Peter Meagher, have resigned, while Peter McIntyre stays as managing director. David de Jongh Weill becomes a non-executive director of Kalahari.

Mark Hohnen, chairman of Kalahari, who suggests Extract will soon be able to increase its total uranium resource estimate to 240 to 250 million lbs of U3O8, says this resolution will enable the company to pursue the development of its projects unimpeded. It still leaves Rio with big stakes in both Kalahari and Extract and no formal obligation to bid, while two other AIM-quoted groups, Niger Uranium and mining entrepreneur Steve Dattels’ Emerging Metals, hold 15.4 per cent and 8.8 per cent respectively.

Highlighted here at 26.25p and frequently since, Kalahari shares hit 81p in February and now trade at 75p, valuing the company at £134 million. Keep holding on.

Sell Scott

With analysts having trimmed their earnings estimates for engineering consultant Scott Wilson, we suggest now may be time to move on.

Though Scott Wilson has doubled in size over the past couple of years, an update this week flagged up ‘a rapidly deteriorating global economic environment’ and the fact that it would now be difficult to predict performance beyond the current year.

Although its road and rail businesses in the UK, as well as the bulk of its international operations, continue to see high levels of demand and its order book stands at record levels, project deferrals and the curtailment of works by clients in both the UK and Middle East have disrupted planning and impacted staff utilisation. As a result, underlying operating profits for the year to 3 May will be flat and the company will incur a £4 million to £6 million exceptional charge, pertaining to restructuring costs and provisions set against work in progress and debtor balances.

In the long term, Scott Wilson’s robust balance sheet and order book give it the look of a winner, but the short-term picture has clouded and, with analysts forecasting reduced earnings this year and next, the downtrodden shares could come under further pressure. Sell and move on.