Small Cap Weekly

Profits still bubbling at foams play

Croydon-headquartered specialist foams counter Zotefoams delivered robust profits growth for 2008.

The fully listed foam technologist, selling to Europe, North America and Asia, and whose products are employed across sectors ranging from construction to sports and the military, claims its unique production process produces foams of superior strength, consistency and quality to those of rivals.

Buoyed by favourable currency swings, sales wafted ten per cent higher last year to £35 million, sending profits bubbling 17 per cent higher to almost £4 million. Churning out £5.8 million of cash, Zotefoams proposed maintaining the annual dividend at 4.5p.

Growing its core ‘polyolefin’ foams business – sales swelled to £34 million last year (2007: £30.9 million) – Zotefoams is additionally developing a portfolio of high-margin, high-performance polymers that should underpin future growth.

One concern is that volumes in the early months of 2009 were said to be lower than expected (exposure to the construction and automotive sectors won’t have helped) though the group’s long-term prospects remain positive.

Unfettered by debt – gearing is minimal at four per cent – Zotefoams’ raw material costs are now lower than they were last year and the business is showing impressive resilience. We think the shares, now 59.5p, down from a 130p 2007 high and offering a yield approaching eight per cent, could reward a recovery punt.

Chesnara chases deals

Life assurance investor Chesnara, recommended here at 132p in 2006, is looking for acquisitions after an 18 per cent pre-tax profits fall to £22.7 million.

Graham Kettleborough, boss of the fully listed company, says that since its chief assets are two closed life assurance concerns – Countrywide Assured and City of Westminster Assurance – profits and investments inevitably decline as they are being run off.

Accounted for on an ‘embedded value’ basis, reflecting changed assumptions about long-term expenses, gilt rates and other factors, Chesnara increased profits last year by 150 per cent to £16 million.

The company, whose (non-embedded value accounted) earnings fell from 24.32p to 19.24p in 2008, is increasing its annual dividend three per cent to 15.55p, which means the shares, at 138.5p, offer a bumper 11.2 per cent yield.

Kettleborough says Chesnara is looking for potential acquisitions, not only among life assurers but in financial services generally in the UK and abroad.

Trading on an undemanding rating and with considerable yield appeal, the shares, down from a 52-week peak of 171p, remain good value. Hold/buy.

Share moves cheer Kalahari

Polo Resources’ purchase of 5.7 per cent of Aussie-quoted Extract Resources has rekindled bid speculation over uranium play and former recommendation Kalahari Minerals.

Mining entrepreneur and uranium player Stephen Dattels is executive chairman of AIM-quoted Polo and also heads its fellow AIM counter, Emerging Metals, which has an 8.8 per cent stake in Kalahari. Mining giant Rio Tinto recently upped its own Kalahari holding to 16 per cent and a third AIM play, Niger Uranium, also has a hefty Kalahari holding.

Kalahari’s primary interest is its 38.65 per cent holding in Extract, which owns the Rossing South uranium deposit in Namibia’s Husab deposit. Recent assays have suggested Rossing South could be ‘one of the largest uranium deposits in the world’, says the company, and that is what has stirred interest from Rio, which runs the long-standing Rossing uranium mine next door.

Shares in Kalahari, highlighted here at 26.25p in 2007, are now showing some form, having reached 124p, valuing the company at £222 million. They should have further to go, so sit tight for now.

ACM Shipping steers profitable course

Global tanker broker ACM Shipping, tipped here at 152.5p in December and now higher at 172.5p, says its annual numbers to March sailed in significantly ahead of the forecasts of City number crunchers.

In a trading missive, the AIM-traded company, with CEO Johnny Plumbe at the tiller, said trading remained strong last year – spot brokerage, freight futures and the Harris & Dixon acquisition were singled out for special mention – with profits also benefiting from sterling’s weakening against the US dollar.

Forecasts for March 2009 have since been navigated upwards from £7.4 million to £8.3 million, although 2010 estimates were pared back due to a recent weakening in spot rates and some slowing in the group’s ship sale and purchase business.

Dividend yielding and still selling for only five times earnings (based on expected 2009 earnings of 33.5p), ACM shares remain moored in purchasing waters. Keep buying.