Small-Cap Stock Picks

AEC Education: earning good marks

Far East-focused education training and examinations play AEC Education is delivering strong growth in resilient markets and is casting an eye over possible acquisitions.

AEC, which provides educational courses up to post-graduate degree level in Singapore, Malaysia, Vietnam and China, as well as London Chamber of Commerce and Industry (LCCI) exams and qualifications across Asia, earned marks by growing sales 21 per cent organically to more than £3.2 million in the half to June.

Pre-tax profits powered 31 per cent higher to £403,000, earnings rose to 1.3p (2008: 1.2p) and AEC ended the half with £3.15 million in net cash, having raised more than £1.6 million of fresh cash during the half.

‘Pretty pleased’ with the results, chairman Liam Swords says that in spite of wider economic tumult, the company’s Far Eastern education markets remain resilient, with students ‘often seeking to enhance their employment prospects via well-regarded educational programmes and qualifications’. Accordingly, he highlights ‘excellent’ performances from Malaysia and Singapore, with China ‘still showing growth, albeit slower than we expected’.

Shortly after the end of the half-year, AEC took ‘another major step forward’ with the cash and shares-based acquisition, capped at just below £4 million, of London-based Malvern House in a deal almost doubling its size. Offering English language learning courses for foreign students, as well as business administration and other courses, Malvern has brought a UK presence and will enable AEC to tap into strong demand for UK-based study from the Far East. Expecting to announce further acquisitions in the coming 12 months, Swords says AEC remains focused on the delivery of further organic growth.

Comfortably on track to meet full-year forecasts – house broker WH Ireland predicts £1.2 million of pre-tax profit from £9.45 million sales and earnings of 2.3p – the shares, presently priced at 21.5p, are trading on less than ten times forward earnings and look an educated long-term bet. Buy and stash away.

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Futura nears product launch

Loss-making Futura Medical expects marketing authorisation for its CSD500 erection-maintaining condom ‘around the end of the year’.

The Guildford-based company, which is developing five products in the consumer healthcare market, reduced its losses by 34 per cent to £706,000 in the six months to June. Chief executive James Barder says AIM-quoted Futura, which ended the half-year with £965,000 cash, is ‘on course’ to win marketing authorisation for CDS500 in a few months.

This would pave the way for the launch of the product with Futura’s partner, Durex-maker SSL International, as a ‘Durex-branded condom’. Meanwhile, Barder says he is in discussions with ‘several potential commercial partners’ since the company modified the formulation of its PET500 ejaculation-delaying spray to comply with the requirements of the US Food and Drugs Administration.

Futura shares, backed here at 27.5p in late 2008, have fluctuated between 12.25p and 36p over the past 12 months and now stand at 26.25p, valuing the business at £16.6 million. Given recent exciting developments, they are well worth holding onto.

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Growth slows at GTE

Although sales grew by 25 per cent in the first half of 2009, cash-constrained customers in the aviation sector have caused Gas TurbineEfficiency (GTE) to revise its full-year forecasts.

The aviation industry, to which GTE and joint venture partner Pratt & Whitney provide engine-cleaning services, has been badly buffeted by the downturn. With global airlines having lost a combined £3.7 billion in the first half of 2009, cash is constrained and projects are being delayed. Accordingly, CEO Steve Zwolinski admits that GTE has seen a ‘significant slowdown’ in the second half, which is disappointing, since sales climbed 15 per cent to $3.9 million (£2.4 million) in the six months to June.

However, Zwolinski, who thinks this industry turbulence ‘is just an air pocket that has to pass through the system’, sees a silver lining. ‘With the cash constraint and environmental pressures, if you have a good solution, as we do, you can do something.’

The newer but larger part of the business, energy services, continued to grow fast in the first half, with revenues up 29 per cent to $14.5 million. There have been some delays here as well but ‘less impact’ says Zwolinski, who has been gearing up for expansion into Europe and the Middle East by making ‘significant senior hires’ to lead the team into the oil and gas market there.

But, for now, the picture is slightly blurred. On the plus side, GTE has net cash of $9.6 million and a stronger pipeline of long-term contracts than ever before, though this is distorted somewhat in the short term by the ‘visibility of the timing of revenue’ being ‘diminished substantially’.

Despite what is essentially a profits warning, we still like the long-term story at GTE, backed here at 25.5p in April and now 25.25p, and advise investors to sit tight.

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