Brokers' views: Edison Investment Research

In a note entitled ‘Back to the basics’, research house Edison waxes lyrical about Nexus Management, the IT solutions provider which recently disposed of its recession-hit ‘Nerd Force’ operation to a management-led consortium for up to $500,000.

Edison considers that Nexus – which has a £3.1 million AIM tag at 0.28p a share – retains a strong economic interest in Nerd Force as both supplier and partner. It also boasts core managed services businesses offering ‘steady cash flows’ and a Resilience Technology network security business with ‘the potential to scale’. Edison also highlights ‘the potential value of Nexus’s data centre asset in Maine’ in the US.

Forecasting that the company will break even this year on £6.3 million sales before making £300,000 pre-tax on £7 million sales in 2011, Edison believes that ‘if management succeeds in leveraging its businesses, in particular Resilience Technology, there could potentially be significant upside for investors’.

Seriously undervalued
Elsewhere, Edison sees the market value of fully listed Molins, the specialist engineer which designs and makes packaging machinery for the tobacco industry, as undercooked. It believes Molins’ post interim-results fall in share price says ‘more about City nervousness than the actual figures’, albeit noting that ‘the predictable reduction in the pension fund value will not have helped sentiment’.

Though half-year underlying operating profits were down from £1.4 million to £800,000, this drop had already been foreshadowed in an earlier update and Edison notes ‘encouraging signs on several businesses’ and ‘tangible’ signs of earnings recovery. As such, Edison says that at 53.5p, the shares are ‘distinctly undervalued’.