08/12/2005
Printing.com ponders overseas push
Printing.com – recommended in November’s Growth Company Investor at 60.5p – posted exceptionally strong figures for the half ending 16 October. Despite a trickier economy in which chief executive Tony Rafferty admitted to having ‘to fight harder for each order than last year’, total retail sales – the company’s estimate of the retail sales value of all transactions – skipped 25 per cent higher to £9.4 million and pre-tax profits powered 75 per cent north to £1.1 million. Investors were also treated to a 0.5p dividend.
Operating in a £1 billion printing sector and with an estate spanning all regions of the UK, Printing.com now boasts 147 stores ‘open and pending’. To cater for anticipated growth, its main printing hub in Manchester is being upgraded in a move that will take total retail sales capacity to between £45 million and £50 million.
Rafferty is casting his eye overseas, having unveiled an international strategy centring on the granting of master franchises to overseas printers for initial license fees and ongoing royalties. This model should appeal to commercial printing companies attracted to Printing.com’s above-average margins, and could deliver cash and profit contributions up front on each agreement. Although the international program is still at an embryonic stage, Rafferty has the US, Germany and France in his sights.
Last year, Printing.com made pre-tax profits of £1.5 million from turnover of £10.75 million and this time round analysts suggest a rise to £2.45 million, earnings of 3.6p and a 1.5p payout. Trading above our recommendation price at 68p, we find the forward multiple of 18.9 more than justified by current growth rates. Hold steady.
Analysts upgrade acquisitive ILX
We remain bullish on another of last month’s recommendations, ILX Group, the Ken Scott-led education and training counter rated a strong buy at 117p. ILX has just announced the acquisition of Mount Lane for an initial £2.2 million (plus an earn-out of up to £1.8 million). Mount Lane is a fast-growing provider of specialist training services, assisting large organisations during their IT platform migrations and familiarising staff with the new systems through intranet-based training. The deal, which will be earnings enhancing in the first full year, looks a handsome strategic fit, offering cross-sell opportunities and greater access to blue-chip clients.
Scott also unveiled interim figures that showed the ongoing business strutting along with high organic growth rates. Turnover sparked up 149 per cent to £2.94 million, driven by acquisitions, although the underlying growth rate of the operation as a whole was 35 per cent. There was also a threefold leap in earnings per share. ILX is taking a greater share of growing markets, Mount Lane looks a savvy deal, and the 116p shares trade on a forward rating of only 12.3 times, based on March 2006 earnings of 9.45p. We remain strong buyers of the stock, for which analysts suggest a short-term 130p target price, upgraded from 125p.
Worth sticking with William
Shares in natural healthcare products provider William Ransom have barely moved since we outlined their attractions at 47p in May. However, June’s £23 million purchase of aloe vera specialist Optima transforms the group into a leading player in this budding area. Without the addition of Optima, recent interims to September were mildly disappointing, showing an 11 per cent sales dip to £9.7 million.
The major problem was the move of Ransom’s traditional botanical extracts business from the company’s historic town centre site in Hitchin last Christmas. In the first half of the previous year this division received an exceptional level of orders, ahead of the move. By comparison, the first half of this year, after the move, was quiet.
Executive chairman Tim Dye says these ‘teething troubles’ incurred an exceptional cost of £600,000. However, the business has a record order book for the second half, which is usually the busier one. House broker Numis is satisfied with this explanation and has retained its prediction of a full year pre-tax profit of £3.9 million, or 4.1p earnings per share, putting the 45p shares on a relatively inexpensive p/e of 11. The company should command a much higher rating if investors start to focus on Ransom’s fast growing consumer brands, which, following the Optima acquisition, now account for three quarters of annualised sales. Gross margins continue to rise and now stand at 40 per cent. More integration benefits should be seen in the second half. And the group now has an extremely strong UK sales force. Keep holding.
Weather the warning at Cardpoint
A profits warning has wreaked havoc with Cardpoint's shares, pushing the price down 41.9 per cent to 73.5p on the day the group also announced a relatively upbeat set of results for the year to September.
The preliminary figures revealed a 93 per cent pre-tax profits leap (before goodwill, charges for share based payments, and the £90.5 million Moneybox acquisition) to £3.6 million, on turnover lifted 66 per cent to £61.1 million.
The August 2005 takeover of closest rival Moneybox, which boosted Cardpoint’s scale in a maturing UK market, enabled chief executive Mark Mills to identify £2.4 million of annualised cost savings and expanded the business in Germany (not to mention the Netherlands). In addition, the group has successfully integrated and migrated almost 290 of the 800-plus cash machines bought from HBOS in 2004 over to charging, ahead of target. Mills was also at pains to flag up the inherent strong cashflow of the business, with EBITDA sparking up by 98 per cent to £8.9 million.
Nevertheless, analysts downgraded forecasts for September 2006 on slower than expected implementation of savings within the Moneybox business. Although the deal will bring a swathe of savings further down the track, budgets prepared by the previous Moneybox management have been found to be 'optimistic' and Mills has unearthed delays to savings initiatives that will impact Cardpoint’s profits short term.
The market’s reaction to this was swift and, we believe, overzealous. This group has an excellent position in the UK, a good presence on the continent and, long term, Mills will hopefully not only be able to extract the efficiencies the City demands, but also continue on his growth trajectory. First recommended here at 79p, the share price crash means the shares have technically stop-lossed out. But we are not sellers at the current level. The market cap of £77 million basically values the entire MoneyBox estate at zero. If you’re still in, hold on. Recovery will come.
Speedy Hire boasts expansion headroom
Speedy Hire, originally tipped at 197.5p, continues to forge ahead, with the shares changing hands for 771p, valuing the company at £356.4 million. First half figures to September were healthy, with pre-tax profits perking up 16.1 per cent to £13 million. The company, now led by chief executive Steve Corcoran, enjoyed a near 17 per cent rise in tool hire revenues to £71.4 million, as well as a 30.4 per cent jump in equipment hire sales. Neb debt stood at £84 million.
Some £45 million was channelled into capital expenditure and acquisitions during half one and, thanks to healthy operating cashflow, a £15 million share issue and increased banking facilities, Corcoran has plenty of headroom to fund further growth. Analysts argue there are no shortages of suitable targets and Speedy should deliver yet another year of revenue growth (likely to be around 20 per cent).
Evolution Securities’ Philip Sparks suggests a jump in annual pre-tax profits from £25.7 million to £31 million, on sales of £250 million. The following year, investors might expect sales of £280 million and profits of £35 million. If exposed, we feel it is well worth adding to your holding. The forward multiples of 15.3 and 13.8 looking undemanding given the company’s track record. Add.
Stay on board at Renova
Ethanol group Renova Energy, backed as a speculative buy at 91.5p in August and again at 148.5p in October, currently trades at 152.5p, and should go further. The company is building its US production and distribution network after lifting first-half profits to £328,000.
Renova is developing a system of production, distribution and marketing for ethanol to be blended with petrol in the American Mid-West, where it not only reduces carbon emissions but attracts tax breaks for farmers. Floated in June at 69p, Renova increased pre-tax profits 19 per cent to $479,000 in the six months to September on turnover up eight per cent to $7 million.
More significant, however, for the company, which raised £1.7 million at 140p in September, are the steps it is taking to expand its plant capacity from five million gallons to 12 million gallons and expand its distribution network. Chairman Chris Thomas says the plant expansion at Torrington, Wyoming, should be completed by next June, while a feasibility study is underway into re-developing a disused ethanol facility at Heyburn, Idaho, into a 15 million gallon dry-corn processing plant.
If you bought in at our bidding, stay on board.
Victoria victorious
Consultants’ confirmation of a potential 500 billion cubic feet of gas at Victoria Oil & Gas’ West Medvezhye project in Russia has done wonders for the company’s shares, which have more than doubled since Growth Company’s last mention on 16 November to 129.5p. Floated on AIM last year at 20p by broker Brewin Dolphin to take on some of the already AIM-quoted Celtic Resources’ Kazakhstan oil and gas projects, the company turned its attention to Russia, at the instigation of director William Kelleher, and the move seems to be paying off.
Independent consultant DeGoyler & MacNaughton has confirmed a recoverable gas resource of 500 trillion cubic feet at West Medvezhye, which Kelleher says could be worth £180 million and £260 million – against Victoria’s £97 million market value. The consultant also predicts a possible increase in the resource to 2.3 trillion cubic feet.
Victoria has 75 per cent of the West Medvezhye project and now needs to conduct well and drill a second well. The company also needs to negotiate with Russia’s Gazprom about putting the gas into its pipeline system and work out how much premium-priced condensate it could produce.
First recommended by GCI in February at 64p, Victoria’s shares fluctuated before the latest Russian news. Keep holding.
