27/03/2007
Concurrent Technologies, which makes high-performance embedded computer products for markets such as defence, posted another year of strong growth for 2006. It furnished investors with a 30 per cent rise in the final dividend to 0.65p, raising the year’s total from 0.75p to 1p a share.
Under modest managing director Glen Fawcett, the year’s financial highlights included a 61 per cent growth in pre-tax profits to £2.3 million, on turnover up 17 per cent to £12.5 million. Ongoing gross margin strength at 47 per cent, despite the ‘currency headwind’ of the weakening US dollar, was impressive. Concurrent closed the year with net cash of £4.8 million and zero borrowings.
In a year when nine new products were launched, Concurrent ramped up its sales and marketing push in the USA and China, and made efforts to increase investment in design and development, with many new products based on the latest processor technology from Intel.
Recent investment in compliance with environmental regulations (the company’s board products must now comply with a new European hazardous substances environmental standard known as RoHS) and product development will cause a ‘distinct second-half bias’ to profits in 2007. Nevertheless, with markets for Concurrent’s products remaining buoyant, the group looking to buy back more shares over the coming months and acquisitions a possibility, the 41.5p shares, trading well north of our 30.25p recommendation level, remain well worth holding for both income and growth. Some analysts even suggest the company, the only UK embedded supplier to both military and commercial applications, could itself become a bid target in an increasingly global electronics sector.
Long-term plays pay off
Adherents of our long-term investment view will have turned handsome profits from two of our recommendations from 2003: Connaught and McBride. Both have proved sterling portfolio performers, cementing all-time highs over recent weeks on the back of corporate activity.
Main board-quoted property services counter Connaught has been an outstanding performer, having risen 395 per cent from the 59p at which it was first recommended here. A leading player in the £10 billion social housing services market, the Exeter-headquartered company continues to clean up on lucrative long-term deals – raking in more than £350 million of orders since the start of the new financial year alone.
Acquired in March for £8.7 million cash, profitable social housing asset manager Baldwins – which lists Leeds, Bradford and Harrogate County Councils among its clients – has added £44 million of turnover, from which Connaught can wring returns, and strengthens the group’s ‘national capability’.
Connaught remains a veritable star performer, and the strong share price performance continues apace. Based on forecast earnings of 11.3p for August 2007, however, the 292p shares are trading on 26 times estimated earnings and partial profit-taking could prove prudent – but stay on board for assured further growth.
Meanwhile, rapacious acquirer McBride – the maker of white-label laundry products, as well as household cleaning and personal care products for supermarkets – has doubled its share of the Italian market to 25 per cent through the £19 million acquisition of Dasty Italia, a deal that should boost this year’s earnings by two per cent.
McBride’s recent corporate activity also includes the acquisition of a smaller, though profitable, Luxembourgian rival for £39.3 million in February – this venture made profits of £4.7 million from sales of £92.5 million in 2006. Half-time figures issued that month confirmed the comfortable bedding-in of two other acquisitions, helping to nudge pre-tax profits five per cent higher to £15.6 million and allowing six per cent dividend growth to 1.7p.
For the year, analysts are looking for profits of £32 million and 12.9p of earnings, placing the 234.5p shares on a prospective multiple of 18 times. Again, investors yet to book some profits after a stellar ride should do so, although we remain confident there’s more growth to follow.
Z losing its zip
On occasion, we suffer from less than fantastic share price performances among our Company Watch tips. We first backed Z Group, the marketing-led web technologies venture, in 2005 at 121p as a potentially explosive growth technology tale; and though the shares soared initially, the price has waned dramatically to a lowly 48.5p (valuing the business at less than £12 million), representing a dramatic loss for investors who failed to set a stop-loss.
Z Group gained ground after announcing strong profits growth for the year to February 2006 – its maiden year as a public company – with pre-tax profits surging 78 per cent north to £1.1 million. Since then, however, the story has been less obviously upbeat, with half-time figures to August revealing a disappointing swing from profits of £200,000 to losses of £500,000 on a lower turnover of £1.54 million (from £2.57 million) and Z Group’s valuation taking a further knock from a January profit warning in which disappointing trading in the final quarter of the year was brought to the market’s attention.
Revenues from OnShare, the group’s file-sharing software offering that allows file-sharing and highly secure communication between groups of users, have been delayed due to a decision to focus in the short-term on growing the customer base and improving the product’s functionality, although monthly growth in downloads has proved impressive.
Turnover for ONSPEED Mobile, the group’s mobile phone acceleration software based on award-winning patented compression technology, also disappointed in the final quarter, with revenues hit by timing delays to contracts with global partners and sales growth apparently hit by growth in the market for fast broadband connectivity. Investors with faith in the explosive long-term prospects for the file-sharing market might like to hang in there, although those nursing heavy losses should consider cutting their losses and reinvesting in more imminent growth situations for now.
