Updates on our recommendations on Claimar Care, Hasgrove, Northbridge, Accuma, Charteris and Motivcom.
Acquisitive Claimar captures Jemma
Claimar Care – profiled as a strong buy on these pages last summer at 76.5p – has enjoyed a share price surge to 160.5p, valuing the acquisitive venture at £47 million. This domiciliary care services provider to local authorities throughout the Midlands and the North West swiftly integrates acquisitions to the speedy benefit of its bottom line, and has just completed its fourth takeover of the current year.
Acquired for up to £1.17 million, profitable Jemma Care works mainly with Flintshire County Council and strengthens Claimar’s hand in Wales and the North West.
Chief executive Mark Hales recently prised £7 million from institutions by way of a placing at 105p per share. Twice oversubscribed, with institutions keen to buy into the story, founders sold a limited number of shares to accommodate demand and boost liquidity in the stock.
The group, which raises debt finance to make acquisitions and then washes the debt out through the issue of equity, will use the proceeds to pare back debt and complete further deals with a plentiful pipeline of targets under consideration. Domiciliary care
is an opportunity-rich sector consolidating around larger players able to deliver the increased care hours capacity demanded by local authority clients. The trend is towards contracts with a smaller number of larger providers. Longer-term deals with guaranteed numbers of hours means Claimar can continue to grow the top line while maintaining healthy margins.
Upgraded forecasts for the year to September point to growth in pre-tax profits from £1.35 million to £2.1 million, though earnings have been pegged back from 6p to 5.7p, reflecting short-term dilution that should unwind as acquisitions boost earnings, with further upgrades likely. A forward p/e of 28 is by no means cheap, but Claimar is a compelling growth stock that has hit the dividend trail and retains long-term appeal. Add.
Earnings flourish from Hasgrove
We’re delighted with recent Company Profile pick Hasgrove, the communications firm recommended at 144p in February. The Manchester and Brussels-based group debuted on AIM in November and has subsequently impressed with preliminary numbers for the ten months to December.
Chief executive Rod Hyde announced a 200 per cent-plus revenue rise to £15.3 million, with pre-tax profits powering ahead by 156 per cent to £1.8 million and earnings surging 74 per cent north to 9.2p. Encouragingly, the year-end balance sheet was flush with £3.5 million of net cash.
Hasgrove is the holding vehicle for a diverse batch of niche, profitable and cash-generative ventures providing services across the public affairs and PR markets, as well as in advertising, graphic design and digital online marketing, and recent acquisition Cabinet Stewart has brought Hasgrove a leadership position in the fast-growing EU public affairs consultancy market.
Hyde claims to have a number of acquisition targets in his sights and said investors can expect a maiden dividend for payment in 2008 based on results for the year to December 2007. Forecast profits of £3.4 million and 12.1p of earnings for 2007 place the 156.5p shares on a forward p/e of 12.9, undemanding for such an ambitious business. We remain fervent fans.
Buoyant trading lifts Northbridge
Strong cash flows, dividends and an exciting consolidation opportunity underpin the investment case at Northbridge, flagged up before Christmas at 128.5p. Maiden figures for the year to December, based on nine months’ trading from the core Crestchic business (acquired for £6.7 million at float in March), revealed profits of £1.1 million from £6.9 million sales.
On a full-year basis, Crestchic recorded revenues of £8.7 million, representing an impressive 40 per cent sales growth, with pre-tax profits surging 49 per cent higher to £1.88 million.
This subsidiary makes and rents load bank equipment used to test diesel generators and gas turbines when they are installed or maintained. Global demand for load banks is buoyant, particularly in the US and South East Asia.
Factors fuelling demand include the need to continually test and maintain standby and independent power systems, and rising reliance on power-critical technology used in the banking, medical, marine and defence industries, as well as the ongoing oil and gas boom.
Alongside the figures, the £900,000 acquisition of Loadbank Hire Services was announced, cementing the group’s leading position in the load bank market.
This year analysts are looking for pre-tax profits of £1.6 million from revenues of £9.6 million, ahead of £1.9 million from a top line of £10.7 million for 2008. The current 181.5p share price still represents good value for a high-margin buy and build enjoying bumper demand for its services. Acquisitions in the industrial equipment space should provide added earnings spice. Add.
Stay with Accuma
Diversification into informal debt management, consolidation loans and remortgaging spared the blushes of Accuma, the provider of individual voluntary arrangements (IVAs) hit by a profits alert.
Greater competition and resistance from creditors have hit the quoted IVA sector and Accuma has suffered the pain, with its problems exacerbated by a ‘poorly executed’ marketing strategy. Thankfully, management’s decision to build a more rounded consumer financial solutions business paid off at the halfway stage, with results proving robust. A fourfold increase in adjusted pre-tax profits to £1.6 million and an encouraging rise in operating margins from 6.9 per cent to 15.5 per cent were scored on turnover more than doubled to £10.6 million.
The results reflect the effectiveness of broadening the range of services to debt-laden consumers via acquisitions Byrom Keeley, a debt advisory business, and Loan Line, a loan and mortgage broker. The deals were originally completed to maximise earnings by boosting group enquiries, which in fact cushioned the fall from short-term pressure on the IVA sector.
Although Accuma has cut its reliance on the IVA market, altered its marketing strategy and expects its IVA business to recover, prospective investors should steer clear of a story cloaked in uncertainty. Readers who have followed our bullish stance – GCI backed the shares at 181.5p – will be rightly disappointed with the share price performance.
Given the interim fourfold profits leap, however, there is still a compelling business here and we don’t urge panic selling. Hold for the longer term.
Charteris refocus bears fruit
We liked the look of business and IT consultant Charteris at 28.5p in late 2004 and the share price subsequently climbed to 59p in early 2005. Lately, however, the shares have come under pressure.
Interims to January revealed losses of £305,000, a disappointing swing from previous interim profits of £382,000, but chief executive David Pickering insists his refocusing programme is bearing fruit. Turnover at Charteris fell by £1.8 million to £8.9 million in the first six months, due to a decline in the company’s established markets.
Pickering said trading was in line with expectations and reflected the company’s decision to invest in three specialised business lines: infrastructure optimisation, intelligent integration and customer centricity. These new activities involve multi-channel retailing, such as helping Tesco develop its online ambitions, and, in a newly won contract, advising high street computer game retailer Game on implementing a project to expand online.
Charteris’ intelligent integration arm is assisting businesses such as acquisitive Australian Macquarie Investment Bank execute back-office changes in acquisitions. The company is also working with Microsoft UK – ‘a very good client’ – on its Dynamics range, helping clients make changes, while its Scottish-based Customer Centricity arm builds up its business. Pickering, who claims Charteris has established ‘big credibility’ with financial service and public sector groups, said orders picked up in the second quarter as the new programme began to win clients.
City number crunchers see full-year earnings before interest, tax, depreciation and amortisation of £300,000, giving earnings per share of only 0.4p and placing Charteris on a demanding forward rating of 52.5 at 21p. Investors adhering to our stop loss system will have shielded themselves from recent falls although we still believe the shares offer speculative recovery possibilities. If you haven’t sold, hold firm.
Accident Exchange reverses
On the whole, credit car-hire specialist Accident Exchange has been a strong performer for us since our initial backing at 285p, scaling dizzy heights on the strength of a slew of stellar financials. However, the group, which graduated to the Official List last year, has warned of a possible equity financing need after disputes delayed cash collections.
Shares in the West Midlands-based company plummeted after Steve Evans, chief executive and 40 per cent-plus shareholder, issued a profits warning and said ‘an equity fundraising’ was among ‘options under consideration’ by the board. The company, which warned in February that growth in its third quarter had been ‘below board expectations’, now says it expects pre-tax profits for the year to April to come out at £18 million, £1.7 million up on the previous year but significantly below earlier expectations.
Accident Exchange rents cars to “no fault” victims of motor accidents and collects payments for this from the insurers of the “at fault” defendants. In the past, insurers had objected to the hire rates agreed between the credit hire companies and the vehicle suppliers, but a few years ago peace was understood to have been brokered after a new hire scale was agreed with the Association of British Insurers.
However, Evans says solicitors for some of the defendants recently raised ‘technical arguments’ to reopen the issue of whether Accident Exchange’s credit hire terms were on older agreements from 2004 and 2005, and, after all, enforceable. The board has received leading counsel’s opinion that the terms are enforceable and argues that the Consumer Credit Act 2006 further strengthens its hand.
Even so, the company has had to face collection delays and accept discounts in the case of bulk settlements. As of 5 April, Accident Exchange was using around 60 per cent of a £120 million banking facility for working capital. Chairman David Galloway insists ‘the board continues to have confidence that Accident Exchange has substantial potential in a market that still has excellent potential for growth’. Meanwhile, the company says investors wanting to hear more about prospects and the possible equity issue will now have to wait until the full-year results come out at the end of June.
Accident Exchange shares, which surged from our recommendation price to 500p early last year, now trade at 134.75p. Readers who have followed our bullish stance without booking profits will now be nursing losses, though this is not the time to sell. Newcomers should avoid the shares for now.
Investors continue to warm to Motivcom, which provides services for businesses to increase staff loyalty and productivity. We highlighted the group’s attractions at 85p in December and the shares have trekked north to 131.5p, stirred further by a decent set of results for 2006 boosted by acquisitions. Sales swelled 66 per cent to £76.8 million and profits and earnings grew by more than a third to £2.7 million and 7.5p.
Acquired businesses The Voucher Shop and Summersault made useful contributions and the cash pile advanced by 20 per cent to £7.7 million. Determined to put these funds to good use, the board is prowling for a sizeable UK acquisition to add value for shareholders.
We feel reassured by the group’s good revenue visibility and analysts reckon it can deliver pre-tax profits of £3 million this year, translating into 8.4p of earnings. On a forward p/e of less than 15 times, the shares are worth holding.
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