05/10/2007
If you backed Vyke when we recommended the company at 44p in July, you’ll be looking at gains of almost 200 per cent, with the shares now sitting pretty at 128p. And there could be plenty more to come – broker Daniel Stewart has set a target price of no less than 430p.
The global Voice over Internet Protocol (VoIP) service group, whose technology provides consumers with cheap telephone calls and SMS messages, delivered a promising set of interim results for the six months to June 2007. The group’s sales hit £8.3 million (against £9.96 million for all of 2007) and losses registered at £1.35 million – much in line with expectations.
Keeping the boss happy
Chief executive Tommy Jenson was understandably upbeat, trumpeting the swift rate at which his group is signing up customers. At the end of the first half, total customers had risen to 695,000, but by the time Daniel Stewart had issued its buoyant note on the company in mid-September, Vyke’s customer base had risen to more than one million.
Daniel Stewart envisages full-year revenues of £24 million this year – with a reduced loss of £2.73 million – before hitting sales of £60.5 million in 2008 and moving into the
black. These figures could well be achieved by this fast-growing company.
Staffline sparkles
Blue-collar staffing supplier Staffline, a long-time Growth Company Investor favourite initially tipped at 122p and famed for its outsourcing division, OnSite, served up a 40 per cent surge in pre-tax profits to £1.4 million for the half to June on sales lifted 52 per cent to £52.3 million. Performance was almost entirely organically driven, with revenue growth (excluding March acquisition OSP) strong at 47 per cent. The number of OnSite locations grew significantly to 75, a net increase of 12 sites year on year. OSP, a second-half weighted specialist in logistics and distribution labour outsourcing bought for £2 million cash in May, brought a number of sites into the fold.
Winning work with new and existing clients in traditional strongholds such as food processing and manufacturing, Staffline has benefited from extra demand from new sectors such as ‘e-tailing’ and logistics. In addition to good trading at the industrial branch network, chief executive Andy Hogarth reported strong demand for the Techsearch division, specialising in engineering and IT recruitment.
All in all, we remain enthusiastic about the business given Staffline’s potential to exploit its position as a fully compliant provider (in the wake of the 2004 Gangmasters Licencing Act) and the bags of growth the group has to go for. Based on a forecast jump in 2007 profits to £4.4 million (£3.4 million) and 14.1p of earnings, Staffline remains modestly rated on 11.9 times forward earnings and offers solid income appeal. Add.
Maxima takes IT to the next level
Yet another sterling performer worth adding to is Maxima, trading at a healthy 309.5p, nearly double the 160p at which we originally backed the shares two years ago. Kelvin Harrison, chief executive of the acquisitive IT services counter, is delighted to have fulfilled his initial promise to investors of creating a company with £50 million of sales within three years of float.
Having completed four takeovers last year, in July Maxima added Centric – ‘with high growth and margins and a big pipeline, it’s probably the best deal we’ve done yet’ – for less than four times prospective earnings. Thanks to this purchase, the company is projected to take its turnover to around £50 million this year.
Harrison maintains that the acquisition means the company is ‘the only one in the mid-market with a complete offering’. This throws up numerous cross-selling opportunities to help squeeze even more organic growth than last year’s eight per cent. Another result of the company’s increased scale can be seen in an impressive 71 new customer wins during the year to May, as revenues climbed 66 per cent to £31.8 million and pre-tax profits by 76 per cent to £5.8 million. Confidence sky high as it is, the dividend is to be lifted 36 per cent to 3.4p.
Net debt remains low at £6.6 million so, against a backdrop of six per cent-plus market growth, acquisitions remain eminently possible and Harrison claims a ‘healthy’ pipeline. Investments are also being made to capture more business in the booming construction sector to move existing clients over to ‘new solutions’. On account of the high levels of recurring revenues the group enjoys, forecast pre-tax profits of £10.3 million and earnings of 31p look eminently feasible. Trading on a forward price to earnings multiple of less than ten times, further share price accretion is highly likely, although investors yet to book at least some profits might do so now.
Perils and pleasures
While we take every care to scrutinise the businesses we write about, like others in the market, with all the best intentions, we are not immune to share price reversals.
International recruiter Imprint, lauded at 218.75p in the summer, has exhibited share price weakness following disappointing trading in certain parts of its business and the failure of bids, including one from directors backed by Alchemy, to materialise. We still see this as a fundamentally sound business – strong cash flows, informed management, solid balance sheet – and interim results to June were satisfactory, showing a 5.5 per cent profits improvement to £5.3 million on turnover up 11 per cent at £42.5 million. A resumption of chirpier trading or a resurfacing of bidders should send the shares higher, although disaffected investors could be forgiven for switching out of Imprint after a lacklustre ride to date.
Other disappointments – so far – include Humberts, the acquisitive group of estate agents and valuers led by Max Ziff, which appears to have fallen prey to wider sector concerns.
Slower than expected progress and a first-half slide into the red explains the share price demise of SimiGon, the supplier of e-learning simulation software for the defence and aviation sectors, on which we shone the speculative spotlight at 110.5p earlier this year.
Erstwhile market darling EG Solutions has also suffered a share price nightmare after a torrid recent history. Selling at stop loss will have buffered readers from the worst of these losses, while we urge newcomers to steer clear of these stocks until uncertainty clears.
Thankfully, our success stories outweigh the failures by some margin. We take great pleasure in noting testing business consolidator Concateno’s 57.5p cash offer for medical diagnostics play Cozart, profiled on these pages recently at 44.5p. The mooted take-out price represents a satisfying 30 per cent premium and shareholders should accept the offer.
Recent Company Profile VP Group has clipped ahead from 380p to 400p following bullish comments on trading from chairman Jeremy Pilkington. The equipment rental group is performing ahead of last year, acquisitions have integrated well and we urge investors to top up holdings. Just Car Clinics – backed at 75p earlier this year and now 86.5p – revved higher on well-received interim figures that prompted a further December 2007 profit upgrade. Investors should brace themselves for pre-tax profits of £1.1 million and 5.5p of earnings, placing the shares on a forward price to earnings ratio of 16 times. With plenty of market share to claim, margins improving and Just Car Clinics having hit the dividend trail, there’s more left in the tank.
Time to book partial profits at PayPoint
PayPoint, recommended on these pages in 2005, handles more than £5 billion (via more than 400 million transactions) each year for more than 5,000 clients and merchants. More than 18,500 terminals are installed in shops including SPAR, Costcutter and Londis, as well as thousands of independents.
Terminals handle everything from utility payments and mobile phone top-ups to the London congestion charge. Last year’s 31 per cent turnover and profit growth to £157 million and £27 million respectively led to improved earnings of 27.7p (25p) and a 30 per cent increase in dividends to 13.7p, following a year of strong conversion of profits to cash. Developments have continued apace since, with PayPoint acquiring a Romanian mobile top-up business for circa £10.5 million through which it will add bill payments and renew key deals.
Though the shares aren’t cheap after a good run (the company trades on around 20 times last year’s earnings), PayPoint offers growth through market share gains and a good cash generation-backed yield. Nevertheless, partial profit-taking is in order with the shares 120 per cent up on our original recommendation.
More to come from Mattioli
Flagged up in December at 211p, pensions consultancy Mattioli Woods has emphatically delivered the goods and we grow ever more convinced about the Leicester-based group’s growth credentials.
Figures for the year to May beat forecasts, with profits powering ahead by 45 per cent to £3.2 million and operating margins growing to 32.9 per cent (28.5 per cent). From 12.8p of earnings, total dividends were lifted to 2.55p (1.4p). Sales grew by 19 per cent to £9 million (£7.6 million) with increased scheme numbers driving expansion. At the year-end, the group acted for more than 1,600 small self-administered scheme (SSAS) and self-invested personal pension (SIPP) clients, a near 12 per cent increase.
Following the recent acquisition of Pension Consulting Ltd, more than £1 billion of SSAS and SIPP funds is now under the company’s trusteeship.
Chairman Bob Woods expects strong growth already seen in the SIPP sector (following ‘A-Day’ legislation and disillusionment with insurance-based schemes in the wake of the Equitable Life debacle) to be boosted by further changes in the pensions arena.
The expected wind-up of defined pension schemes should see funds flow towards the SIPP market, and regulatory and market change should boost SIPP market growth as well as squeeze smaller players.
Evolution’s Adrian Kearsey forecasts further profits growth to £3.5 million this year and a rise in earnings to 14.3p (12.8p), placing the shares on a fairly demanding forward multiple of 20 times. However, we agree with Kearsey’s view that the shares ‘deserve a premium rating (to both the market and other financials) due to the quality of earnings’. If you are in a position to top up holdings, we urge you to do so now. Add.
