29/10/2007
Despite recent market turbulence, five-a-side soccer centre business Powerleague is trading at a healthy 44 per cent premium to the 70p at which we profiled the business last year. The Claude Littner-chaired concern has hit the back of the net with another record year to June, increasing ‘adjusted’ pre-tax profits from £3.9 million to £5 million, ahead of the £4.8 million forecast by analysts, on turnover up 12 per cent at £23 million.
Further annual highlights include good growth in like-for-like sales and a 41 per cent sales surge from sponsorship and events, as well as increased earnings per share of 4.5p (3.5p). This year, analysts have pencilled in another impressive profits push to £5.6 million and earnings progression to 4.6p, placing the shares on a forward price to earnings ratio of 22 times.
We argue that that rating is more than merited as this asset-backed business is strongly cash generative, boasts high levels of revenue visibility and has defensive characteristics, since the cost of playing on its pitches is modest (at £5 an hour per person), insulating the business against an economic downturn. With grass-roots footballers playing the small-sided game more regularly than its 11-a-side counterpart, further growth looks assured. Trading at a discount to AIM rival Goals Soccer Centres and with analysts targeting 130p for the shares, it is worthwhile adding to existing holdings.
Invocas ‘largely’ immune
In a recent pre-close update, debt solutions provider Invocas insisted that it ‘continues to be largely immune to the margin pressures currently being suffered by the individual voluntary arrangement (IVA) sector’. We backed the Scottish business at 151p earlier this year and the update breathed some life into a share price languishing disappointingly short of those levels at 91.5p. Perhaps unjustly, the company has been caught up in the pessimism affecting the IVA sector, despite being an arranger of protected trust deeds (PTDs) north of the border. Although the principle behind PTDs is similar to that behind IVAs, there are key differences.
Like IVAs, PTDs help over-indebted individuals avoid bankruptcy while ensuring creditors get back at least a portion of the money owed to them. But PTDs generally require a home visit to the debtor, while IVAs can be arranged over the phone and PTDs involve debtors making payments over three years instead of five. All this means that PTDs are regarded as a higher-quality arrangement.
Meanwhile, a key cost for IVA arrangers south of the border has been the need to advertise IVAs aggressively because of strong competition, whereas Invocas wins its PTD work through word of mouth.
In its trading missive, Invocas said that fees for its PTDs, accounting for more than 80 per cent of its turnover, have not been challenged to the same extent as those for IVA services and it has continued to enjoy very low rejection rates to its PTD proposals. Furthermore, the company is flush with more than £4 million cash.
House broker Charles Stanley has reduced this year’s pre-tax profit forecast from £4.4 million to £4.1 million, equating to earnings per share of 9.6p, which are then set to grow by more than 17 per cent to 11.3p next year. Those forecasts leave Invocas trading on a forward price to earnings ratio of 9.5, falling to 8.1 the following year, which screams good value. If you’re still holding this stock, sit tight, as the business is in recovery mode and could even pay a dividend next year.
MotivCom delivers the deal
Having long promised a sizeable acquisition, staff motivation specialist MotivCom has at last delivered, with a £15 million cash and shares deal. The company, whose attractions we flagged up at 85p in December, is part-funding the acquisition of Zibrant, a provider of venue-finding, event management and motivation services to an impressive list of corporate clients, with a £3.1 million placing.
Zibrant raised its operating profits by 14 per cent to £1.4 million from £19.3 million sales last year and MotivCom director John Sylvester is convinced there is more organic growth to come: ‘Its forward visibility is pretty good and, having seen its order book, we are confident.’
The acquisition’s venue-finding business capitalises on the desire of large corporate clients to consolidate their spending on facilities for events, conferences, training and ad hoc meetings. Event management and production is a booming business sector and the expertise here perfectly complements MotivCom’s existing offering.
Sylvester says, ‘The things that attracted us to the deal were the strong management, great products and a great client list [including Barclays, Deloitte, Volvo and Pfizer] that has very little overlap with our own and provides lots of cross-selling and upselling opportunities.’
Recent interim results from MotivCom revealed an 11 per cent revenue advance, a 31 per cent rise in profits and a 43 per cent dividend increase to 0.5p, with all the growth delivered organically. Full-year forecasts in the market before the deal pointed to earnings of 8.6p per share, although this earnings-enhancing deal could prompt some revision of those numbers. We think there’s more to come from MotivCom. Keep buying.
SatCom improves margins
We put the investment spotlight on mobile satellite communications reseller SatCom here in late 2006 with the shares priced at 36p. In the months since, investors have been treated to a tempestuous ride, with the shares ending back up where they started at 37.5p, valuing the AIM-quoted business at £22 million.
However, recent news of a 30 per cent surge in profits to US$3.7 million (£1.8 million) at the Salisbury-based venture in the year to June, on turnover lifted 12 per cent higher to $58 million (£28.3 million), has encouraged followers. On a 36 per cent earnings increase to 5.26c (2.57p), directors proposed an increase in the full-year dividend to 0.5 cents (0.24p).
SatCom kick-started its financial year with the acquisition of Arizona-based satellite equipment and airtime reseller World Communication Center, which chief executive Mark White says has since increased annual operating profits by 30 per cent to the equivalent of £293,000. According to White, SatCom has successfully integrated the previous year’s acquisition of Horizon Mobile Communications Corp and has begun to rationalise its North American business. Last year, the company won ‘distribution partner’ status with Inmarsat, the global satellite network operator, for its high-speed data BGAN (broadband global area network) service, which after initial delays has provided ‘significant growth’.
The group has managed to secure new US Government business during the past year, which is ‘low margin’ but should ‘enhance our global position in the mobile satellite services sector’. Floated in 2005 at 30p, shares in SatCom peaked at 44.5p last June and, with profits moving ahead nicely and newsflow positive, now is not the time to sell. Sit tight.
Hold on at Huveaux
Publishing venture Huveaux, originally backed by us at 41p, has received ‘preliminary approaches from a number of private equity houses’, although discussions are said to be at a very early stage. Alongside news of the emergence of potential bidders, Huveaux disappointingly warned that ‘trading EBITDA’ for 2007 would be ‘in the range of £6 million to £7 million’, down from an expected £7.2 million, due to the fact that there won’t now be a UK general election. The group behind the Letts study notes and the ePolitix.com website has proven a poor performer for us overall and saw its share price savaged by an earlier profit warning in June.
However, expectations of a bidding bout have breathed some life into the share price, now 31.25p. Analysts predict a bid at between 33p and 37p, below our original recommendation price and perhaps a sign for disgruntled investors to finally sell. However, we consider it worth waiting to see what happens next, since a premium price might eventually be paid. Hold.
Star turns in play
Two very successful past GCI recommendations presently find themselves in play with predators stalking. On a veritable share price surge is star turn Broker Network, whose growth prospects we first heralded in 2006 at 189.5p. Now trading at 501p, shares in Broker Network have been buoyed by an approach from a mystery suitor that was subsequently spurned by the board, although discussions are apparently continuing and more twists and turns are expected.
Led by indefatigable chief executive Grant Ellis, Broker Network recently announced its 21st acquisition, a deal following another strong year to April in which profits doubled to £6.53 million and earnings per share increased 98 per cent to 20.33p. Broker Network has proven a superlative performer for us and we remain convinced that there’s more to come. Hold.
Also attracting admirers is inspection and testing group Inspicio, which we first urged readers to consider for its long-term potential at 130.5p. A sharp share price spike to 215p forced the company to concede receipt of approaches from interested parties that could lead to an offer.
Even if a firm bid fails to materialise, we still think the growth story here is compelling, with chief executive Mark Silver having made astute acquisitions in the fragmented inspection and testing industry and recently delivering emphatic interim figures to June. Profits increased to £5.4 million (£2.1 million) on turnover of £100.7 million (£67.8 million), reflecting a strong contribution from the ‘Inspectorate’ business. Investors who bought on our recommendation price are already sitting on gains of 65 per cent and might want to top-slice, banking profits with market volatility in mind. However, make sure you retain meaningful exposure to a sound business with great growth prospects as a stand-alone concern with bid upside representing the icing on the cake.
