Companies: BEG    CFG    HVX    IDN    MLT    MXM    PAY    SMC   

PayPoint leads the way

Our Company Watch and Company Profile recommendations increased 11.3 per cent last year – almost double that of the AIM Index. Our star turn was PayPoint, the payment collection network tipped at 262p for its growth prospects last summer, which has rocketed 90 per cent higher to a 495.5p high. The news flow under chief executive Dominic Taylor has remained extremely positive.

Taylor has broadened the range of services available under the PayPoint brand – as well as clinching three exclusive transport-ticketing contracts to sell bus tickets through its terminals. In another interesting development, PayPoint has entered into collaboration with money transfer giant Western Union.

At the interim stage, Taylor reported pre-tax profits of £8.4 million (£300,000) on a 35 per cent revenue leap to £54.1 million, and the shares continue to trek north. We still believe PayPoint offers investors excellent cashflows and rapid growth. If you bought on our advice and are sitting on bumper gains, you might like to top-slice but remain sufficiently onboard to benefit from further upside.

Begbies pursues triple-digit gain

Hot on Paypoint’s heels was Begbies Traynor, the insolvency and corporate rescue outfit backed at 69.5p last March. Shares in the AIM-quoted business surged 88.5 per cent to a high of 131.5p – giving it a market cap approaching £100 million – largely due to chairman Ric Traynor’s upbeat interim statement for the period to the end of October.

Pre-tax profits powered 90 per cent up to over £1 million, on turnover lifted 29 per cent to £14.2 million. Underlying organic growth was eight per cent, adjusted earnings grew to 2.5p (1.9p) and investors were treated to a 0.5p dividend. The top-line rise, in the seasonally weaker first half, was scored against static market volumes in Begbies’ core corporate market, where it focuses on ‘small-to-mid’ sized cases.

Traynor continues to develop the core UK corporate recovery business, as well as expand into related service areas. During the half, the group completed two major acquisitions, buying MCF in the field of corporate finance, as well as Southend-based insolvency practice TGF. Together, these businesses brought in £1.8 million of turnover, and contributed £600,000 to first half operating profit. In November, Begbies made a move into the growing and highly topical ‘retail’ personal insolvency market with the acquisition of W3 Debt Solutions. Encouragingly, Traynor claims there are early signs the business insolvency market will enjoy a cyclical upturn in 2006, and he is eyeing up moves into other service sectors, hinting at acquisitions in the areas of corporate finance and forensic business.

For the year to April, analysts are going for profits of £6.6 million and earnings of 6.24p, placing the shares on a forward multiple of 21 times. Keep holding.

SMC – 69 per cent in three months

AIM-quoted architect SMC, bossed by founder and chief executive Stewart McColl, has delighted us since we flagged up its attractions as a strong buy at 70.5p in October’s Growth Company Investor. Readers that followed us are sitting on healthy 69.5 per cent gains at the current 119.5p high.

SMC, which only joined AIM (via a £4.6 million placing) in June, announced emphatic maiden interims – pre-tax profits lifted 110 per cent to £1.1 million on sales up 47 per cent at £5.4 million – as well as a £5 million boost to its order book, winning over a dozen new contracts in a broad geographical and sector spread.

For calendar 2005, analysts expect SMC to report profits of just under £3 million on sales of £13.5 million, giving earnings of 7.2p, and a prospective p/e of 16.6 after a great run on the price. Offering high earnings visibility and tasty levels of repeat business, SMC remains a buy.

Patience required of poor performers

As one would expect in the volatile small cap arena, some of our recommendations have not performed well at all. Multi Group, our Company Profile last April (when the shares were priced at 3.75p), has never regained what proved to be dizzy heights, and despite corporate machinations aplenty, including flirting with a bid for Lorien, the shares are languishing below our tip price.

However, the tool-hire-turned recruitment play has continued its acquisition spree, adding to Berry Recruitment with the purchases of Grays Personnel, 1st 4 Locums, and the £13.7 million purchase of locum doctors provider Global Medics (deemed a reverse takeover). It’s worth holding your nerve for now.

March 2005 Company Profile Huveaux has also disappointed, with the shares switching hands at more than 25 per cent below our original 41p recommendation price at 32.8p (see page 21).

A batch of others trade below our tip price, having initially booked gains. IDN Telecom dialled up from 2.95p to 3.12p, though the price has eased back to 2.5p, Careforce clipped up from 149p to 160p before sinking back to 128p, and Maxima marched north from 160p to 181p, though the shares have dropped back to 144.8p, a 9.5 per cent decline. IDN Telecom and Maxima are still certainly worth sticking with.