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Deal-hungry Maxima remains a hold
Software and services consolidator Maxima, which we originally backed at 160p, recently issued a buoyant set of half time numbers and assures further acquisitive moves are afoot.

For the half to November, profits powered ahead to £389,000 (£9,000) on revenues lifted 31 per cent to £8.1 million. Chief executive Kelvin Harrison commented that in a tough UK software and services market (growth for 2006 is forecast at only five per cent), ‘acquisitions are where the exciting growth is’.

Although there was healthy organic growth in the existing Azur businesses, most of the improvement came from two recent acquisitions. Ringwood, a loss-maker now turned around and profitable, has a suite of software products enabling any organisation to manage, publish, and archive documents, a timely area to be in given rising regulatory compliance in the financial and medical sectors. Hanston is a highly successful and fast-growing managed services business, providing support and consultancy services to Oracle users.

Maxima is attempting to drive organic growth, mainly through technology upgrades to attract new clients and retain existing ones, and a healthy pipeline of further acquisition possibilities should provide investors with excitement.

Alongside the results, Maxima announced its fourth acquisition since its November 2004 float, Seabrook, which it bought for C750,000 in cash. Cork-based Seabrook is the Irish distributor of QAD’s enterprise software solution, has a raft of clients in the industrial sector, and should enhance earnings this year.

Analysts suggest a profits improvement from £2.2 million to £3.2 million, from sales of £19.9 million (£14.1 million), giving earnings of 16p and a 4p dividend. If you bought on our advice, then Maxima, trading on a forward p/e of 10.7 times and yielding 2.3 per cent, remains a firm hold.

US still fuelling growth at 2ergo
2ergo has been a stellar recommendation – we backed the shares at 120.5p, they now trade at 229.5p. And it continues to dial in impressive gains, with the shares adding another 7p on news of a partnership to market and distribute mobile communication services through newspapers, TV stations and websites with New York Stock Exchange-listed media company Belo Corp.

The AIM-quoted venture will provide three areas of mobile information and content in text alerts, themed ring tones and text voting, with its famed ‘multiserve platform’ acting as the hub for all these transactions. Customers will download these ring tones through 2ergo’s branded website portal zobmob.com, a business that has been on an impressive growth curve since entering the US market in 2004.

For the year to August 2006, the City number crunchers envisage 2ergo posting adjusted pre-tax profits of £2.7 million and earnings of 6.9p, ahead of £3.6 million and 9.3p for 2007.

2ergo now trades on forward multiples of 33.3 and 24.7, but it’s a terrific growth stock and a solid set of interim results are on the cards for May. Hold.

Hogarth heralds a great year
‘We’re really chuffed – we’ve had a great year,’ claimed Andy Hogarth, the cheery managing director of AIM-listed recruitment services counter Staffline, as he unveiled a 362 per cent pre-tax profits leap for the year to December 2005.

Staffline supplies blue collar temporary and contract staff to industry, mainly to the less cyclical food production sector and the numbers were significantly ahead of expectations, with profits at the pre-tax line spiking up from £500,000 to £2.5 million, ahead of broker Oriel Securities’ £2.3 million estimate.

At the top line, Hogarth reported 26 per cent growth to £61.5 million – all organic – with the OnSite division (a recruitment service located at client premises) the main driver. OnSite now makes up 64 per cent of sales and operates at 58 sites, with the pipeline of potential openings now stronger than it has ever been.

Equally impressively, Staffline finished the year with a better than expected 27 per cent drop in net debt to £6.2 million, thanks to some astute working capital management.
Gross profit margins eased to 19.2 per cent, reflecting Hogarth’s planned strategy of growing the OnSite business, which has lower gross profit margins. However at the net level, margins inched 1.7 per cent higher to five per cent, as sites within the OnSite division have lower operating costs and Staffline is able to spread overheads across a wider number of overall sites.

We first backed these shares at 122p last April and although the price performance has been somewhat volatile – dropping through our 98.8p stop-loss/sell price – it has since recovered to 126.5p, and we remain upbeat about prospects for growth.

For 2006, the research team at Oriel envisages a climb in pre-tax profits to £3.1 million off a top-line £72 million, giving earnings of 10.2p and a forward rating of only 12.4. Buy.

PlusNet powers to all-time peak
Full-year figures from PlusNet, the self-appointed ‘best value internet service provider’ in the UK, provided further tonic for its already soaring shares, recommended by Growth Company Investor at 104.5p in August 2004, and now trading at a new 409.5p peak.

Ebullient chief executive Lee Strafford is now looking forward to BT’s imminent nationwide rollout of 8Mb broadband as this will apparently further emphasize that PlusNet's pricing is ‘better than the competition’. With BT and Pipex offering 8Mb at £27.99 and £33.99, it is clear to see that PlusNet’s £14.99 fee is more than competitive.

For the uninitiated, Strafford obligingly explains that PlusNet is able to undercut its peers to such an extent because of the ‘huge operating cost per customer advantage’ afforded by its automated online helpdesk. Not only is it so cheap to run, says Strafford, but is also much appreciated by control-hungry customers, fed up of hanging on the end of a telephone.

A doubling in broadband customers last year resulted in a 73 per cent rise in profit before exceptionals to £5.2 million, from turnover up 27 per cent to £35.2 million. Company broker Bridgewell has lifted profits expectations to £9.1 million this year, followed by £14 million the year after.

Earnings per share were up 78 per cent at 13.5p and the broker is looking for 21.72p for the coming year, leaving the shares looking good value on a forward p/e of 18.8 times, even given recent rises. If you bought on our advice, it is worth considering topping up your holding with bid rumours abounding. Hold/add.

SMC building its strength
Another high-flyer is SMC, the acquisitive architecture and design business we backed at 70.5p in October, and which is now trading at 146p, giving it a market value of £54.2 million. Shares in the company, fronted by Stewart McColl, have gained ground on recent acquisitions and details of new contract wins, which will bring in fees in excess of £10 million for the company.

SMC joined AIM at only 43p last summer and has just raised £1.72 million through a placing priced at an impressive 101p. There was much City clamour, with the issue ‘substantially’ oversubscribed, taken up by both new, as well as existing, institutional investors. We remain huge fans of the business whose growing scale is giving it access to the country’s most profitable schemes.

The group is on track to hit forecast profits of around £3 million for calendar 2005, placing the shares on a forward p/e of 20. Cautious investors might book profits, although braver souls should stay on board for undoubted further growth. Watch out for the results towards the end of April.

Stadium showing resilience
Electronic manufacturing services counter Stadium, a good performer for us overall, has suffered a correction over recent months – the shares have dropped from a 52-week peak of 95p to the current 61.5p. Yet the company still trades well above the 36.5p level at which we first recommended it back in 2002, and 2005 numbers were sterling stuff in the context of a tougher trading backdrop for players in the manufacturing sector, with Stadium exposed to spiralling raw material, energy and labour costs.

Chief executive Nigel Rogers reported a 33 per cent pre-tax profits spike to £2.6 million, on sales lifted eight per cent to £36.5 million, with operating margins edging north from 6.9 per cent to 7.1 per cent. Rogers managed to improve margins in the face of burgeoning input costs (plastics, metals, energy), which he flagged up in a cautionary recent update regarding the outlook for 2006.

Rogers unveiled a 22 per cent rise in revenues at Stadium Asia, where the group is driving earnings north by developing a range of services offered at its low-cost manufacturing facilities, whilst retaining flexible manufacturing capabilities at home here in the UK.

Broker Brewin Dolphin has issued a ‘strong buy’ note and predicts flat profits on £41.1 million profits this year, giving earnings of 7.2p and another 3.5p dividend. It looks good value longer term.