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Power play group yet to peak

Chloride, tipped in June’s Growth Company Investor at 101.75p, has clipped higher to 106.25p and we remain bullish about prospects for the ‘pure’ power protection play following a recent upbeat AGM statement. To remind you, the company provides uninterruptible power supply systems and power conditioners as well as service and maintenance packages to an impressive array of clients enamoured of its ‘total solutions’ approach. This drove speedy growth in sales and profits last financial year, sending earnings per share 50 per cent north.

Chairman Norman Broadhurst alluded to a year-end product order book £8 million ahead of the previous year and said that by the end of June a further £5.3 million had been added. New orders that have swelled the coffers include electricity generation and oil distribution projects in the Middle East, large data centres in the UK and the Dubai International Airport.

Chloride’s focus on core power protection work in higher growth sectors, together with sharper operating efficiencies, is the key to its success. Trading is ahead of budget in the first quarter of the current year, suggesting another year of strong growth is on the cards.

Analysts ratcheted up their numbers for the year to March following the AGM. Charles Stanley’s Richard Hickinbotham upgraded his 2007 profit estimate from £18.8 million to £20 million and his March 2008 number from £21.7 million to £24.3 million, bringing earnings for the next two years north to 6.18p and 7.37p and placing the shares on forward ratings of 17.2 and 14.4. These look like palatable multiples, given Chloride’s recent record of beating forecasts and the likelihood of further upgrades to come. The shares, which reached a 52-week peak of 117p earlier this year, remain firmly in buy territory.

2ergo launches payment revolution

Originally backed at 120.5p, 2ergo, the AIM-listed convergent mobile communication solutions play, has launched a new mobile payment scheme into the market. Branded as 2Payforit, 2ergo has pulled off something of a revolutionary move, becoming the first accredited payment intermediary in the industry to establish billing connections with multiple mobile networks, having already set up connections with Orange, Vodafone and T-Mobile.

In simple terms, the service will allow consumers to buy one-off or subscription services over the internet in a more secure environment. Billing requests are to be handled by a trusted party rather than mobile service providers. And 2Payforit will become another fully integrated feature of 2ergo’s Multiserve platform, which it can offer to its list of ‘B2B’ and ‘B2C’ customers, as well as other industry players lacking its expertise.

Numis’ Mike Allen has left his forecasts unaltered on the back of 2Payforit for the time being, although he noted that there is plenty going on behind the scenes with the company having recently announced the acquisition of Manchester-based ‘VICS’, a move that will introduce video capabilities to its platform.

For the current year to August, expect pre-tax profits of £2.7 million and earnings of 6.9p, ahead of £3.6 million and 9.3p the following year. The current 216p – down from a 52-week high of 236.5p – means 2ergo trades on forward ratings of 31.3 and 23.2. Those multiples might seem demanding, but bear in mind earnings growth rates of 51.4 per cent and 34.8 per cent are forecast, producing value PEG ratios (price/earnings ratio divided by EPS growth) of 0.6 and 0.7. Allen believes there are ‘a plethora of growth opportunities available to the company’ and potential rewards far outweigh risks – we agree. If you bought on our advice, you are already sitting on gains and the shares remain compelling fare. Buy/hold.

Acquisitions transform Accuma

Debt solutions star Accuma, tipped here at 181.5p last year, has morphed into a comprehensive ‘consumer financial solutions provider’ through the acquisition of loan broker Loan Line and debt advisory business Byrom Keeley.

Through these deals, the group, led by chief executive Charles Howson, has evolved from a business mainly offering Individual Voluntary Arrangements (IVAs) into a far more rounded provider of ‘best advice’ solutions to ‘over-extended’ consumers. To fund the cash element of the earnings enhancing deals, new shares were placed at 270p with institutions to raise £18 million.

Following the acquisitions, Howson now expects to unearth huge cross-selling opportunities and drive a decrease in client acquisition costs as Accuma can maximise the benefits of marketing spend and third party referrals. Conversion rates from enquiries are expected to rise from four per cent to over 30 per cent, since to date Accuma has only offered IVAs.

In an update on trading, Howson pointed out the group turned cash positive in June and should hit forecasts for the year to July when he reports in October. Accuma has continued to increase its share of the IVA market both organically, as well as through recent acquisition Thomas Charles.

For 2006, analysts suggest a move into pre-tax profits of £2.1 million from £9.9 million turnover. This, ahead of profits of £10.4 million on £32.3 million sales for 2007, giving earnings of 22p and an undemanding forward multiple of 14 at the current 308.5p. If you bought on our advice, hold for likely further growth. Braver investors might consider topping up their holdings.

Be patient with Polaron

Restructured building control systems play Polaron, flagged up as a concern ‘set to shine’, has failed to inspire in share price terms since we recommended the shares at 71p in May. The AIM-quoted company, which once traded at 200p a share when it was perceived as a rather sexy nanotechnology stock, currently trades at 69p for a market valuation of £9.91 million.

Readers will recall Polaron sold Oxford Nanoscience (an Oxford University spin-out and its nanotechnology division) in April for up to $4.4 million in a mix of cash and preferred stock in US firm Imago. Following the sale of the division, which was haemorrhaging cash, Polaron is now a focused and growing venture involved in lighting control products and intelligent building systems.

Customers include theatres, concert venues, high net worth individuals, prestigious hotels and The Royal Opera House. Sales penetration is global, ranging from the UK and Europe to the UAE and Russia. Looking forward, maximising the cross-selling and synergies between the building and lighting controls businesses is a key priority for chief executive Joe Stelzer and we believe the share price fails to reflect a bullish outlook for the controls division, as well as Polaron’s overall high quality and steady growth prospects.

For the year to June 2006, investors might anticipate improved pre-tax profits of £1.6 million from sales of £23 million and earnings of 7.2p. The following year, £1.8 million and 8.3p look plausible, placing Polaron on prospective multiples of 9.6 and 8.3 with decent income attraction. Significantly, long-term upside from the Imago stake (which could see the foray into nanotechnology enhancing shareholder value after all) has not been factored into these results. Patient investors could be rewarded over the long-haul.
 
Hold Spice, a stealthy climber 

AIM-quoted Spice, which we flagged up at 197.5p in early 2005, climbs stealthily north – the shares currently change hands for 293.75p. Recent upbeat results for the year to 30 April revealed a 42 per cent pre-tax profits growth to £7.4 million on turnover lifted from £85.5 million to £133 million. Much of the top line spike was due to six acquisitions made last year, though revenues from continuing operations increased 12 per cent to £95.7 million.

Two acquisitions have been made since the year-end. Breval Technical Services (cost: £8.4 million) has strengthened Spice’s presence in the heating, ventilation and air conditioning (HVAC) maintenance market. Spice appears to have paid a good price, with Breval having generated operational profits of £1.3 million from sales of £5.6 million last year.

Shortly after the Breval deal, Spice struck again, buying Inenco (cost: £11.8 million), a provider of ‘energy management’ services including the procurement of gas, electricity and telecoms services and the validation of utility bills on behalf of blue chip companies. Energy management is becoming a vital issue for large companies from both a cost and regulatory compliance point of view. Last year, Inenco produced profits of £1.3 million from £12.9 million turnover.

We would suggest Spice is under- cooked valuation-wise based on earnings growth forecast for the current year, with estimated earnings of 16.6p placing the group on a forward price-to-earnings ratio of less than 18 times. That is undemanding given that earnings are growing at close to 30 per cent, suggesting a PEG ratio of around 0.6. However, a pause for breath is probably due after a strong performance in recent months. Hold.

Underwhelming performers

IDN Telecom, floated on AIM in 2000 and recommended in March 2005 at 2.95p, has not dialled up the share price gains we would have liked, with the business valued at a mere £8.3 million at the current 2.15p. Nevertheless, under the stewardship of managing director Mike Morrison, the independent provider of telecommunication solutions to small and medium sized businesses (as well as the public sector) is gathering sales momentum, as a recent trading update testified.

After a half to April in which profits perked up 31 per cent to £560,000, good customer growth has continued into the second half, and new contracts won should significantly boost the financials over coming months. Key contracts clinched include two well-known retail customers, one well-known retail and hospitality customer and nine public sector healthcare customers, deals that will underpin further growth next financial year. Braver investors prepared to hang on rather than hang up could be rewarded later on.

Meanwhile PlusNet, which traded as high as 411.5p earlier this year, has plunged to 111p on an uncertain future in the wake of the ‘broadband bloodbath’. Carphone Warehouse’s decision to offer free broadband as part of its TalkTalk fixed-line and mobile service has wrought havoc on paid-for broadband suppliers. Mobile network Orange and Rupert Murdoch’s BskyB have come up with their own ‘free’ broadband products, putting pressure on PlusNet’s prospects, and Vodafone and O2 are set to jump on the bandwagon.

PlusNet’s results for the half to June did little to alleviate the share price pressure, despite evidence of broadband customers numbers up 75 per cent year-on-year to 198,000, turnover up 37 per cent to £22.5 million and a 33 per cent pre-tax profits spike to £3 million. Chief executive Lee Strafford concedes recent ‘turbulence’ in the market may have damaged the company’s capacity to attract customers in the short term, but he believes that ‘PlusNet's focus on discerning users clearly differentiates it from the service providers targeting mass-market customers,’ and sees the outlook as ‘positive’.
 
Risks remain however, should pressure on broadband prices grow. A chink of light for the AIM-listed counter is Carphone Warehouse’s Charles Dunstone’s recent comment that his company was struggling to meet the demand for free broadband after almost 400,000 people signed up for the service. Sell and move on.