Companies: DRV    OSH    PDC    SHDP    SUMU    TAL   

Oasis Healthcare, the dentistry practice operator, has proven one of our most astute recommendations. Profiled on these pages at 26.25p, its progress has put smiles on investors’ faces with the shares surging to 93.75p on the back of an exciting takeover battle. Over the past year, the Oasis management team rejected quite a few offers as unrealistic until Duke Street Capital came in with a recommended cash bid at 82p. This has been countered by Oasis’s largest shareholder, ADP (backed by Kaupthing Bank and trading as Associated Dental Practices), which recently trumped the £76.9 million Duke Street tilt with its own cash bid pitched at 91p a share, putting an £84.9 million price tag on Oasis. Should ADP triumph, the combined business would be the largest dental company in the UK with more than 190 practices nationwide, providing dental services to both NHS and private patients.

Even without all this excitement, Oasis is a strong investment proposition in its own right, having consistently delivered strong financials in good growth markets. For the year to March, shareholders were treated to a 48 per cent operating profits rise to £6.7 million – pre-tax profits rocketed nearly 220 per cent higher to £4.7 million – on turnover improved nine per cent at £90 million. Earnings doubled to 5.2p per share.

Advised by Oriel Securities, Oasis is currently mulling over its options. There could be further gains – sit tight.

Stick with Shed Productions

Shed, the TV producing venture recommended here at 147p in March 2006, has suffered since its two major UK drama series – Footballers’ Wives and Bad Girls – were not recommissioned by ITV. Nevertheless, its creative talents have shone through with two exciting new series and, in spite of the lost revenue from those high-profile dramas, turnover still grew by ten per cent to £19.1 million during the six months to February (with dividends being maintained). However, profits relaxed to £2.3 million (£2.8 million).

Going some way to replacing these lost gems, Shed has won commissions from ITV for a comedy series called Catwalk Dogs and a drama series called Rock Rivals in collaboration with Simon Cowell, as well as earning a BBC recommission for a third series of Waterloo Road involving an increase from 12 to 20 programming hours.

The US market still offers potential even though two pilots have failed to progress, and talks have begun with networks to produce a version of Rock Rivals. Factual programming arm Ricochet appears to be thriving across the Pond on the back of the recommissioning of Super Nanny and a new series called Fat March.

Looking to the future, the recent acquisition of an international distribution company for up to £3 million should increase Shed’s ability to sell its intellectual property. Chief executive Eileen Gallagher is aiming for ‘IP exploitation’ to eventually contribute at least 35 per cent of profits. For the year, Altium Securities is looking for healthy profits of £8.2 million and earnings of 8.8p, rising to £10.1 million and 10.8p for 2008, placing the shares on undemanding forward multiples of 11.1 and 9.1. Investors nursing losses have been unlucky and, with Shed on the up and offering plenty of profitable potential, we urge you to hold on.

Ten Alps yet to reach the summit

We remain even more bullish on Ten Alps – backed at 44p and now 68.5p – where diversification away from TV production two years ago via a move into publishing (it bought 400 specialist titles from Macmillan) appears to be paying off. Chief executive Alex Connock’s goal is to create a powerful online presence based on Ten Alps’ offline publishing strength, while leveraging its TV expertise to tap the burgeoning popularity of internet video.

Ten Alps shares have only just regained ground lost in the wake of the deal, despite the acquisition having been de-risked by its swift integration and online migration, with 84 web titles launched and 60 trade events staged already. With web TV growing, internet advertising spend soaring and business-to-business (B2B) media as opportunistic as ever, Connock aims to build hundreds of websites based on Ten Alps’ 505 B2B titles.

The fast-expanding digital division has launched Public TV, a website aggregating hundreds of free video clips from partners across the public sector, business and Government; and it has won a contract to produce Kent TV, a Government site to deliver video for the people of Kent and potential tourists, a concept it hopes to sell on to the 206 other councils on its books.

During the current year, a producer of video for ‘big Plcs and Government departments’ has been acquired for £3.3 million, bringing with it pro forma revenues of around £3 million and cross-selling opportunities aplenty. A few days ago, a factual media advertising sales business, Mongoose Media, was acquired for £3.4 million. Mongoose sells advertising across print and online media on behalf of the likes of National Geographic, Newsweek, TimeOut and the National Childbirth Trust.

Acutely demonstrating the company’s sagacity in diversifying, TV production revenues fell by 7.8 per cent in the year to March, representing less than half of sales, though Connock boasts of a strong slate for the current year. Group results showed earnings up 157 per cent to 2.06p per share and profits after tax up 200 per cent to £1.4 million on turnover 63.5 per cent higher at £69 million.

This year, analysts are forecasting 40 per cent earnings growth to 4.3p, putting the shares on a lower p/e than the sector average of 21. We would argue Ten Alps is still some way from fulfilling its potential. Add.

Printer’s appeal

Since we recommended Printing.com at 60.5p a share in late 2005, the company, now 57p, has paid out 2.35p per share in dividends and a further 1.9p is due in August. Admittedly, we expected a lot more from Printing.com, which reached a high of 76p in June last year. However, after the AIM-quoted group produced a profit warning at the end of July, the shares tumbled, falling as low as 44p in November.

Results for the year to March revealed turnover had only increased by 2.2 per cent to £12.1 million and pre-tax profit only improved by four per cent to £2.3 million, while earnings were flat at 3.4p. Management argued these figures represented a year of consolidation and masked a period of momentum.

It is true that Printing.com underwent impressive expansion during a year in which the number of company-owned stores was reduced from six to two but five franchise stores were added (bringing the total to 47) and the number of bolt-on franchises increased from 118 to 149.

Furthermore, Printing.com has been delivering other forms of growth, having expanded capacity at its Manchester hub from £20-25 million to £40-45 million and made moves to expand its international brand. Following on from its move into Ireland in 2003, the group is making a similar move into France. And in New Zealand it has granted an International Master Licence to a printer, allowing it to use Printing.com’s Flyerlink software.

However, in terms of the bottom line, many investors might have expected more and some will be a shade disappointed. Forecast earnings of 3.7p for March 2008 – representing just 8.6 per cent growth over last year – is less explosive than we originally envisioned.

Nevertheless, given the long-term growth prospects and Printing.com’s dividend appeal (not to mention good cash generation) the shares are worth holding.

Speeding Driver’s growth pains

Another of our favourites with income appeal is specialist commercial and dispute resolution services group Driver, which provides services to all sectors of the construction industry in the UK, mainland Europe and the UAE. We flagged up the company’s attractions at 116p in February and the shares are trading modestly higher at 125.5p.

Global growth prospects continue to excite, although the interim results to March revealed short-term growing pains. While turnover grew by an impressive 40 per cent to £5.99 million, pre-tax profits eased from £850,000 to £750,000. This was largely due to its recruitment policy which is the key to boosting future fees. Of the £800,000 increase in administrative costs, around half related to new recruits yet to begin earning fees for Driver. Management at the underperforming London office has been replaced.

Overseas, Driver is enjoying good revenue growth in the UAE and management sees good opportunities emerging in Oman and the US.

Although full-year sales forecasts for 2007 and 2008 were upgraded following the numbers, profit estimates have been reduced from £2 million to £1.67 million this year (EPS 4.9p) and from £2.4 million to £2.1 million next (EPS 6.1p). Based on those profits, the shares are trading on 25.6 times this year’s earnings, a multiple that falls to 20.6 for 2008, when the earnings growth rate is expected to gather pace at 24 per cent. Driver isn’t cheap, but with the real benefits of its hefty investment to come, the shares are not to be sold.

Sums add up at Sumus

We tipped Sumus, the parent company of Bristol-based Falcon Group and a provider of value-added services to the consolidating IFA sector, at 45p earlier this year and it duly delivered emphatic sales and profits growth at the interim stage to March. Revenues doubled to £14 million, buoyed by organic growth and a first-time contribution from FSAS, an acquisition that helped increase the number of advisers in the group to 320. Pre-tax profits rose 40 per cent to £550,000 and cash flow from operations soared to £997,000 (£347,000), boosting cash balances by 20 per cent to £5.1 million. Shareholders were cheered with a 45 per cent dividend increase to 0.32p.

Chief executive Allan Rosengren insists the market for independent financial advice remains buoyant and ‘the sector is back to being profitable after years of losses and small margins’. Further acquisitions are likely: ‘most businesses are still too small, we have no borrowings and £5 million of cash’ says Rosengren. Moreover, he insists the recent launch of Sumus’s own proprietary asset management product, The Brunel Funds, demonstrates its ability to successfully introduce new products.

For the year to September, forecasts from HB Corporate suggest Sumus can double turnover to £30.1 million (£15.2 million) and swell its profits to £1.04 million (£581,000). Earnings are set to grow to 3.6p (2.2p), ahead of 4.4p the following year, which means the shares trade on a forward p/e ratio of 14 and a budget PEG ratio of 0.2. Strip out cash and the EV/EBITDA rating is less than seven times – compelling indeed for this fast-growing business. Top up your holdings.