27/09/2005
Avanti Screenmedia’s recent results for the year to June were largely ignored by the market, a curious reaction given the group hoisted profits 122 per cent higher to £2 million on sales up 183 per cent to £8.44 million. Year-end net cash stood at £2 million, against net debts last time of £1 million.
The group, a market leader in the provision of television advertising screens to the retail trade, increased the number of bars signed up to its service to over 1,100, signed a £6 million, three-year deal with a major shopping centre operator and became UK market leader in the provision of television advertising services to shopping malls.
There was also the small matter of the £3 million contract its consultancy division secured from the European Space Agency. This is for the provision of broadband internet and multimedia services by satellite to business and homes and the first order for 600 installations has already been received.
‘Our confidence is at an all-time high’ is how chief executive David Williams described the mood in his company, saying he felt very comfortable with his profit targets for the year ahead (he expects to hike profits 75 per cent to £3.4 million), adding ‘we have hopes of signing up a few big retailers to the Avanti product in the months ahead.’
By any measure, these were superlative results. But tucked away in the announcement was another stirring development that could radically transform the financial performance in the years ahead. Avanti, which grew out of the bowels of the aerospace industry, confirmed it had secured the licence, ‘in perpetuity’ to launch and operate its own satellite in Europe. This is an intriguing development, given that there are only around five satellite operators in Europe and that it will have 1.6 gigahertz of radio frequency – enough to broadcast 240 hi-definition television channels. And it was all secured for not much money.
‘This is an amazing opportunity for us, all the more so because thus far it hasn’t cost us a penny,’ says Williams. ‘Of course, it will cost many millions to hoist the satellite into space and we may have to partner with others to do so. But the deal is the summation of ten years of lobbying and, considering that satellite can generate up to £50 million per year when up and running, you’ll forgive us our elation.’
With the core business firing on all cylinders, profits piling up, and a new satellite operation in the offing, Avanti is a fantastic growth story. If you bought on our advice in October of 2004 at 126.5p, hold firm.
Herculean growth at Erinaceous
Commercial and residential property services play Erinaceous, an April ‘04 recommendation at 130p, has been a terrific performer for us. Last month’s results revealed sharp upswings in first-half sales and profits on the back of last year’s £67 million acquisition of Hercules Property Services. According to chief executive Neil Bellis, the integration and consolidation of Hercules, as well as other acquisitions, was quicker and even better than expected, and Erinaceous enjoyed a strong half across all its divisions.
The Croydon-headquartered company moved from AIM to the Full List late last year following the Hercules deal, changing its year-end to December. Pre-tax profits for the half to June were £12.1 million, ahead of the £12 million predicted by analysts, who envisage a full year £24 million, giving earnings of 17.7p.
Francesca Raleigh of Numis believes Erinaceous ‘has the potential to be a 20 per cent per annum earnings per share growth company based on organic growth, margin progress and bolt-on acquisitions’. We agree with her view that the company remains ‘an underrated growth story’. At the current 286.25p, the forward rating of 16.2 looks undemanding.
Stay onboard at iTrain
We backed IT training software play iTrain at 9.75p a year ago and, though the shares have eased back to 7.625p, we remain fans. Recent interims for the half to June were strong, with turnover lifted 117 per cent to almost £1 million, and losses of £16,800 converted into profits of £107,500 – cash at bank and in hand at the half-year was £347,000.
Chairman Derek Moore saluted the success of last year’s thriving Applied Interactive acquisition, and he also pointed to good levels of repeat orders from clients in both the UK and Germany, as well as new contracts clinched through partnerships. ITrain recently bagged its largest ever single order, worth up to 1 million over a three-year period. And with orders in hand worth over £1 million as of 5 July, the group is well worth holding.
Safety firm could climb higher
Growth Company Investor was an early mover in the recognition of Latchways, the designer, maker and seller of fall-protection systems for people working at great heights. Steered by chief executive David Hearson, the company provides systems, sold worldwide through a network of installers, that ensure worker safety on buildings, bridges, manufacturing plants and telecoms towers. Readers who bought on our advice – we tipped the shares at 315p in late 2003 – are already sitting on bumper gains with the shares at the current 487.5p, boosted again in the wake of the recent AGM, where the company flagged up a strong start to the year and said investors could expect significant leaps in turnover, cash flow and operating profit for the first half to September (the interims are out later in the year).
Hearson highlighted strong growth in the UK and mainland Europe, and boasted that both HCL Safety, which is capitalising on new working-at-height regulations, and HCL Contracts, are performing ahead of expectations. Back in June, Latchways delighted its hardy band of followers with stellar full year figures to March. Pre-tax profits perked up 30 per cent to £4.3 million and the full year dividend was raised ten per cent to 10.76p. Forecasts in the market for March 2006 suggest profits of £4.8 million, earnings of 30.1p and give a forward p/e of 16. We remain big fans of the firm, and feel there's further upside.
Northgate and Spice accelerate
Northgate, the country’s biggest van rental outfit (backed at 409.5p in 2003), leapt to an all-time high of 1228p on news of a takeover approach, giving the Darlington-based business a market price tag of £788 million.
In a stock exchange announcement, the company, led by chief executive Steve Smith, admitted it had ‘received an approach’, but added there was no certainty that any offer would be forthcoming. GE Capital is in the frame as a potential bidder – the financial services arm of General Electric acquired rival van rental play TLS back in 1997 for £68.2 million. If you bought into this growth story and are still exposed, you are in a win-win situation.
Also delivering for us is Spice Holdings, the provider of outsourced support services to the utilities sector. Chief executive Simon Rigby has been on the acquisition trail of late, snapping up facilities management businesses Circle Britannia and ServiceLine for £15 million, as well as Hutchison, a provider of support services to the ‘sizeable and growing’ wire line telephone operator market, for up to £5 million. The market has warmed to these deals, and the shares – backed by Growth Company Investor at 197.5p – have firmed to 231.5p, well ahead of our recommendation level. Well worth holding.
EG gains on sales growth
Shares in performance improvement specialist EG Solutions, flagged up as a growth situation at 110p in July’s issue, edged higher to 136.5p on warmly received maiden interims. Founder and managing director Elizabeth Gooch reported pre-tax profits of £102,000, a healthy turnabout from losses of £149,000, as sales at the Staffordshire-based performance improvement specialist surged over 58 per cent higher to £2.51 million – earnings per share came in at 0.7p, against a 1.5p loss last time out.
EG, which raised £3.5 million of new money on AIM in June, is the clear UK market leader for operations management in the financial services sector, with very little direct competition. EG helps financial services firms such as HBOS, Scottish Equitable and Norwich Union to better manage their workloads and their people, with its own software packages and production management methodologies delivering big back-office improvements.
During a frenetic first half, EG secured new contracts with Portman Building Society and Co-operative Financial Services, took its first steps into the public sector and also broadened its work with financial services clients outside of the UK. Gooch insists the sales pipeline is very strong.
For the full year, analysts have pencilled in fatter profits of £1.1 million (£900,000) on sales of £5.6 million (£4.1 million), for earnings of 6.9p a share. For 2007, investors might expect a further leap to £1.6 million off a top line of £7.2 million, and earnings of 8.5p – forward multiples of 19.8 and 16.1 aren’t overly pricey for a superior stock. We remain buyers.
