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Monday 13th October OPPORTUNITY 4 MATERIAL GAINS
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Market Snapshot; optimism delayed. PLUS: Company Previews and Reviews
…Last Week….
… a sharp fall in German export figure by 5.8%, where GDP at 0.2% is barely growing increased fears that the Eurozone will drop back into the black abyss of recession. The FTSE 100 retreated 2.9% to 6,339, its lowest level for 16 months, the FTSE 250 fell 3.8%, while the Aim All Share flopped a lifeless 4.1%. UK manufacturing at 0.1% was almost stagnant and QE is not being extended. The IMF cut 2014 World growth prospects by 0.4% to 3.3% and gives the Eurozone a 4 in 10 chance of entering a third recession since 2008. As Europe takes around 40% of UK exports it clearly damages prospects of an export lead recovery.
……..This Week………..
………On Tuesday UK RPI (Retail Price Index) will be reported and a further ‘interest rate friendly’ decline, to around 1.4% is likely. On Wednesday Unemployment is reported which is currently 6.4%. Also reported will be a current Key Performance Indicator (KPI), which is Wage Inflation, and is still bumping along at around 1%. This KPI is doing little to help the ‘feel good’ factor in this politically sensitive period. On Tuesday no-one is expecting a good German Consumer Confidence Survey to be reported; it is a case of how bad. There is a chance that the US will stabilize markets towards the end of the week with Retail Sales and Jobless figures. Markets seem nervous and likely to lurch both ways.
Pause for Thought
Commodity prices are a great ‘truth teller’ of the economy as prices fall as demand falls. The oil price is down, base metals down, gold bumping off the bottom, so Europe’s ECB may note that a QE bond purchase program may not spark inflation.
REVIEWS
PHD Attractive to the middle distant runner
TCN Further Funding maybe required
Proactis (LSE:PHD)
Recent full year figures from spend control and e-procurement software supplier Proactis (LSE:PHD) were slightly better than expected but this year it will get the full benefits of recent acquisitions.
In the year to July 2014, revenues increased by 26% to £10.2m and underlying profit doubled from £550,000 to £1.11m and there was no tax charge. The dividend was increased by 10% to 1.1p a share. Net cash was £1.62m at the end of July 2014.
Following the three acquisitions in the past year, recurring annualised revenues are £13.1m, which underpins the forecast revenues of £17m for the year to July 2015. Pre-tax profit is expected to nearly treble to £3m and the shares are trading on 15 times prospective 2014-15 earnings even though a tax charge of 20% is forecast.
The forecasts do not include any contribution from Activate, the global electronic trading network that Proactis plans to develop in order to generate revenues from suppliers as well as the buyers that are its current clients. Activate is still in a pilot stage and it provides potential additional upside.
There is also likely to be more acquisitions activity. The offer price has risen from 82p to 90p since the original article. The shares are fairly valued in the short-term but the long-term potential for the acquisitions and the Activate electronic trading means that they are still attractive.
Base Price 80p
Bid/offer spread: 83p/90p MKT CAP: £34.9m
Tricorn (LSE:TCN)
The cautious trading update, from this value added manufacturer and specialist manipulator of pipe and tubing assemblies to niche markets in energy and transportation, reflected slower than expected US growth. The BIG picture trading narrative is of recovery with an 8% improvement in revenue expected. The UK businesses are recovering, China’s revenue continues to grow; but revenue in the USA is at a lower than anticipated level so it is not hitting targets and appropriate actions are underway. The aerospace division is being disposed which should give a comparative boost at the year end to March 2015. We anticipate and underlying improvement but the interims to be reported on the 2nd of December are less likely to make this obvious. On the watch list slightly cautious as further funding maybe required.
Base Price 16p
Bid/Offer spread: 12-15p Mkt Cap £4.35m
