Thursday, July 26, 2012

Thu 26 July 2012 - Morning Report

Good morning, another lovely sunny day in the offing. GDP figure of -0.7% for Q2 looks awful, but personally I'm highly sceptical about that number. As commentators on CNBC said, it's totally inconsistent with other data showing falling unemployment, considerable job creation, and reasonable confidence. Also, I'm reading & reporting on pretty good company results every day here, so there's little evidence of a recession in my view. Also, look around you. Does it seem like a recession? It certainly doesn't here on the south coast. People are out & about, spending money like normal. We're not booming, but we're certainly not in recession.

Having said that, I'm very glad I dumped my shares in Lamprell (LAM), as they've come out with yet another profits warning, which sounds quite serious this time - they're actually likely to report losses of US$45m in H1, and US$12-17m for the full year. What was left of management credibility is now completely shot to bits here, and they look to be in potential trouble with the Banks too - needing to secure covenant waivers. This is being moved from my watch list, to my bargepole list. Expect a big sell-off here today, maybe 30-50% at a guess.

Half year results from Rolls-Royce (RR.) look solid - underlying EPS is up 11% to 26.54p. Interim divi up 10% to 7.6p. They confirm full year guidance (consensus is 58p EPS), so at 829p the shares look priced reasonably at a PER of 14.3.

Interim results from recruitment/staffing Impellam Group (IPEL) seem uninspiring. Turnover is a massive £591m (up 8%) for the six months, but adjusted operating profit is down slightly at £15.8m, and that's a wafer thin profit margin. Doesn't take a lot of clients to go bust to wipe out profit altogether, so it's only one big bad debt away from a profits warning at any time. Although it is cheap on a PER basis, although looking to be short of brokers consensus for this year. £12.9m net debt, from net cash of £1.8m 6 months ago is a concern too. Maiden divi of 7p is handy though. Reorganisation costs expected in H2.

£15m mkt cap IT company, SciSys (SSY) says that H1 finished with a flourish, so they are confident with full year guidance (which is 7p EPS). So that makes the shares look potentially cheap at 51.5p (PER of just 7.4). They had a neutral net cash/debt position at last y/e of 31 Dec 2011. So this really does look good value - worth checking out in my view. 2.5% divi yield too.

Soft drinks company (Vimto, and others) Nichols (NICL) announces pretty good interims. Turnover up 10% to £55.4m, Operating profit up 14% to £8.3m giving EPS of 16.88p. Divi up 12.4% to 5.62p, all good stuff. They confirm full year expectations. All very nice, but that puts it on a PER of nearly 18, which leaves little upside, even allowing for their net cash position.

Education supplies company Promethean World (PRW) serves up dreadful interims to 30 June 2012, with turnover down 23% to £83.2m, and EBITDA crashing down from £12.6m to a loss of £0.3m. Humungous exceptional items result in a loss before tax of £148m! They are cutting costs, which seems prudent in the circumstances. Balance sheet looks OK, so they don't seem in any immediate threat of insolvency, but I certainly wouldn't go near these shares. Mkt cap of £49m looks very generous - although it has been nicely profitable in the past, so a possible recovery play?

Marketing company Communisis (CMS) interims look reasonably good.  Operating profit up 22% to £4.4m, adjusted EPS up 13% to 1.94p. Outlook statement gives the all important in line with expectations message, which implies an H2 bias to earnings, if they are to hit 5.7p consensus forecast.
That puts the shares on a nice cheap PER of just 5. However, don't get too excited because they have £27.5m of net debt, so taking that into account, the PER is probably about right, maybe with a bit of upside? I try to avoid highly indebted companies though - why take the risk when you don't have to?

(EDIT: noticed later that Communisis also has a big pension deficit problem - £38m at 31/3/2011 on actuarial basis, so that moves it into bargepole territory for me).

Running out of time, so that's it for now. I'll probably do a few more in a supplementary report. IG have the FTSE 100 Futures up 10 points, so looks like a nice civilised open. Have a good day y'all!

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