Tuesday, 30 September 2014

Amerisur interims

Amerisur Resources is an independent full-cycle oil and gas company focused on South America, with assets in Colombia and Paraguay. I have a holding in my growth portfolio (epic code: AMER).

Amerisur announced their interim results today and revenue was up strongly by 77.2% to US$114.1m, operating profit increased by 69.4% to US$51.5m and EPS was increased by 64.4% to $0.0296.

As highlighted for some time production is being constrained by export capacity, field production capacity is estimated to be in excess of 10,000 bopd, but currently constrained due to oil export routes available.  Half 1 production was constrained at an average of 6,561 bopd; however, significant progress has been made on the under river pipeline export solution into Ecuador.  Management consider the project is on schedule to be operational by the end of 2014.  Once in place, the initial capacity will be up to 4,000 bopd and will be increased as experience and confidence with the system continues to build.

Not only will the pipeline substantially increase revenue, but will reduce transport costs from $23 to $5 a barrel.  I make that $21m additional profit on the fist half results, if they were just using the pipeline!  The capacity for the pipeline is 50,000 bopd, currently 5 times field production capacity.

Free cash was an outflow in the period of -$9.8m compared to an outflow of -$8.5m last year (the full year last year saw FCF of $32.8m).  The company has net cash of $76m, along with their internally generated FCF, sufficient for their substantial exploration plans over the next few years in further developing the Platanillo field in Colombia and, the San Pedro block in Paraguay.

There is a lot more to come from Amerisur and at 57p valuing it at 11x expected EPS for this year, they look good value, despite the obvious small oil company risk.

Dillistone Group interims & acquisition

Dillistone Group Plc is a leading global provider of software and services to recruitment firms and recruiting teams within major corporations. I have a holding in my growth portfolio (epic code: DSG).

Dillistone announced their interims and an acquisition today.  Revenue for the six months ended 30 June 2014 increased by 10% to £4.198m, gross margins though at 86.9% were lower by 136bps and with admin costs up by £0.397m, EBIT was 14.2% lower than last year at £0.696m.  Eliminating amortisation of intangibles relating to acquisitions in both years, EBIT is £0.824m lower than last year by 3.7%.  
EPS at 2.72p was 20.5% below last year, excluding amortization costs of acquired businesses adjusted EPS was 3.8% below last year at 3.55p.  The interim dividend has been increased by 4% to 1.3p.

Free cash flow showed an improved position up from £0.710m last year to £0.827m this year.  Net cash was down from the year-end by £0.206m to £1.193m following payment for deferred consideration on an acquisition of £0.550m and payment of the final dividend amounting to £0.475m from FCF. 

Management have warned that: "...The introduction of new products necessitates a slower implementation cycle in the first few months and with the continuation of (a) strong pound, the Directors anticipate that adjusted profits are likely to be at a similar level to 2013..."  So that's a substantial 23.4% off the house broker W H Ireland's current forecast for 2014

Despite that miss on W H Ireland's forecasts, the house broker was prepared to place £0.5m of new shares at 95p (less than 10% discount to the pre-announcement price) to part finance the acquisition also announced today.

The acquisition is of ISV Software Limited a UK based supplier of training and testing services, primarily to the recruitment industry. For the year ended 31 December 2013 the unaudited accounts of ISV showed PBT and profit after tax of £162,000 and £159,000 respectively on revenues of £750,000. 

On Completion, an initial consideration of £850,000 in cash will be payable by Dillistone.  A further payment of £150,000 will be payable on 15 January and it has been agreed that surplus cash (calculated as the amount of cash in ISV at 30 September less £150,000, plus any debtors in excess of £65,000) will also be paid out. 

There is a deferred cash consideration of approximately 30% of net revenues arising in the 3 years to 30 September 2017 will be payable in 4 tranches with the first payment due in February 2015.  It is currently anticipated that any earn-out consideration will be paid from the Group's existing cash resources.  The maximum total consideration payable under the agreement is capped at £2.5m.

I would have thought that the institutions that subscribed for this placement, would have been brought on-side and made insiders before the announcement of the interims, to ensure that the placing would get away against the background of such a large miss on market expectations.  This would indicate that institutional investors would have been comfortable with the company's long-term prospects.  The company also state that they expect to raise a further similar amount (£0.5m) at a similar price (95p), not sure why they would split this, unless it is tied to some requirement from the institutional shareholders.

ICAP trading announcement

ICAP is an interdealer broker and provider of post trade risk mitigation and information services.  I have a holding in my income portfolio (epic code: IAP).

Not a good day for ICAP, that announced today a weak trading update and the resignation of its FD. 
Group revenue for the half year to 30 September 2014 is expected to be 10% lower than the previous year on a constant currency basis and 15% lower on a reported basis.  Although on a positive note this was an improvement from the first quarter where on a constant currency basis revenue was 14% lower than last year and 19% lower on a reported basis. 
Management state that restructuring of the Global Broking division remains on-track to deliver a more focused business and annualised savings in excess of £60m.  Of this, £40m will be realised in the current year's income statement, principally in the second half of the year, so profits will be more heavily weighted to the last 6 months of the year.
Iain Torrens, their Group Finance Director, is leaving to join TalkTalk Group PLC, but has said he will remain in place until a replacement is found.

Melrose Industries acquisition

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).

Melrose today announced a bolt-on acquisition for its Elster Gas business agreeing to acquire Eclipse Inc., a manufacturer of gas combustion components and systems for industrial heating and drying applications headquartered in Rockford, Illinois, USA. 
For its fiscal year ended March 31, 2014, Eclipse recorded sales of US$126m; the total consideration is US$158m payable in cash on completion, on a debt and cash free basis.

Monday, 29 September 2014

Globo interims

A technology innovator delivering mobile, telecom and e-business software products and services. I have a holding in my growth portfolio (epic code: GBO).

Globo released their interim results today stating that revenue grew by 45% to €46.5m, whilst gross profits grew by 58.4% to €27m, although profit before tax grew just 11% to €16.1m, as operating costs increased substantially by €7.3m to €10.6m.
EPS was up 4.9% to €0.043 and free cash flow continues to improve at €4.2m compared to an outflow of -£3.6m for the same period last year. 
In their outlook management state "...We are now in the traditionally stronger second half of the year, and with our North America operations gathering momentum, we look forward to an exciting period of growth for the Group into 2015 and beyond..."

For the SP to improve  substantially Globo need to have a strong cash generative second half, exceeding the €8.9m FCF achieved in the last six months of last year, otherwise the institutions and private investors with short positions will stick around, convinced that it is all just "smoke & mirrors".


BAE Systems IMS

A global defence, aerospace and security company. BAE Systems delivers a range of products and services for air, land and naval forces, as well as advanced electronics, security, information technology solutions and support services.  I have a holding in my income portfolio (epic code: BA.)

BAE Systems issued an Interim Management Statement today declaring that group order intake for the period from 1 January 2014 to 23 August 2014 was £7.9bn, including £2.6bn from non-UK/US markets.

In August, they announced the proposed sale of its 75% holding in BAE Systems Land Systems South Africa Proprietary Limited for a cash consideration of approximately 641m Rand (£36m).  A goodwill impairment charge of approximately £70m is expected to be taken during the year ending 31 December 2014 against the carrying value of the South African business.

As reported in the Group's half year results, £12m of charges were taken on commercial shipbuilding programmes in the US Support Solutions business.  Recent reviews have shown a further exposure in the region of £30m net of tax.

Despite the charges mentioned management expect in aggregate, the year's earnings outlook for the Group remains unchanged.  They had previously stated that their guidance for the full year (excluding the effects of foreign exchange translation) is for underlying EPS to be 5-10% lower than 2013, which would place it in a range of 37.8p to 39.9p.  At today's closing price of 470.2p that places the shares on a P/E range of 11.8 to 12.4, with a yield of 4.3%.

Despite the 10% increase in the SP since their interims the shares are still good value and, in support I'll repeat what I said here,  "...although 2012 saw the first fall in global military expenditure in real terms since 1998, recent events around the world have created a need for more, not less military expenditure.  With just the UK and USA achieving NATO targets for defence spending of 2%, there will be pressure for increases as the world becomes less stable.  As a strong global supplier, BAE will be a beneficiary of increased defence spending..."

Aberdeen Asset Management trading statement

A global investment management group, managing assets for both institutional and retail clients from offices around the world. I have a holding in my income portfolio (epic code: ADN).

Aberdeen Asset Management issued a trading statement today declaring that assets under management at 31 August 2014 totalled £331.2bn, a 3% increase on the total at 30 June 2014.

Net outflows have moderated to £1.7bn for the two months to 31 August; the three months to 30 June showed an outflow of £8.8bn.

Although ADN has considerable scale and breadth, management were still rightfully cautious stating: "...Being mindful of various geo-political problems around the world, we continue to be cautious on the outlook for markets..."

Despite the caution, ADN looks reasonable value for an income stock with a P/E of 13.3 on 2014 expected earnings and a yield of 4.4% on the likely total pay-out for 2014. 

Compass Group trading statement

Compass Group

Provides contract food, catering and support services to a wide range of commercial businesses and government departments operating in over 50 countries.  I have a holding in my income portfolio (epic code: CPG).

Compass Group issued a pre-close trading statement for their year ending 30 September 2014.  For the full year, organic revenue growth at constant currency is expected to be 4% and the operating profit margin is expected to increase by 10 bps.
Organic revenue growth and margin improvement by territory is expected to be:
North America -  +6.5%; +5bps
Europe & Japan -  -1.5%; 20bps
Fast Growing & Emerging - +8%; flat
Management state that Compass has had a good year, delivering organic revenue growth and further margin progression.  Their expectations for the full year remain positive and unchanged, notwithstanding the translation impact of ongoing movements in foreign currencies.
In line with expectations, so I expect the SP to claw back some of the softness seen in the past 3 months as the price drifted by 14% to 953p.  It's up 2.5% today to 985p. 

Diploma trading statement

Diploma PLC

An international group of businesses supplying specialised technical products and services. They operate globally in three distinct sectors - Life Sciences; Seals and Controls. I have a holding in my growth portfolio (epic code: DPLM). 

Diploma issued a pre-close trading update for their year-end today.  Revenues for the year are expected to be  ~6% ahead of last year and after adjusting for acquisitions and strong currency headwinds, underlying revenue growth for the year is expected to be 7-8%.
Operating margins have remained robust, despite the anticipated transactional currency effects on the Healthcare gross margins.  Management state that cash flow remains strong and year end net cash is expected to be  ~£20m up from £19.3m last year, allowing for a £16m spend on acquisitions.
All of this is in line with expectations and continues the Diploma organic and acquisition growth story, supported by strong cash generation.

Key announcements 15-26 September

During the period I was away there were a few announcements for shares that I hold:

Greggs the Bakers
Greggs issued a very positive IMS on 15 September stating that like-for-like sales grew by 5.4% in the 11 week period to 13 September 2014, compared to a 1% decline in the equivalent period in 2013; this continued the strong performance reported at the time of their interim results announcement but also reflects the benefit of the weaker comparative period last year. 
In the year to date LFL sales have increased by 3.9% and total sales grew by 4.0% year-on-year in the 11 weeks, including the impact of their accelerated closure programme for poor performing shops.
In the year to date they have completed 153 shop refits and expect to complete around 200 refits in the year as a whole.  New shop openings were 32 year to date and they closed 43 poor performing units.  As at 13 September 2014 Greggs had a total of 1660 shops, including 42 franchised operations.
There are some strong comparatives for the final quarter, but with a combination of strong sales performance, lower costs and their outlook for the remainder of the year, means that management anticipate full year profits to be materially ahead of its previous expectation.  This lifted the SP up by 12% on the day to 602p, some analysts have pushed up EPS for this year to 40p, so the shares on the current price (594p) are on a P/E of 14.9 and prospective 3.3% yield.

Pan African Resources announced their preliminary results on 16 September with gold (97% of sales)sold increasing by 44.2% to 188,179oz, although sales grew only 15.7% to £154.2m, due to the 16% lower gold price received of $1,303 per oz for the year and the average strength of sterling in the period.
The cost of gold production increased from 52.3% to 68.6%, mainly due to Evander’s (their 2012 acquisition) low grade mining cycle a factor that will continue until early 2015. Consequently earnings were down 37% to £26.8m, with EPS further affected by a 13% increase in the average number of shares down 55.7% at 1.46p.  A 1.3% reduced dividend in sterling (a 7.3% increase in ZAR) was proposed of 0.7898p. Free cash flow due to the increased operational costs was well down at £0.7m compared to £20.7m last year.  A difficult year, but earnings growth is expected to return next year and on a prospective P/E of 7.3 and current yield of 6.3%, PAF looks to be a low risk investment for a portfolio exposure requirement to gold. 

If ever there is a reason to invest in large corporates with good credit ratings this is it.  On 16 September Diageo that returns an average of 10% of free cash flow on its average capital employed, launched a €0.5bn fixed rate Euro denominated bonds due in September 2024 with a coupon of 1.750%.  In addition to the new issuance, there was also a €0.5bn reopening of the 1.125% bonds due in May 2019 with a coupon of 1.125%.
Pennant issued two announcements on the 17th and 22nd September.  The first announcement related to a services consulting contract award from Public Works and Government Services Canada.  The contract allows for services to be called upon an "as and when required basis" for an initial two year term through to the 14th of September 2016 and has a maximum value of $CA 7.9m. In addition, there are three additional one year extension options in the contract, which if exercised will extend the period of the contract through to the 14th of September 2019 and raise the maximum value of the contract to $CA 19.7m.
The second announcement was the appointment of Philip Walker as a director and CFO.  This follows the announcement in March that the existing incumbent John Waller is retiring on 31 December 2014.  Walker starts on 3 November 2014, so a reasonable handover period.
Glaxo announced on 19 September the imposition of a £297m fine by The Changsha Intermediate People's Court in Hunan Province, China, due to being found guilty of offering money or property to non-government personnel in order to obtain improper commercial gains.  The verdict follows investigations initiated by China's Ministry of Public Security in June 2013.  Although this closure in China is welcome news, this will not be the end of the affair for Glaxo, as European and US officials will be investigating the company's conduct in this matter and may hit the business with further fines.  This though should enable Glaxo to get back on track in developing its business in China - on an ethical footing this time. 
 API Logo
With a profits warning on 3 September due to the Foils Americas business unit continuing to underperform, I thought it would not be too long before the activist shareholders (see here) wanted to see some change.  The company announced on 18 September Richard Wright, Non-executive Chairman, is stepping down in quick order from the Board with effect from 31 October 2014 and Andrew Turner, Group Chief Executive, has agreed to act as Chairman on an interim basis until a permanent appointment is made.  This "...to facilitate the overhaul of the Board..."
BHP Billiton
Since the divestment announcement on 19 August (see here), management have engaged extensively with investors and other stakeholders. As a result of this they are now assessing a potential Standard listing in London for the new company in addition to the previously announced listings in Australia and South Africa.  Quite clearly BLT's management received some poor advice from their advisors on how to proceed with this divestment, pointless I guess to hope that this might be reflected in their fees.  Welcome news though.

Monday, 8 September 2014

Pennant interims


Pennant International provides a range of services that extend across e-Learning, Computer Based Training, Emulation and Simulation, Technical Documentation, Media Services, Cartography, Supportability Engineering Software products and related services. I have a holding in my growth portfolio (epic code: PEN) 

Pennant released their interims today with revenues for the period down 2% at £9.6m.  Operating margins though were up 72bps to 12.35%, lifting operating profits for the period up 3.4% to £1.18m.
With a lower tax rate down from 23.3% to 22.4% in addition to the uplift in operating profits, resulted in an increased EPS of 4.3% to 3.41p.  Management increased the interim dividend by 12.5% to 0.9p.
Free cash flow (FCF) was strong at £1,227k compared to an outflow last year of £(677.4k); after payment of £474k in dividends the company finished the period with net cash of £1,843k up from £1,113k at the end of the year.  FCF was the one weak area in the full year results (see here), so it was good to see an improvement and that there were no issues with their business model or accounting.
After 29% growth in revenues last year, this interim performance is a little disappointing.  Although not too much should be read into a six month period and at least margins and cash flow were strong.  Management state they are chasing a number of significant opportunities, but the timing of landing those deals are difficult to predict.