NSB - 2003

Here's the article...

As a shareholder in NSB Retail Systems I was intrigued by a low-key announcement on 23 December about investor Michael Burn buying a hefty chunk of shares in the retail software group.

The 3.8 million share purchase is worth about £650,000, representing 1.2% and taking his stake to 14 million shares or 4.3%. The shares were bought on 19 December when NSB revealed that BT Group had paid £17 million cash for its UK operations and to become its exclusive distributor in the UK and Ireland.

The move has certainly helped the shares (NSB). As low as 3.25p back in March, they are 0.9p better at 17.2p this morning.

Burn's buying appeared a vote of confidence in this deal. Just a little research shows how shrewd Burn appears to be, understanding NSB as a company and a share.

The last time he lifted his stake was on 10 June, buying 1 million shares or 0.3%, with the price in low single figures, to hold 9750,000 or 3.0%.

The shares then soared to the teens after NSB declared two major contracts with WH Smith on 25 June - a software licence fee of £4 million payable last September and ongoing support/maintenance services for a minimum of five years with revenues of about £1 million a year.

Burn then took profits - on 11 July NSB announced that he no longer had a notifiable interest (3% or more) in the shares. So my eyes widen in expectation now that Burn is buying again and in size.

My gut feel is that the sharp recovery in the US economy, the principal source of NSB's revenues, ought to be feeding through into retailers' IT spending. There have been various positive economic indicators about US consumer activity and the business spending cycle for IT picking up. So perhaps Burn is speculating on a more positive trading scenario for NSB.

At the time of the interims in August, NSB management cited 'challenging market conditions in North America but signs of recovery. The group is benefiting from the cost restructuring that was completed in the first half of 2003.'

NSB exemplifies a key question applying to many technology shares right now. Management has restructured the business and cut costs but can they genuinely grow sales?

It is possible that the consensus view underestimates scope for recovery. For example Arbuthnot Securities maintained a 'reduce' stance when the shares were at their lows and has now dropped coverage. Their recent stance was plainly wrong but in line with what you might expect at the low point of the cycle.

On 26 August Collins Stewart, NSB's broker, projected £7 million normalised pre-tax profit in 2004 equating to earnings of 1.4p. This may already be out of date, given developments.

A point of caution and uncertainty, however, is the continued weakness in the dollar - affecting the translation of revenues/profits for this UK listed company. I therefore find it impossible to make dependable projections for NSB or to rely on IT analysts. It implies the shares could well continue to be volatile - but the size of Burn's latest purchase suggests he is taking a medium-term investment view.


I also find it very hard to set a share price target but positive news on trading could provide the trigger for a re-rating that Burns appears to anticipate.


I am not adding to my stake due to a switch elsewhere in my portfolio. But holders and fresh investors alike could do well to consider the implications of Michael Burn's buying. He is currently the master investor in NSB.