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Posted on OMG! Premium blog on Monday 12th January 2015
Market Snapshot: Turbulently Drifting
PLUS: Company Previews & Reviews: AVES – MES & JSG
Check -One The OMG! Weekly Wednesday Recommendation is Out Now on the Premium Blog under newsletters
…..Last Week…..
………markets started the New Year cautiously sober. The FTSE 100 at 6,051 was 0.71% lower; the FTSE 250 eased 0.22%, while the Aim All Share shrunk by 0.58%. The FTSE Small Cap at 4,390 marginally improved.
In the UK, there was further evidence of a slowing economy with lower Industrial Production reported which followed a fall in Construction. Shop Prices fell for the 20th consecutive month, while the UK Trade Deficit fell to its lowest since June, in recessionary 2013. GDP growth may have slowed to a 0.5% growth rate in the last quarter of 2014 which is down from 0.7%.
Eurozone’s Investor Confidence improved while Consumer Prices fell 0.2% into deflation. To offset deflation, it is likely that the ECB will soon be buying ‘better’ Government debt to kick-start its QE. Greece bonds yield 13% in fear of default but they have until the end of February to sort it out or there will be no further funds from ECB.
In the US, the jobless good news as the rate fell to 5.6% from 5.8% was slightly off-set by the 0.2% reduction of the average hourly pay rate.
…….. This week….
…the rate of economic reports eases. New UK inflation numbers for the CPI, (Consumer Price Index) and RPI are reported on Tuesday. Further decreases are expected although not yet deflationary although the prospect for Interest Rate rises slips further into the future.
The Eurozone publish Industrial Production on Wednesday, which is likely to be lower, with CPI reported on Friday.
In the US, Retail Sales and Manufacturing figures are announced on Thursday and Friday, with a Treasury Budget Statement made on Tuesday.
There seems to be no conclusive pressure either way so the market could positively drift.
Pause for Thought
The highly paid analysts at Goldman Sachs predict the Conservatives will win the May General Election
Review
AVS Attractive 6% yield with capital gain prospects
MES A positive message, value for money
JSG Cleaning –up
Avesco Group (LSE: AVS)
116.5p (115- 118)
Mkt Cap: £23.1m
Next Results Finals Thursday 15th January
A positive Trading Update on 16/12/14, ahead of the Finals for the 12 months to September helped the price rally from 106p to around 124p. AVS provide services and rent equipment to the corporate presentation, entertainment and broadcast markets and reported flat interims in June for the period to 31 March. Turnover was £65m with a small operating loss, but profitable after exceptionals. The trading update stated that the cost saving restructuring of the Group’s Creative Technology and Presteigne Broadcast Hire businesses in mainland Europe had been completed ahead of budget. Avesco have been in business for 30 years and usually allow the numbers to speak for themselves. Last year after winning a court case they were able to retuned £30.6m or 110p per-share to shareholders. The forecast before the Trading Statement was for a Profit of £2.8m with EPS of 3p, while paying a 7p dividend; giving a P/E of 38x and a yield of 6%
Trading Strategy
The restructuring should reduce the performance drag so enable AVS to produce more stable and less volatile trading results. The 6% yield is likely to support the price until earnings come through. After a possible short spurt, AVS make a longer term play.
Messaging International (LSE: MES)
1p (0.9-1.1p)
Mkt Cap £0.96m
Next Results Finals to December
MES provide converged messaging products and services. The interims to June reported a loss of £186k but that was after £0.68m expenditure on R&D. Turnover at £1.85m was slightly lower than last year’s £2m, as new products are set to be launched this year. A $900k development grant received for the “Secure RCS Messaging project, which is due to be completed this year, should accelerate the swing to profits, as sales are made and R&D cost slow down.
The new product range includes apps for the updated Secure Mobile Messaging for Enterprises messaging-suite. It replicates the ease of use of consumer applications such as WhatsApp, Viber and Facebook while providing all the additional tools that businesses need for corporate mobile messages eg, “Managed, Secure, Reliable and IT Ready”. This ‘easy’ product should be compelling to worldwide telephone carriers. A reduced in R&D costs could well be replaced with higher marketing costs but increased sales with 65% margins should turn the company around intro profits this current year.
Clients include US Cellular in the USA, Rogers, Bell, Telus in Canada and Dhiraagu in the Maldives. The a number of revenue streams by either hosting messaging services for a per-message fee or by selling software licences, which are usually linked to the number of messages that can be sent through the system or to the number of active users.
Financials
The gross profit margin is 65% with positive cash flow and net cash from operations of £377k. The second half to December likely to see same again losses, but are covered by existing cash balances.
Trading Strategy
The current value does not account for the possibility of this small company reporting some large licensing contracts.
Johnson Service Group (LSE: JSG)
67p (66p/68p)
Mkt Cap £204m
Next Results: Finals March
Johnson Service Group (LSE:JSG) says that its core textile rental services are trading well but there will be further provisions for the drycleaning business.
The textile rental division acquired Bourne last spring and this was immediately earnings enhancing and secured JSG a significant foothold in the hotel linen market. Overall trading is ahead of expectations. The strong trading in this division should continue in 2015 and the new Leeds facility should be up and running in the next few weeks.
Drycleaning results should be in line with expectations. Management has identified 109 stores where leases are expiring within two years and they are not worth renewing. These branches will close in the first half of 2015 and there will £6.5m of provisions in the 2015 interims.
There will be 198 company stores remaining plus 78 Waitrose stores offering the service – plus a further 46 Waitrose locations to be added in the first quarter. A new online service for higher value and bulky items will be launched in the middle of this year.
Net debt was about £29m at the end of 2014, down from £31.7m at the half-way stage.
The 2014 figures will be published on 3 March.
Trading strategy
JSG continues to make solid progress and the shares are trading on 13 times 2014 estimated earnings.
Original recommendation: 61.5p
