OMG! 2 Previews 2 Reviews 1 Profitable Read !

Monday 26^th January 2015

Market Snapshot:  Euro tensions and US intensions flatten market expansion.

PLUS:

Previews               Growth with No Russian or Greek Excuses

Reviews                 MIRA & SBS

One Company… One Recommendation               Wednesday 28th

…..Last Week’s…..

……… the FTSE 100 jumped 4.5% higher to 6,832, the FTSE 250 gained 3.4% while the FTSE Aim All Share improved a very modest 0.04%. The FTSE Small Cap at 4,454 improved by 2.1%.  After some kicking and pushing the ECB announced a QE buyback programme of Eu 1.2 trillion, which is made up of Eu60 billion a month for 20 months.  UK Unemployment fell to 5.8%, which is a political KPI (Key Performance Indicator) as is the forecast that inflation will slip to almost flat-line in this election year.  The large caps jump was also assisted by real and faux M&A activity.

…….. This week….

….. robust UK GDP figures should be reported on Tuesday and are expected to be around 2.9% PA, followed on Friday by (improved) Consumer Confidence. The US could be the driver of market sentiment. Tuesday Consumer Confidence is reported followed on Wednesday by the Fed’s monetary policy meeting which could signal a change in interest rate policy to prepare markets for a raise. The Euro is set to be challenged by the Greek Election where even the pretence of austerity may be exposed.  Markets seem set to be flat.  

Pause for Thought

 Research by the London Business School shows that since 2000  IPOs have under-performed the Numis Small Cap index by  27% for two years post IPO.  Aim listed IPOs did slightly worse with a 30% under-performance.

Profit warnings on FTSE 100 stocks during 2014, increased to 27 companies which is the worse level since 2008.

Previews

FTC                       Growth emerging despite Russia

Min                       Greek excuses have no uses

Review                

MIRA                    It’s when not if the 

SBS                       DNA for Growth

Filtronic (LSE:FTC)

26.5p (15p-27p)

Mkt Cap: £30m

Next Results:  Interims Thursday 29^th January

After a £2.0m placing at 22p in November, in which most of the directors brought shares, no further funds are likely in the production of a steep hockey stick effect!

Filtronic designs and manufactures microwave electronics products for the wireless telecoms infrastructure market (G3,G4,etc). Revenues, after slipping to £32.9m should be round £34m for the year to May 2015 but it is historically loss making. Last year’s loss of £3.7m included around £3m on R&D and exceptional costs.

There is a fly in the ointment of this growth story. As previously announced the Broadband Division (cic. around 30% of revenue) could be negatively impacted by reduced Russian sales and an update can be expected with Thursday’s interims.

The Wireless Division was trading in-line with modest expectations due to reduced operator activity in some markets, although there is strong OEM demand for products, driven by the global 4G LTE (Long Term Evolution) infrastructure roll-out. Over 40 products are in design, development and pre-production and multiple orders have been received from Alcatel Lucent, Motorola, Nokia and Ericsson. OEM shipments are expected to increase significantly in the second half of the current financial year several of these programmes are expected to commence volume production in the second half of the financial year ending 31 May 2015 and some orders have been received.

Along with organic growth there are additional opportunists targeted for example supplying   advanced ceramic compounds for use in frequency  diplexers; in China, where there is an opportunity to supply the Chinese OEM market in conjunction with a channel partner.

Financials

The £2m raised was working capital to fund the anticipate increase in business. There is no long term debt but working capital is tight.

Trading Strategy

Medium term this could be a winner. The cautious perhaps, due to Russian uncertainty ought to wait to see if there is any Interim price weakness. We will keep you posted.

Minoan (LSE: Min)

10.75p (10.5p-11p)

Mkt Cap: £18.4m

Next Results: Finals to Sept- due Feb

Travel could benefit from the low Euro while after much delay the final Approval for the Crete development is due now the Greeks election is over.

There are two main divisions: a Travel and Leisure business which is reported to have been performing well and has a “buy and build” development strategy. The Group’s has a leisure property project in Crete that is seeking planning permission for a part of a historically significant 6,000 acre site. It was valued at £20m when 5% was acquired for £1m by Canida Investment Corporation and has yet to win final approval but after a long journey. The November update stated after a review by the Greek Council of State, the issuance of the Presidential Decree is expected in the near future.

The Glasgow based Travel business has acquired  three travel brands in Scotland with  the division’s corporate travel and cruise offerings registering annual sales growth rates of over 25%. At the interims the total transaction value was around £24m and making a profit of £149k. Since than 20% of another business was acquired and the annual transaction value could increases to £100m. The travel division is managed by Duncan Wilson who was previously a main board director of My Travel plc, formerly known as Airtours, a £3 billion turnover company, prior to which he was CEO of Direct Holidays PLC. During his five year tenure at Direct Holidays the profits tripled and it was then sold to Airtours for over £80 million.

Financials

The balance sheet has been stretched to near breaking point by the Crete development. It has been supported by frequent fund raising. A £1.5m Convertible loan was recently raised, with 43% (£650k) converting at 15.5p and the reminder at 18p there is also a 10% coupon.

Trading Strategy

The planning permission would give the share price a substantial uplift but until then it is choking a viable travel business.

Reviews

Mirada  (LSE: MIRA)

12.25p (11.75p-12.7p)

Mkt Cap : £15.1m

Next Results:  Finals Year-end March

The shares have underperformed due to a further delay it the much signalled contract with a Tier One TV operator with perhaps 6 million subscribers. A Director recently buying shares at 12.75p further adds to our confidence it’s still a matter of when not if.  The new commercial launch date is reset to be by the end of February.

Around £6m has been raised in the last 20months at prices ranging from 9.5p to 12.5p. Mirada creates products for digital TV operators and broadcasters and receives a licence fee per new users of $2 up to $4 – it is the licensing fees that will transform the P&L and the share price. There are valid reasons for tier one operators in Brazil and Mexico (speed& bespoke) to be using this AIM listed largely Spanish company to supply software for the set top boxes and   programme guides that interact with any digital device.  Mirada have been chasing the implantation of a 5-8m retained user base for a TV company and a date could soon be set. This is worth in licensing fees a minimum of $10m over maybe 2-3 years and the profit margin on licensing fees is Microsoft proportions

Trading Strategy

We estimated net cash of £2.5m so MIRA can afford to chase new contracts. When the terms of this contract are finally announced the share should respond positively.

Last OMG! Price 13.5p

Source BioSciences (LSE: SBS)

11.13p (11p/11.25p)

Mkt Cap £34m

Next Results: Finals March

Laboratory services provider Source BioScience (LSE:SBS) continues to make progress but it still has not enjoyed the benefits of its recent investment and institutional investors are increasing their stakes.

Overall trading in 2014 was in line with expectations with slightly disappointing revenues offset by improved margins and an underlying profit just short of £3m is likely. Not everything is positive, because there are competitive pressures in the life science research market. Investment has been made in operations in the UK, US and Germany in storage, DNA sequencing and laboratory services and this will help to grow profit in 2015. The 2014 results will be published in the second half of March.

Henderson and Oryx International have both been increasing their stakes in Source during January. Henderson has taken its stake from less than 13% to 17.2%, while Oryx has increased its stake from less than 6% to 11.6%. In the middle of January, Miton sold nearly one-third of its stake leaving it with 4.9%.

The shares were originally recommended at 12p and since then a 0.13p a share dividend has been paid. Even so, the share price has slipped back but the 2014 multiple is less than 16, falling to 14 in 2015.

Trading Strategy

The long-term strategy of becoming a significant player in DNA sequencing and temperature-controlled storage for the pharma sector will pay off in the coming years making the shares a long-term buy.

Last OMG! Price 12p