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Monday 23rd February 2015
OMG! Wednesday 25th Recommendation on ADVFN Premium Newsletters
Market Snapshot: Avoiding Banana Skins
PLUS: Price Sensitive Previews AVG, RXB and SIXH
This Week….
….. we are filing Ukraine and Islamic State away as dangerous and unpredictable. Moving on we can predict that Greece remains uncertain but no longer likely to be dangerous. This is assuming that Greece will, at least pretend to fall in line with EU loan agreements although a veil of austerity needs to be pulled over the electorate’s eyes. There are plenty of chances for better Eurozone economic news as Consumer Price Index, Consumer and Business Confidence and Unemployment are reported this week.
In the US there is Consumer Confidence reported on Tuesday; Thursday the latest Consumer Price Index and Jobless are announced with GDP on Friday. These factors may combine to make the recently buoyant market stumble. We seem set for a moderately lower week.
….Last Week…..
….. the FTSE 100 improved by 0.76% to 6,915, while the FTSE 250 was 1.66% ahead. The AIM All Share jumped 1.58% and the FTSE Small Cap at 4,514 improved by 0.4%.
The CBI is optimistic for the UK economy and upgraded its 2015 GDP forecast to 2.7%. Inflation slowed to 0.3%, unemployment dipped to 5.7% and UK Retail Sales grew by 5.8% on the year but made a slower start in January.
In the US, the Fed signalled that an Interest Rates raise would still be ‘detrimental for the recovery’, perhaps they mean world recovery?
The Eurozone markets reached a seven year high helped by QE and the Business Activity Index, which rose to 53.5 from 52.6, remember that 50 is break-even.
Pause for Thought
“Small Cap Stocks tend to be less well researched so many are mis-priced. The outlook for small and mid-cap stocks is better now.”
Schroders
One Company… One Recommendation OMG! Wednesday 25th
Preview
AVG Growth just ‘interrupted’
RXB Jogging on the spot but set to move forward
SIXH Sensible Strategy moderately rated
Avingtrans (LSE:AVG)
115.5p (113-118p)
Mkt Cap: £32.3m
Next Results: Interims Wednesday 25th
A cautious Trading Update in November from the acquisitive AVG knocked the price from 140p. Avingtrans designs, manufactures and supplies critical (expensive) components, modules and associated services to the aerospace, energy and medical sectors
Current Trading, was reported to be adversely affected by the significant restructuring by one of the Company’s key customers, perhaps Rolls Royce. So profit expectations have been reduced to be pretty much the same as last year, but with a lower EPS. Longer term the market for aerospace products and services is growing and there is some increased activity from existing and prospective aerospace customers. There is room to accelerate efficiency with the site rationalisation plans which are already underway allowing cost savings. Since the Trading Statement the Aero Division, has signed a 10 year long term agreement with PFW Aerospace GmbH (part of Airbus) valued at c£25m over its duration based on the current predicted volumes. The medical and energy sectors are preforming in-line with expectations although there are some acquisition integration challenges. So for the May 2015 year-end, turnover of £62m could give profits of around £3m would give an EPS of 9.5p (14p) for a prospective P/E of 12x while yielding 2.7%.
Financials
At the finals to May gearing was 11%, positive cashflow with net debt of £3.6m and a net asset value of £32.6m
Trading Strategy
This is a well-run business and we expect an improved 2016.
Rex Bionics (LSE:RXB)
67.5p (65-70p)
Mkt Cap: £10m
Next Results: Interims Thursday 26th
Rex Bionics is pioneering a new mobility product, but after December’s disappointing Trading update the shares fell from around 160p.
Rex is at the leading edge of robotic technology to improve the mobility of wheel-chair users by strapping them into bionic legs that can then walk. Since the IPO in May 2014 when £10m was raised there has been significant developments in product, manufacturing and marketing, however sales were reported to be materially behind market expectations. The issue is that to sell to the broader medical market such as Hospitals the medical and financial benefits of a walking wheel chair need further proof. Therefore clinical trials are underway to support the financial proposition along with the already proven therapeutic one. The application of robotic technology for wheel-chair users in the Rehabilitation and home care settings (ie non-medical) is gaining traction. Earlier in December an innovative collaboration was signed with PhysioFunction, one of the UK’s leading providers of specialist Neurological Physiotherapy and Rehabilitation Technology services, to enable PhysioFunction to offer Robot-Assisted Physiotherapy using the REX technology to its substantial customer base at fifteen physiotherapy clinics around the UK. The directors are sufficiently confident to have brought around £50k worth of shares at the current price.
Financials
It is likely that further funding will be needed to progress to sustainable cash-flow
Trading Strategy
There could plenty of upside in the world robotic legs market. These interims will be a guide to the pace of development.
600 Group (LSE:SIXH)
18p (17.5p-18.5p)
Mkt Cap: £13.4m
Next Results: Finals June
This former metal recovery and engineering company has a long and now mostly irrelevant history as the latest acquisition moves it into higher margin leaser marking.
This year a £6.2m loan was taken to complete the 80% acquisition of a US leaser marking business TYKMA for £3.04m. TYKMA is a privately owned company based in Chillicothe, Ohio, which specialises in the design, production and distribution of laser marking systems for a broad range of industry applications. During the year ended 31 December 2014, the Company reported net operating income of US$0.73m on revenues of US$8.40m. The business will be fully integrated with Electrox, the Group’s existing laser business. The terms are the loan are 8% coupon for Five years with the company holding an option to repay early. The loan is a 100% covered by 5 year warrants at 20p which can be exercised at any time.
The interims to September reported in December, described the performance as satisfactory as revenue growth was above the industry average and profit margins showed continued resilience despite facing sluggish overall market demand. Electrox Laser continued to generate strong growth momentum, with revenues increasing by more than 15% to £4m across a broad geographical base. More than 44% of revenues were generated in North America, where margins were squeezed by the strength of Sterling relative to the US dollar and additional sales resource was added to increase market penetration.
The balance of the loan will restructure other debts and provides working capital. It supports the stated strategy of developing high growth industry sectors led by technical leadership in niche markets. This should clearly improve 600’s rating. Finals to March 2015 are likely to be profits of £2m for an EPS of 2p which gives a P/E of 9x.
Financials
The restructured debt does allow for further infill and complementary acquisitions. A director recently brought £23k worth of shares at an average price of 15.8p
Trading Strategy
The shares are moderately rated and the 8% loan note with warrants seems attractive.
