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HB Markets Daily Smallcap Newsflash including Avesco Group, Centaur Media, Communisis, Lidco and others

4imprint Group (FOUR, 155p, £40.0m) Prelims to 2 January 2010 report flat revenues at £169.1m, but adjusted operating profit is down 42% to £5.5m (2008: £9.6m) and adjusted EPS down 30% to 17.1p (2008: £24.5p), exceeding market earnings expectations of 12.6p. In fact, 2009 actual earnings have exceeded 2010 EPS estimate of 16.4p. We expect the market to upgrade estimates for 2010. The group has increased its market share and lower cost. There is some evidence that market conditions are improving. The group is well positioned for a market recovery. The stock trades on a historic PER of 9.5x with a compelling yield of 8.2%. We therefore upgrade our Hold recommendation to a BUY.

Avesco Group (AVS, 43.5p, £10.9m), Taya Investment Company has no current intention to make an offer for Avesco. The share price has risen by 112% since our BUY recommendation, driven by the bid situation. Avesco is an asset play story, with tangible net assets stood at £37.8m, exceeding the current market capitalisation or £10.9m. Given the group is no longer in a bid situation, we believe investors should take profits. We do not foresee the share price to increase substantially in the short-term and expect it to drift southwards instead. We therefore reduce our Buy recommendation to a HOLD or take profits.

Centaur Media (CAU, 50p, £70.44m) Interims to December 2009 saw revenues fall to £23.9m (£31.5m) with an adjusted loss before tax of £1.2m (Profit £0.7m) and a 0.6p (0.5p) DPS. The group ended the period with net debt of £0.7m (net cash of £0.6m at the June 2009 year end) but that was driven primarily by a £0.8m purchase of software. The group comments the rate of decline is lowing, with revenues only down 15% in the final 2 months of the period as opposed to 28% down in the first 4 months. The fall in revenues has been accentuated by a number of events that did not repeat this year, so although events revenues were down 27% the underlying situation was slightly better at 14% down. The group did take action on costs to offset the 24% decline in revenues by cutting admin by some 19%. We admire the group and believe it is reacting correctly to the difficult trading conditions but are still concerned regarding the future ratings. We maintain our SELL.

ClearStream Technologies (CTN, 25.75p, £11.9m) The trading statement reports management are comfortable with current FY2010 estimates of PBT of £0.5m and EPS of 1.0p. Following the manufacturing changes, yields and gross margins have returned to 2009 levels. The group have secured a number of new customers increasing OEM sales. The own-labelling division is focussing on developing sales in BRIC and is seeing some evidence of a recovery in demand from European distributors. Traditionally the business is H2 weighted and this year is no different. We retain our SPECULATIVE BUY recommendation.

Clyde Process Solutions (CPSP, 53p, £21.40m) Trading since the half year has been in-line with market expectations with the end of January order book standing at £19.5m (£24.5m). The group is expanding overseas and is fairly rated in our eyes, a maintained HOLD.

Communisis (CMS, 13.75p, £19.06m) Finals to December 2009 saw sales decline to £190.19m (£257.73m) with underlying pre-tax profits of £5.25m (£12.73m) and EPS of 2.28p (6.24p). As we feared the dividend has been trimmed to a final of 0.43p (1.635p) making a year total of 1.29p (4.13p), giving a year yield total of 9.2%, indeed 3.1% in the final alone. Year end net debt reduced to £16.8m from £16.8m at the interims, despite an adverse working cap movement of £7.9m, raised pension contribution from £1.2m to £2.5m which were offset by a business sale of £3.5m. The group remains confident that the integrated marketing model creates opportunities with 40 of the top 100 customers taking more than 1 service from the group and is throwing up acquisition opportunities.  The group is continuing to invest heavily in high tech printing kit that enables personalised marketing. Key concern is the bill and cheque printing business which is inevitably winding down, driven by Government legislation. That said forecasts around £6m PBT with 3p EPS look achievable – so we move the shares from a Sell, last iterated at 16p on 11/11/09, to a HOLD.

Gartmore Fledgling Trust (GMF, 374.5p, £70.39m) Interim report to December 2009 reports a 21.7% NAV rise to 452.1p over the period (outperforming the 15.7% rise in the Fledgling index). It has declared a held 3.5p interim dividend. GFM was ranked 1st in the Association of Investment Companies UK Smaller Companies universe over both the 1 year and 10 year periods to December 2009. GFM notes it sits at a slightly larger discount to NAV (16.6% V.S. the sector average of 16.1%) and that worsened during the period. GFM bought back some 90,000 shares during the period and maintains the ability to buy back more. Like us, GFM believes as yet little of the Quantitive Easing liquidity injected into the markets has reached the smaller cap market place, but it will eventually, probably as corporate activity. BUY

GB Group (GBG, 22.5p, £19.25m) Has announced Racing UK, the subscription TV horse racing channel, has signed to use GBG’s identity management solutions which will be used to consolidate all subscriber information into a single view database.  Still a HOLD.

IDOX (IDOX, 10.25p, £35.08m) AGM statement has stated that Q1 revenue and profitability are ahead of the comparable period last year. The group has a large order book that underpins the outlook, though they sensibly note caution regarding the general UK economy and the forthcoming UK election, given its prime focus of software & services to the UK public sector. Forecasts for the year ending October 2010 put the group on a 6.3x PER (based on £7.54m PBT with 1.6p EPS). Although clearly more vulnerable than most to potential UK spending cuts, we believe it’s already discounted the impact and thus maintain our BUY.

Lidco (LID, 19.75p, £34.4m), the cardiovascular monitoring company, reports trading for the year ended 31 January 2010, is ahead of market expectations of pre-tax losses of £1.1m and EPS of -0.6p. Revenues are expected to have increase by c.18% to c. £5.3m, with a 2.7x increase in monitors installed to 2,075. The business is set to become profitable in the current financial year. Lidco is debt free and has net cash of £1.8m at the end of FY2010 (H1 2010: £2.1m). Despite the better than expected performance, we remain concerned about the group’s cash levels. If the business does not become cash generative this year there is a danger of a further cash raise. Trading on a 2010 EV/Sales of 3.4x encourages us to upgrade our sell recommendation to a HOLD.

Pursuit Dynamics (PDX, 165p, £108.57m) So after months of examining the business strategy PDX, under the management of the new CEO Roel Pieper, has decided to re-enter the brewing market. Brewers are inevitably cautious and the sight of a new technology entering, withdrawing and then re-entering the market has certainly done damage to the prospects. We have always been backers of the technology, but feel the share price is still well ahead and we now believe the group will have to do a deal withy a larger operation to secure much take-up of its technology. We still rate the group as a SELL.

Sabien Technology (SNT, 27.5p, £8.7m), the manufacturer of the patented M2G energy saving devices, reports interims to 31 December 2009. Sales up 25% to £0.44m (H109: £0.35m), and pre-tax losses fell by 57% to £0.21m (H109: £0.5m). The order book is strong with £0.8m of sales received for the year to date. Following a placing of £1.475m at 30p per share, the group has ended the period with net cash of £1.1m. The next 6 months will be interesting. The group need to convert the trials into orders and ramp up sales to gain critical mass. We maintain our HOLD recommendation for now, but large contract wins could make this stock more interesting.

Silverdell (SID, 8.875p, £13.5m), the UK supplier of asbestos and environmental consultancy services, reports trading continues to perform in line with 2010 EPS estimates of 1.3p, despite a 6% decline in revenues from 1 October 2009 to 31 January 2010, due to adverse weather conditions. However, enquiry levels remain strong. The business now benefits from a 1% increase in gross margins to 24.6% derived from maximising efficiencies. The group has recently secured new contracts, providing revenue visibility. We continue to be believe the business is undervalued trading on a 2010 PER of 6.7x and 5.2 2011 PER. We retain our SPECULATIVE BUY recommendation and our target price of 11.8p.

Swallowfield (SWL, 126p, £14.3m), formulates, manufactures and packages quality cosmetics, toiletries and household goods across the whole spectrum of consumer markets for retailers and famous brands such as Next, PZ Cussons and Estee Lauder. Interims to 9 January 2010 reports revenues up 15% to £29.1m (H109: £25.2m), adjusted PBT up 27% to £0.7m (H109: £0.6m) and adjusted EPS up 31% to 4.7p (H109: 3.6p) – an excellent performance by the group in tough market conditions. A 22% increase in DPS to 2.2p sends a positive signal of growth going forward. Net debt was reduced to £2.2m (FY09: 3.4m). Operating margins declined to 28% (FY09: 31%) due to an increase in raw materials, which have now stabilised combined with a shift in the sales mix to lower margin toiletries. The group is focussing on increasing sales in higher margin products, broadening geographic footprint; widening product range and by further enhancing our operational capability through continuous improvement in quality, cost, service and innovation. The group has a strong order book in volume terms and continues to develop existing and new client relationships across an expanding geographical spread. Assuming there is no double dip, Swallowfield is trading in line with 2010 PBT estimate of £1.6m, EPS of 9.77p and DPS of 6.5p. The business has a strong balance sheet with a tangible net asset value of £12.9m. Trading on a 2010 PER of 12.9x with a yield compelling 5.2% and a 2011 PER of 11.9x and a yield of 5.6%, we believe the stock is compelling. The share price has risen 42% since our buy recommendation on 10/09/09. The strong asset backing combined with a generous yield encourages us to retain our BUY recommendation.

Telephonetics (TPH, 7.5p, £8.19m) Finals to November 2009 saw revenues rise by 5.6% to £10.51m (£9.95m) with a first time contribution from the February 2009 acquisition of Datadialogs of £0.55m (reflecting a 27% growth from pre-purchase levels). PBT fell to £0.41m (£1.07m) with EPS of 0.33p (0.87p) and the group ended the period with net cash of £5.1m. With healthy cash balances and the ability to make further acquisitions we rate the company still as a BUY.

Vertu Motors (VTU, 39p, £77m) reports trading for the year ending 28 February will be ahead of market consensus forecasts, driven by the scrappage scheme. The outlook for the remainder of 2010 is uncertain. The weak and fragile UK economy, ending of the scrappage programme, increase in VAT to 17.5%, introduction of the new car “showroom” tax in April and the weak Sterling against the Euro, indicate that new car sales to private customers will decline over the remainder of the year. The fleet, used car and aftersales areas are likely to be more resilient in the coming period. The Group has the strategies and management in place to ensure costs are controlled and dealership performance is maximised in all revenue areas. The market forecasts 2011 PBT of £6m and EPS of 2.2p. The stock trades on a 2011 PER of 18x. We believe the stock is fully valued and initiate with a HOLD.

Wilmington (WIL, 132p, £109.05m) Interim results to December 2009 saw revenues of £36.95m (£43.97m) with Professional Training & Events revenue declining to £20.79m (£26.53m) and Professional Publishing & Information £16.15m (£17.44m). Underlying pre-tax profits of £5.51m (£6.96m) with 4.4p (5.16p) EPS and 3.5p (2.3p) DPS, while net debt increased to £20.51m (£17.83m) that masks modest cash generation offset by a £2.2m acquisition during the period. The group is seeing some pick-up in the outlook, even in banking training, which will combine with a lower cost base to ensure further profits progress. Forecasts of £13m with 10.2p EPS leave the group looking well valued, and we thus reduce our Buy recommendation, last iterated on 09/07/09 at 113.5p, to a HOLD.

YCO Group (YCO, 7.5p, £3.6m), the provider of specialist services to superyachts, expects to break-even for the year ended 31 December 2009. The global weak economic climate has adversely impacted the sale of superyachts. The group have gone through a restructuring program, reducing overheads and improving the structure of cross selling opportunities. The benefits of the restructuring are bearing fruit and there are signs indicating a recovery. We are slightly another downturn in global economies could avert a recovery. The completion of a yacht sale in Q409 will receive the revenue benefit in 2010. The group has management contracts with 50 yachts and is actively seeking to grow this. There are no forecast in the market, but we would expect 2011 to be stronger than 2010. We initiate with a HOLD recommendation.

Disclosure: The author holds no positions in the company