Company Watch Review
Article Date: Feb 09 200714.12 per cent – that’s the margin of improvement of our entire list of Company Watch and Company Profile recommendations in the past 12 months. This double-digit gain is in stark contrast to the performance of the overall AIM Index which has fallen 4.23 per cent during this time.
Star performers
Our best-performing recommendation was anti-counterfeiting technology supplier OpSec Security, formerly known as Applied Optical Technologies. We were one of the first to spy a turnaround under way under chief executive Mark Turnage, backing the shares for recovery at 42.5p in February. Once the market cottoned on to developments, the shares surged.
2006 highlights for OpSec included a swing into the black for the year to March, as well as the summer acquisition of GenuOne, which provides anti-counterfeiting software allowing brand owners to monitor and protect assets across online auction sites such as eBay.
More recent half-time figures to September revealed record pre-tax profits near tripled to £2.76 million from sales of £14.4 million (£13 million), and a vault in earnings to 4.3p (1.2p) a share. The group’s US and European businesses continued to perform at record levels and figures for the year to March should comfortably beat forecasts. With the group having returned to strong growth and with further acquisitions in the pipeline, we think the 102.5p shares (140 per cent north of our original price) remain worth holding. If you’ve yet to take some profits, however, now is the time to do so.
Two of our March 2006 suggestions have almost doubled. We backed recruitment software business Bond International at 97p and our faith in the business was recently rewarded with a new 191.5p high and an overall gain of 97 per cent. 2006 was a real year of progress for the Steve Russell-led Bond, which recently completed its biggest ever acquisition and won its largest ever contract with Manpower. Forecast to meet upgraded 2006 numbers – profits of £4.2 million and 12.2p of earnings – we think the shares are worth holding on a forward p/e of 16.2, given forecast earnings growth of 33 per cent for 2006 and 25 per cent for 2007.
Deal-hungry corporate and financial consultancy Jelf jumped 76 per cent higher from a recommendation price of 135p to 237.5p, and the Wales and Southern England-focused group is on a veritable growth spurt. A 148 per cent profits surge to £3.3 million was recently unveiled for the year to September. Six acquisitions were completed and turnover more than doubled to £25.1 million.
Acquisitions delivered £9.1 million of the £13.6 million sales rise, although growth also reflected new client wins and healthy levels of cross-selling. Alongside the results, the £10 million acquisition of specialist healthcare intermediary SPS Wellbeing was announced, ‘a business with 2,000-plus corporate accounts’ into which Jelf can cross-sell services.
This year, analysts are looking for profits of £5.9 million and 16.8p of earnings, which places the 245.5p shares on a forward rating of almost 15, inexpensive given that earnings should grow at least 35 per cent this year. Readers who followed our advice are already sitting on super gains and might even consider topping up holdings in this ambitious and consolidation-hungry venture.
Several Company Profile selections delivered bountiful returns, among them Carter & Carter, the outsourced training giant flagged up as a strong buy in November. Recommended at 754p, the share price has continued to gather momentum and C&C closed out the year with a £23.4 million acquisitive flourish in vocational learning.
C&C has built itself into the country’s number one private sector provider of government-funded work-based learning. For the current year analysts are looking for a rise in profits from £15.2 million to £23.3 million, along with 38 per cent earnings growth to 38.5p. Though at first the forward p/e of 27.3 appears stretched, the rating is more than justified given the growth opportunity ahead. Sit tight.
Engineering design group Hyder Consulting merits a mention following consistently strong financials, analysts’ upgrades and a superb share price performance (even peaking above £5 in January). Recent financials for the half to September easily surpassed the previous year’s figures, with profits surging 212 per cent to £8.1 million on revenues of £97.2 million, allowing for a 70 per cent-plus interim dividend hike to 0.6p. For the year, readers could expect a sharp rise in profits to £12.4 million and 25.6p of earnings, placing the 462.5p shares on a forward multiple of 18 times. Hold for further strong growth.
Highlights amid a slew of other astute stock picks included Chloride, the ‘pure’ power protection play first unearthed here as an investment proposition. The shares powered
up from our 101.75p June recommendation level to 160p for gains of almost 60 per cent. Forecast full-year earnings of 6.4p place the shares on a rather lofty-looking p/e of 25, though that rating is more than merited given that 35 per cent profits and earnings growth is forecast for the current year. Top slice for prudence’s sake, but retain your stake.
An array of others stocks delivered decent performances, among them high street computer games seller Game Group (tipped at 79p and now 145p). Annual profits to January will beat forecasts, coming in somewhere between £28 million and £30 million in the wake of a strong Christmas. Game is going great guns, but don’t tempt fate in a highly cyclical sector. Top-slice.
Telecoms services counter Maintel reached a 208p high before settling at 206p for a 40 per cent-plus increase. Public sector support services outfit Parkwood powered ahead by 73.2 per cent to 132.5p and a recent update confirmed 2006 profits would beat forecasts with the ‘green services’ and leisure management divisions performing strongly.
Stop-loss safety
Our conservative stop-loss system (see column left) establishes a share price level below the tip price at which you should considering selling a stock. If and when the share prices rise it is adjusted upwards, allowing you to protect your gains. Strict adherence to the stop-loss will have enabled you to pocket respectable returns from shares that rose in the wake of a recommendation and then fell for whatever reason.
For instance FDM, the IT recruiter we urged readers to investigate at 79p, proved a bumpy ride, reaching a 111.5p high in October and then breaching the new 89.2p stop-loss. Investors who sold once the stop-loss was triggered will have locked in a decent 12.9 per cent gain.
Lonrho Africa, written up for its speculative appeal at 20.5p in April, moved as high as 37.75p before falling through the 30.2p stop-loss that same month. The resources-to-hotels investor has been selling off assets to reduce debt, and yet still wants to back a range of early- to mid-stage development projects in Africa. Investors who sold out at the appropriate time will have banked a very respectable 47 per cent gain. Stop-loss-adhering readers will also have kept calm regarding technology business builder XL TechGroup, which leapt swiftly from 265p to a high of 337.5p, before falling back to the new stop-loss level of 270p. Even though the shares have eased, we still think they are worth holding.
Poor Performers
Lack of news flow seems to have hindered industrial batteries and power supply systems business China Shoto, despite continued strong growth and good interim results. Shares in the AIM-listed business may also have felt the fallout from controversy regarding the quality of some Chinese new issues. Finishing the year 20 per cent below our recommendation price at 160p we are encouraged by a recent up-tick to 185p and see further recovery ahead. On that basis, we think the shares are well worth revisiting.
Acquisitive white collar outsourced services play Supporta shed 20 per cent of its value despite our endorsement, dropping from our 87.5p recommendation level to 64.5p. This was despite outstanding levels of growth delivered under the stewardship of chairman John Jasper. Half-time figures showed an 83 per cent sales surge to £21.8 million and a near 150 per cent profits move to £670,000. The resignation of the chief executive has not helped sentiment though.
Tipped at 35.5p, transformed motion capture technology counter OMG suffered a September share price wobble, although the price has spiked encouragingly since, with analysts and investors warming to news of a record year for sales and profits and healthy levels of cash generation under chief executive Nick Bolton. It remains a firm buy.
Other rather lacklustre performers included the erratic Sondex, GVM Metals and the likes of XP Power, SQS Software Quality Systems and BKN International.
This story is from Growth Company Investor, the independent voice on fast-growing companies. Subscribe today for the latest AIM recommendations.
