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Monday 19th October OPPORTUNITY 4 MATERIAL GAINS
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Market Snapshot; Company Previews and Reviews
…Last Week….
…….. the FTSE 100 closed at 6,310 which was a fall of 0.43%. The FTSE 250 gained 0.83% while the FTSE AIM All Share dropped 2.78%. This factual summary fails to evoke the week’s full blooded 150 point mood swings from feverish macro-economic depression to close on Friday with nonchalance acceptance of slower growth. A stabilizing factor was the BOE declaration that interest rates would stay lower for longer and the FED commitment to continue its $35billon QE this month. These comments were enough to take the manic out of the market’s depression.
……..This Week………..
…. there are BOE Minutes reported on Tuesday and the pressure is off an interest rate rise. On Friday Preliminary Third QTR GDP will be reported and a more sustainable 0.7% is expected (an annualized 2.8%), 2015 forecasts are likely to be reduced. Retails Sales figures are reported on Thursday and the rate of growth is set to be slower than last month’s 2.6% increase. Internationally any better news from the EU will be gratefully received while the US has a busy Thursday for reports. Ignoring non- financial events markets seem set to improve particularly ready for a recovery is the FTSE Aim All Share.
Pause for Thought
The UK Equity Market’s yield is 3.6% which is nearly twice as much as the Gilt 10 year bonds at 2.12%, which should underpin equities.
REPORTS – scroll-down for Previews & Reviews
Previews
LOK- Building discounted progress with a yield
Reviews
DOTD Faster growth anticipated
HPT Perhaps a take-over target
AVCTA ‘A firmer’ technology being commercialised
Preview
Lok’nStore (LSE:LOK)
201.5p (200p-203p)
Mkt Cap £51.5m
Next Results: Full year October 20th
Self storage sites operator Lok’nStore will announce its full year figures to July 2014 on Monday and report on progress with new sites.
Increasing occupancy rates and higher prices are helping Lok’nStore to grow. A rise in profit from £1.4m to £1.7m is forecast on the back of an improvement in revenues from £13m to £13.7m. Tax losses are running out so earnings per share will be slightly lower. The dividend is likely to be raised from 6p a share to 6.5p a share and there is potential for a faster rate of dividend growth in the future. House broker finnCap forecasts a pre-deferred tax NAV of 249p a share.
Lok’nStore consolidated its position during the recession and stopped opening new sites. Things have changed in the past couple of years and new sites are being added. There are currently 24 sites, including three under management contracts, with three more in development. The new developments will add to the NAV as they are opened.
Trading Strategy
Lok’nStore is trading at an 18.5% discount to its underlying forecast NAV and along with further NAV growth it also offers an attractive yield of 3.2%. An attractive long-term investment.
REVIEWS
dotDigital (LSE:DOTD)
30.25p (29.5p-31p)
Mkt Cap £85.8m
Email marketing services provider dotDigital reported better than expected figures for the year to June 2014. Although profit growth was modest the base has been laid for much faster growth in the next two years.
Revenues increased from £13.8m to £16.4m, profit edged up from £3.3m to £3.6m. Additional management was taken on during the period and this hit operating margins but they will recover this year. Net debt improved from £6.1m to £9.3m. The final dividend was doubled to 0.2p a share.
Chief executive Peter Simmonds intends to retire at the end of September 2015 and the succession plan is already in place. Non-executive Simone Barratt has been appointed deputy chief executive and will take over as chief executive next year. She is a former managing director of eDialog in Europe and Asia Pacific so she is experienced in the digital marketing sector and has already spent two years on the dotDigital board.
Profit forecasts have been trimmed to £5.2m because of higher than expected costs due to the handover period but the benefits of recent investment are still set to show through. The shares are trading on 19 times prospective 2014-15 earnings, falling to 13 in 2015-16.
Trading Strategy
dotDigital has a strong long-term record and it is highly cash generative – if it meets forecasts than net debt could be more than £15m by June 2016. A 10% decline in the share price in the past week and strong growth over the next two years makes dotDigital a long-term buy.
Last OMG! Price: 33.75p
NetPlay NetPlay (LSE:NPT)
8.13p (8p-8.25p)
Mkt Cap £24.3m
Interactive gaming business NetPlay has warned that it will not achieve expectations this year but it still has plenty of cash in the balance sheet, an attractive dividend and increasingly appears a good takeover target for larger rivals.
It appears that NetPlay will not make a full year profit anywhere near the £4.85m previously forecast. NetPlay is cutting costs in order to offset the UK Point of Consumption tax that will come into force by the end of this year but this is not the current problem.
NetPlay is increasing its active player numbers but marketing costs have been higher than expected. Management believes that it can achieve the growth more cost-effectively by better targeted spending.
In the third quarter of 2014, there were 35,225 active depositing players, which is a 22% increased over the same period last year. Third quarter revenues of £6.4m were slightly lower than the £6.5m reported in third quarter of 2013 and down on the £7.4m reported in the second quarter of 2014, although that is partly seasonal.
Cash has reduced from £14.3m to £13.4m over the three months to September 2014. The cash covers more than one-half of the company’s market value.Non-executive director Andrew Lapping and related parties are continuing to buy shares. Having acquired 400,000 shares at 10.8625p a share following the interims and after the latest statement a further 250,000 were acquired at 7.4p each.
Trading Strategy
The offer price was 13p when NetPlay was originally written about ahead of its interims. The fall in the share price will make NetPlay attractive to bidders and in the meantime even an unchanged final dividend would make a total dividend of 0.54p a share for 2014, providing a yield of 6.5%. The shares are worth holding onto and are a buy for the brave.
Last OMG! Price: 12.75p
Avacta (LSE:AVCTA)
0.76p (0.73-0.83p)
Mkt Cap £37.8m
Positive finals to July were reported on Thursday but the price was unchanged. Gross margins were up 64%, the EBITDA loss was reduced and the loss before tax was £1.4m and slightly down from last year. Development cost at £1.7m were slightly ahead of last year but Admin cost increased by 21% to over £4m – as the commercialisation infrastructure is build up. The Group sees enormous potential in its Affimer technology which saves time and money in drug discovery and is now in a position to turn the recent technical and operational progress into commercial success. The launch of the online Affimer catalogue provides a route to market for reagents and assay kits and will be grown over the coming months and years as the size of the catalogue increases and the Group’s marketing efforts begin to take effect. There is optimism that after a short period of change sales will accelerate in the key US market through direct sales efforts. There is £11m cash in the bank with a current ratio of 7.7x is almost ridiculously healthy.
Trading Strategy
It seems likely that the share will (EVENTUALLY!) go above the 1.1p placing price in anticipation of growing orders.
Last OMG! Price: 0.79p
http://www.avacta.com/news/what-is-an-affimer/
