THE INVESTOR’S GUIDE TO
SEPTEMBER 2011 LOWER PRICED SHARES
PENNY SHARE PROPHET
THE HL PENNY SHARE SERVICE - BY SUBSCRIPTION ONLY - £40 PER ANNUM ISSUE 180 www.hl.co.uk
Markets still nervous
Stock markets remain volatile but there have that nothing was going to happen. where some things are
been some good days amongst the bad. At the Meanwhile, the Greek trade unions are urging going well - the Far
time of writing the FTSE 100 index is citizens, with some success, to oppose the East, and particularly
standing at around the 5,200 level but it is government's austerity measures, and Italy, China. Economic
sobering to recall that at the beginning of July together with Portugal, is looking shakier by growth rates are not as
it was over the 6,000 mark. the day. high as earlier times, and
There have been some days when There is the situation in the USA where currently stand at, would you
investors have been optimistic on the chances measures taken to bring back growth to the believe it, around 8%. I’m sure the rest of the
that the euro zone policymakers will take economy seem to be having no effect. world would be happy with a fifth of that.
decisive action to tackle the problems of Basically the public have lost faith and that is Meanwhile, stock markets will continue
sovereign debt. But generally there have difficult to deal with. Who would want to be to be volatile while the euro zone sorts itself
perhaps been longer periods when they felt in President Obama’s shoes at this time? out, which may involve, as we suggest, Far
At least there is one area of the world Eastern participation.
IN THIS ISSUE
Share of the Month .............................................................................. Anite Share of the Month ... Anite (AIE)
Focus on September .............................................................. Cello Group
Metalrax Group Anite is the global leader in wireless device 2009 when the share price stood at around
Rentokil Initial testing - it tests new technology for mobile 28p, having fallen from the July 2007 high of
makers - and has benefitted from the increased 85p. Since then he has strengthened the
Editor’s Update ................... Cable & Wireless Worldwide
DDD Group use of mobile phones. The Anite Conformance management as well as investing heavily in
Toolset is the first to be approved by the Global research, and closing down some of the
Penny Arcade ........................................... Barratt Developments Certification Forum (GCF) for the certification peripheral activities. Helped by the
of devices intended for deployment on LTE rationalisation measures and the rise in
Results Service .................................................................................... Prezzo
Debenhams bands (Long Term Evolution frequency bands) demand for mobile phones, we think Anite is
which aim to increase the capacity and speed emerging as a stronger company.
Smart Cat Corner .................... Omega Diagnostics Group of wireless data networks. It is a provider of IT The recent Interim Management Statement
solutions, software, system integration and was encouraging. Trading continued to
HARGREAVES LANSDOWN STOCKBROKERS
managed services. increase, with operating profits ahead of the
Anite also provides travel firms with same period in 2010, thanks to growth in both
TO DEAL systems and applications which enable them to the Wireless and Travel divisions, and Anite's
TEL: 0117 980 9800 offer online booking services. In April the group handset business maintained its clear lead for
signed a multi-year contract with TUI Travel to certified protocol test cases available to
Privilege Commission Tariff
implement its @comRes reservation system in customers. Finally, it was confirmed the
Min Dealing Charge per deal .......................................................... £10
the TUI UK and Ireland division. Anite's CEO, financial position was "robust".
Max Dealing Charge per deal ........................................................ £50 Chris Humphries used the occasion to say that Good results are expected for the year to
Plus Certificated Dealing Charge ................................................................ £20 he was increasingly confident that Anite would 30/4/12 and beyond - in other words, we think
UK Equities exceed market expectations. this could be a turning point. Consider as a
On deals up to £5,000 .............................................................................. 1% Chris Humphries joined Anite in January strong buy.
When dealing, please remember to inform the dealer
that you are a member of the HL Penny Share ANITE AIE
Service in order to qualify for the above tariff. Please
note: If you receive this tariff, all online trades will be Price: 64p Bid: 63.75p Offer: 65p Year End: 30th April
charged at a flat rate of £11.95 per deal. You will not Current NET Yield: 1.6% (variable & not guaranteed) Sector: Software & Computer Services
receive the lower online rates available for frequent Year’s High: 78p Year’s Low: 41.5p Prospective PER: 19.7
dealing. Market Capitalisation: £191.3m Next Results: Interims - December 2011
These are tips and should not be deemed as personal advice. Please read the Important Investment Notes on page 2 as these are higher risk shares.
Enquiries: 0117 980 9800
PENNY SHARE PROPHET - ISSUE 180
Focus on September
This month we feature two small companies, indicated a good performance in the full year, Rentokil Initial’s shares are languishing
Cello and Metalrax, and also the larger Rentokil which ends 31/12/11. at the lower levels. We think the medium term
Initial. Metalrax Group operates in niche markets outlook remains good, and consider them a
We think Cello Group could be set for a which gives it some shelter from recessionary buy at current levels.
reasonable profits performance. It performed conditions. The shares are valued at 6.3 times
well in 2010 and the 2011 interim results earnings, which we think is a low rating.
and healthcare sectors, and has expertise in
CELLO GROUP CLL
FMCG (fast moving consumer goods),
on Cello Group telecoms, retail, financial services and Price: 34.25p Bid: 34p Offer: 35p
charities. Year’s High: 62p Year’s Low: 30.25p
The group recently reported interim results Year End: 31st December
We featured Cello, which is a leading global in-line with expectations. Revenues increased Prospective PER: 4.9
insight and strategic marketing group, in by 1.9% year-on-year from £29.9m to £30.3m Current NET Yield: 4.5% (variable & not guaranteed)
March 2011 at 56p. The company had just in difficult conditions. The pharmaceuticals Market Capitalisation: £24.9m
reported good results for 2010 and we sector was the source of 31% of group Sector: Media
considered the shares a strong buy. We were revenues. Lower interest rates and cost control Next Results: Finals - March 2012
impressed by its stated mission to "cut through helped towards a small rise in adjusted pre-tax Opinion: We thought that, overall, Cello's interim
the increasing mass of customer data and profits from £2.8m in the same period of 2010 results were good considering the relatively poor
business conditions. It remains on target to increase
discover the real value of information for to £2.9m. Earnings per share fell 17.7% from
profits to around £7.7m by 2012. We feel the forward
brand owners, allowing them to deliver results 3.0p to 2.5p. The interim dividend was lifted PER of 4.5 substantially undervalues the prospects.
more quickly than the competition." from 0.5p to 0.8p, and net debt at the end of Consider as a buy.
Cello is structured like a professional the period was 43% lower at £11.2m. (Cello is quoted on the higher risk Alternative
partnership and operates in more than 70 The full year outlook is for a rise in pre-tax Investment Market. See Important Investment Notes
countries, with professional hubs in the UK profits from £6.4m to £7.2m, with adjusted below)
and USA supporting a growing number of earnings per share falling from 7.2p to 6.6p. figures suggest that Cello is currently trading
global client account teams. The group is Analysts are forecasting earnings per share of on a prospective PER of 4.9 and a forward PER
focused to an extent on the pharmaceutical 6.7p for the year ending 31/12/12. These of 4.5.
solutions tailored to meet individual customer well established brands.
on Metalrax requirements. It operates from two divisions: Specialist Engineering is the larger of the
Consumer Durables produces and two divisions, and makes specialist products
Group markets the majority of bakeware sold in the that incorporate value adding technology for
UK, together with associated ranges of kitchen unique applications in the medical, specialist
Metalrax (MRX) makes and supplies specialist accessories to both retail and commercial metal coating and premium automotive
steel products. It operates in niche markets with markets. Businesses in this division have a very markets. Global brands include PG Lifelink
significant barriers to entry, and aims to provide good reputation and own some very strong and operating theatre systems, which provide
Important Investment Notes:
This newsletter is provided solely to enable sophisticated investors to make their own investment decisions. It may not be suitable for all
recipients and does not constitute a personal recommendation to invest. If you have any doubts as to the suitability, you should contact
our financial practitioners or another adviser for advice.
Past performance should not be seen as an indication of future performance. These investments are intended as long-term investments.
Their value and the income from them can fall as well as rise and you may get back less than you originally invested. All yields are
variable and neither income nor capital are guaranteed. Where companies have significant overseas earnings their profitability and
therefore their share price could be significantly affected by currency movements. There may be only one market maker for some of the
shares profiled in this newsletter.
AIM and penny shares carry a higher degree of risk of losing money than other UK shares. It may be difficult to deal in these shares. There
is a big difference between the buying price and selling price of these shares. If they have to be sold immediately, you may get back much
less than you paid for them. The price may change quickly. It may be difficult to obtain reliable information about their value or the extent
of the risks to which they are exposed. AIM shares cannot be held in an ISA.
All price objectives and estimated figures are forecasts and they are not guaranteed. Companies in the Hargreaves Lansdown Group may
have dealt in these investments over the past 12 months. Income and capital gains derived from shares are liable to taxation, the basis
and levels of which are subject to change. In accordance with the principles of the Market Abuse Directive a summary of quarterly tips
provided through this publication is available from us on request. Additionally you can view our policy on Conflicts of Interest in the field
of Investment Research at www.hl.co.uk/conflicts . Unless stated otherwise, all prices are mid prices. Yields and prices are correct as at
28/09/11. The views stated are those of the author and may not be shared by Hargreaves Lansdown.
PENNY SHARE PROPHET IS WRITTEN FOR HARGREAVES LANSDOWN STOCKBROKERS LIMITED BY ALAN WATSON FSI; BA (Hons).
ALL PRICES WERE TAKEN IN THE AFTERNOON OF 28/09/11.
PENNY SHARE PROPHET - ISSUE 180
METALRAX MRX of around £200m, earnings per share of 8.0p,
Comment on Rentokil for the full year ending 31/12/11. The
Price: 8.75p Bid: 8.5p Offer: 9p
consensus is that the dividend will be
Year’s High: 12.25p Year’s Low: 4p Initial restored, emerging possibly at 1.5p. If these
Year End: 31st December figures are achieved, then the shares could be
Prospective PER: 8.0 The group operates through three trading trading on a prospective PER of 9.5 and a
Current NET Yield: N/A companies: Rentokil Pest Control, Rentokil yield of approximately 2% (variable and not
Market Capitalisation: £10.5m Property Care and Rentokil Insurance Ltd guaranteed).
Sector: Industrial Engineering providing a range of, principally, business to Looking ahead, analysts are forecasting
Next Results: Finals - March 2012 business support services. pre-tax profits in 2012 of £225m, with
Opinion: We think the outlook for the rest of 2011 and Rentokil has been in existence for 80 earnings per share rising to over 9p and the
the year ending 31/12/12 looks promising. Our forecast
years and attributes its success to its high dividend increased to 3p. If achieved then the
suggest that the forward PER is around 6.3, which feel
is a low rating for a company of this calibre. We think quality of service delivery and consumer shares could be trading currently on a PER of
the shares are undervalued - consider as a buy. loyalty, together with a highly skilled 8 and a yield of 3.9% (variable and not
(Metalrax is quoted on the higher risk Alternative workforce. This has enabled the group to guaranteed). We think the shares are
Investment Market. See Important Investment Notes expand across the globe and Rentokil beginning to look good value at current
on page 2) currently operates in more than 40 countries. levels.
Its expertise in pest control is second to none.
reliable and safe power solutions in patient Pre-tax profits for the year to 31/12/10 RENTOKIL INITIAL RTO
critical environments. were £145m compared with a loss of £55m in Price: 74.85p Bid: 74.75p Offer: 74.9p
In the six months ending 3/7/11 operating 2009. Earnings per share rose by 18% to Year’s High: 107.9p Year’s Low: 70.2p
profits before exceptionals rose from £0.6m to 7.81p, cash generation was strong during the Year End: 31st December
£0.9m. Basic earnings per share emerged at period and net debt reduced by £154m to Prospective PER: 9.3
0.02p compared with a loss of 0.32p previously. £954m. There was no dividend. Cost cutting Current NET Yield: N/A
The Specialist Engineering division produced and efficiency measures strongly helped the Market Capitalisation: £1.36bn
on-going revenue growth of 30% compared improved level of earnings. Sector: Support Services
with a decline of 8% in the Consumer Durables In the six months to 30/6/11 pre-tax Next Results: Finals - February 2012
division. profits of £29.7m were marginally down on Opinion: Rentokil is a substantial company, which,
We think that, overall, MRX could be set for the same period of 2010, but earnings per after problems in 2009 when a pre-tax loss was
an advance in pre-tax profits in the year ending share rose from 2.22p to 2.44p. Again, there made, looks set for further profits growth in 2011 and
31/12/11 to £1.4m, bringing down the was no dividend payment, but the group 2012. The shares could be trading on a forward PER
of under 10, which we think looks cheap for a
prospective PER to around 8 - the results are due confirmed that reinstatement was under successful company like this. Consider as a strong
in March. We have pencilled in pre-tax profits consideration. buy.
of £1.7m for 2012, a forward PER of 6.3. The market is looking for pre-tax profits
Cable & Wireless Worldwide (CW.) is an PER of approximately 6 with a dividend yield up a considerable client base.
international telecommunications service of 9% (variable and not guaranteed). Profits We regard the shares as an interesting
provider. Since February the shares have fallen recovery is expected in 2013. We regard the speculation at this stage. It is likely to take at
from over 70p to the current price of 31.36p shares as an interesting speculation at current least a year to develop a flow of profits, so
(Bid 31.11p Offer 31.37p), and we feel this fall levels - consider as a buy. patience is required. The shares were 40p four
may have been overdone. Part of the fall is due DDD Group is involved in the months ago but currently stand at 27.25p (Bid
to a statement the group issued in June, development and licensing of Software and 26.5p Offer 28p). However, there have been
warning that full year pre-tax profits would be Hardware Intellectual Property and signs of a pick-up in the share price as the
between 5% and 10% lower than expected. Technologies. The management recently latest news is digested. Consider as a buy.
The CEO also confirmed that the dividend indicated they expect to become profitable in (DDD Group is quoted on the higher risk
would be halved. the first half of 2012, based on the signing up Alternative Investment Market. See Important
In the year ending 31/3/11 the company of additional partners and as existing licence Investment Notes on page 2)
produced pre-tax profits of £140m compared agreements move to volume production.
with a loss of £94m previously. Earnings per DDD’s technology converts 2D displays to
share were 8.5p and a dividend for the period 3D, and up until now it has derived most of its
of 4.5p was declared. revenue from the TV market. However, DDD
Analysts' current forecasts reflect a expects revenues from personal computers,
relatively optimistic view of the results for the smartphones and tablet computers to grow in
current year ending 31/3/12. The consensus importance, as royalties from Intel and LG
is that pre-tax profits could emerge at around Group in particular begin to flow through.
£94m and the full year dividend will be cut to It is too early at this time to produce profits
2.77p. This scenario suggests to us that the forecasts, but we think that the business model
shares could be cheap at current levels. After could be capable of producing considerable
the fall in the share price they are trading on a profits. DDD is well established and has built
THESE ARE HIGHER RISK SHARES AND THEIR VALUE CAN RISE OR FALL QUICKLY.
PAST PERFORMANCE IS NOT A GUIDE TO THE FUTURE.
PENNY SHARE PROPHET - ISSUE 180
We featured Barratt Developments in July year ending 30/6/11. On turnover unchanged Meanwhile, the next interim
2011 at 103p. In the current shakeout the from 2010's £2,035m, there was a pre-tax loss announcement, covering the six months to
price has fallen sharply to around 83p. We of £11.5m, a considerable improvement on the 31/12/11, is due in February and could
think this fall has been overdone and that, pre-tax loss of £162.9m sustained in the year confirm progress is being made. Consider as
although the Building & Construction sector ending 30/6/10. The market expects pre-tax a strong buy at current levels.
may not be the most attractive at this time, the profits for the current year, which ends Price 83.15p Bid 83.1p Offer 83.2p;
shares could be worth considering as a 30/6/12, to emerge at around £85m with Sector: Household Goods & Home
recovery play. earnings per share of 6.5p, a prospective PER Construction; Market Cap: £806m; EPIC
Barratt recently reported its results for the of 12.9. Further growth looks likely in 2013. BDEV
Prezzo has just announced a good set of results the shares could be trading on a prospective maximise cash profits by investing in top line
for the half year ending 3/7/11. On turnover up PER of 11.5, which is undemanding in our growth has proved successful, resulting in
23% from £48.43m to £59.56m, interim pre- opinion for a possible growth situation. Further headline profits before tax exceeding forecasts.
tax profits emerged 17% higher, rising from progress is expected in 2012 and we have The management remains cautious over the
£6.2m to £7.3m. Earnings per share increased pencilled in pre-tax profits of £17.5m, a forward strength of consumer confidence and the timing
from 1.91p to 2.19p. At the end of the period PER of 10.3. We first featured the shares in April of economic recovery, but stress that they can
168 restaurants were operating. 2011 at 64p. Consider as a buy. make progress in the coming year. Net debt has
This was a good performance. The profit (Prezzo is quoted on the high risk Alternative been reduced by £130m to approximately
margin averaged 14.0% over the interim period, Investment Market. See Important Investment £365m. In the meantime the company has
compared with 14.4% in 2010, which is Notes on page 2) signed the lease on a new head office building
unsurprising given the weakening of consumer Price 56.25p Bid 55p Offer 57.5p; Sector: in London and will move there in summer
markets. Operating profit was up 8% to £7.2m. Travel & Leisure; Market Cap: £127.3m; EPIC 2013.
The effective tax rate was down 1% point to 30%. PRZ; We think that pre-tax profits could be set to
During the period seven new restaurants emerge at £165m compared with £139m in the
were opened and 2 units closed. A further seven Debenhams, the well-known department store year to 31/8/10. Given this, earnings per share
new restaurants have been opened in the and fashion retailer, is due to report its results could increase from 7.95p to 9.0p which
second half and 3 have been closed, taking the for the year ending 31/8/11 on 20 October. The indicates the shares are trading on a prospective
total number of restaurants to 172. Further management has said that it has focused on PER of 6.2. This looks cheap to us, but much
openings are in the pipeline. maximising cash margins and expects to depends on the level of consumer spending in
The second half overall is likely to prove announce full year pre-tax profits before 2012. On balance we consider the shares a
more difficult as consumer confidence comes exceptional items to be ahead of the market speculative buy.
under pressure, but we think the full-year pre- consensus, despite the fact that gross margins Price 58.85p Bid 58.75p Offer 58.9p;
tax profits could be set to rise to around £16m, during the period were flat. The Chairman Sector: General Retailers; Market Cap:
compared with £11.5m previously. Given this, reiterated that he thought the decision to £757.3m; EPIC DEB
Smart Cat Corner
It was Thursday, the day of maximum HGV activity on the main road. The roar of lorries pulling away from the
traffic lights at the bottom of the hill was deafening as I strolled towards the bend where Ozzie and his friend Twinkle
could usually be found playing chicken. I always felt that I was approaching the scene of a terrible accident and
felt relieved when I saw them sitting shoulder to shoulder on the kerb, waiting to startle some unwary driver into
As I approached, Twinkle was coughing. "These exhaust fumes will be the death of me," he wheezed. "Yeah,"
agreed Ozzie. "They're dangerous. Something ought to be done about them!" It seemed strange that two moggies,
both likely to end up squashed into the tarmac, could feel so strongly about pollution.
As they waited on the kerb, my mind turned to the attractions of a small but interesting company - Omega Diagnostics Group. It's involved in
the manufacture, development and distribution of medical diagnostic products. The share price is at its lowest level for several years, although the
company is profitable and has no borrowings. Admittedly pre-tax profits in the year to 31/3/11 fell from £0.21m to £0.10m, but the company has
said that, after the transitional acquisition of the German company, Allergopharma, its revenue growth is set to accelerate. I take this to mean that
pre-tax profits in the current year could reach £1.6m, and £4.0m in the year to 31/3/13 with earnings per share of 3.5p - a forward PER of 9.1. Of
course it's risky, but not as much as sprinting across a busy road. I consider the shares a buy.
Just then a lorry sped towards the bend. "Your turn!" roared Ozzie. "Yo!" shouted Twinkle and sprang into the road, careful to make sure that he
could be seen. Intuitively the driver slammed on the brakes and turned the wheel, making the vehicle swerve. Twinkle grinned from the other side of
the road. "Classic," he said with deep satisfaction. I think I'll stick to share dealing for recreation.
(Omega Diagnostics Group is quoted on the higher risk Alternative Investment Market. See Important Investment Notes on page 2)
Price 13p Bid 12.5p Offer 13.5p; Sector: Healthcare Equipment & Services; Market Cap: £11.08m; EPIC ODX
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