Pendragon accelerates review after bid approach

Andrew Hore
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Pendragon accelerates review after bid approach

Motor dealer Pendragon (LON: PDG) is accelerating a comprehensive review of strategic options following the bid approach from Hedin Mobility Group AB. The bidder is considering a 29p a share offer.

Pendragon’s main brands are Evans Halshaw and Stratstone. It also has used car business CarStore, the Pinewood SaaS-based dealer management division and a leasing business. In the first half of 2022, Pendragon reported a dip in underlying pre-tax profit from £35.1m to £33.5m after the ending of government support.

Zeus forecasts a fall in full year pre-tax profit from £84.4m to £55.3m. Net debt is forecast to fall to £32.7m at the end of 2022. Zeus estimates a sum of the parts valuation of 38.6p a share.

Management says that it is considering the bid along with the other options for individual businesses. Hedin Mobility does not want to retain the Pinewood SaaS business, which had interim revenues of £12.4m.

The potential bid is subject to limited due diligence and recommendation by the Pendragon board. Hedin Mobility says that it would bot consider any other offer – it is the largest shareholder with 27.1%. Other large shareholders include Schroder with 11.8%, Odey Asset Management with 10.3%, Briarwood Chase with 10%, Hosking & Co with 5.58% and Dimensional Fund Advisers with 3.2%.

DCC buys solar business

Andrew Hore
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DCC buys solar business

DCC (LON: DCC) is acquiring solar panels and clean energy technology distributor PVO, which is part of the strategy to acquire renewable energy businesses and reduce dependence on oil and gas distribution.

Ireland-based DCC has already made smaller acquisitions in this area. One-fifth of DCC Energy’s operating profit comes from renewables and services, although it is a smaller proportion of group operating profit. DCC says that its experience in helping customers to transition to cleaner energy products that will help PVO to grow. Annual revenues are €190m (£169m). The deal requires regulatory approval in the Netherlands, Germany, Austria and Poland.

The deal should be completed by the end of the year, so there could be three or four months of contribution for the year to March 2023. Peel Hunt has raised its 2022-23 pre-tax profit forecast by £2.2m (assuming three months) to £603.2m. A full year contribution could add £8.8m to profit.

The amount being paid for Netherlands-based PVO was not disclosed but there was an upfront cash payment with earn out payments based on trading in each of the next three years. DCC is focused on LPG and oil distribution businesses, which have recently been combined into the new DCC Energy division, although it also has healthcare and technology businesses.

Aim movers: Pressure Technologies disappoints and Billington upgrade

Andrew Hore
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Aim movers: Pressure Technologies disappoints and Billington upgrade

Shares in Pressure Technologies (LON: PRES) have slumped by 46.8% to 33.5p after a disappointing second half recovery. This means that there will be a full year loss. The engineering company will also breach covenants on its bank facility and more cash is required. Supply chain and manufacturing problems hampered progress with defence contracts. Oil and gas companies delayed orders. On top of this costs have been rising. Management believes that Pressure Technologies can return to profit in 2022-23 on the back of improving order levels.

Freight and logistics company Xpediator (LON: XPD) shares continue to fall after yesterday’s interim results. There was a further decline of 22.4% to 22.5p, which is nearly a one-third fall so far this week.

Tiger Royalties and Investments (LON: TIR) reported a decline in NAV from 0.17p a share to 0.12p a share in the six months to June 2022. The share price dipped by 16.7% to 0.25p (0.2p/0.3p).

There is demand for FireAngel Safety Technology (LON: FA.) home safety products but it was difficult to secure supply to satisfy that first half demand. This was particularly true in the first quarter, and it was higher margin products that were most difficult to obtain. Even so, interim revenues were 15% ahead at £25.6m. There were additional costs to secure components and that contributed to an underlying loss of £1.7m. Net debt was £3.8m. The underlying full year loss is expected to be similar to the £3.5m reported last year. The longer-term outlook is positive. International sales were 55% higher in the first half and the development partnership with Techem in Germany is making good progress and generated a milestone payment – but this partnership will not generate product revenues in the short-term. The share price fell 15.9% to 9.25p.

Cyber security services provider ECSC (LON: ECSC) shares have fallen 13.8% to 25p on the back of an 8% decline in interim revenues to £2.8m. Managed detection and response revenues fell in the period, but the order book has improved to £2.9m, which underpins a stronger second half and augurs well for 2023. The new chief executive Matthew Briggs appears to be having a positive effect on the business and he is in discussions with potential new partners. ECSC will make a loss this year, but it is expected to move into profit in 2023.

Structural steel supplier Billington (LON: BILN) made significant progress in the first half and the second half should be even better. Interim revenues were 22% ahead at £46.2m with nearly doubled pre-tax profit of £1.47m. finnCap has increased its 2022 earnings forecast by one-third to 26.4p a share due to a strong order book with higher margin work. The share price is 14.7% higher at 215p.

Bank and financial services provider Manx Financial Group (LON: MFX) more than doubled its interim pre-tax profit to £2.3m. The main improvement came in the asset and personal finance division. There was also a reduced loss on investing activities. The Isle of Man-based company says that there is good demand for structured finance products. The share price is 12.1% ahead at 9.25p.

Transense Technologies (LON: TRT) shares jumped 11.8% to 71p on the annual figures. The figures confirm a move into profit with a significant improvement in profit to £1.17m expected this year. Earlier this month, Transense announced that it was evaluating licencing opportunities for its surface acoustic wave sensor technology in the aerospace sector with Meggitt. The shares are trading on nine times prospective earnings.

Xeros Technology (LON: XSG) has signed a joint development agreement with a global domestic washing machine component manufacturer for its XFilter microfibre filtration technology. A full licence dela could be agreed in six months. This follows an earlier deal with Hanning, another domestic washing machine component manufacturer. The shares are 10.5% higher at 21p.

Saga shares crash to lowest level since IPO on profit warning

UK Investor Magazine
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Saga shares crash to lowest level since IPO on profit warning

Saga shares has plunged following a profit warning that revealed a slowing insurance business was not going to be offset by a recovery in cruises and other travel products.

The group said profit before tax would now be in the range of £20m to £30m, down from their previous guidance of £35m to £50m.

Saga shares were down 21% to 105p at the time of writing, the lowest level since their IPO. Saga now has a market cap of just £189m, having been valued at around £2bn when they listed in 2014.

“Following a return to service for cruises and travel, Saga’s experienced impressive growth in the division allowing for reduced losses despite still facing some on-going disruptions from Covid-19 and the conflict in Ukraine. This growth has helped contribute to a positive underlying pre-tax profit of £14m at the half year mark,” said Charlie Williams, Equity Research Assistant at Hargreaves Lansdown.

“The insurance division hasn’t performed as well.  Larger than expected inflationary pressures and rising claims have reduced profitability for the division and resulted in a downwards revision of the groups full year pre-tax profit of £20-30m. Previous guidance was £35-50m.  For the long term however, Saga’s unique offering to the ‘grey pound’ works well and with many of its customers likely to have paid off their mortgages, it’s good to see them as more insulated than most from further interest rate rises.”

FTSE 100 little changed in choppy session

UK Investor Magazine
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FTSE 100 little changed in choppy session

The FTSE 100 was little changed on Tuesday having been in both significantly negative and positive on the day.

The FTSE 100 was trading at 7,017, down just 3 points at the time of writing.

Markets have been assessing the impact of a sinking pound and the prospect of dramatic increases in UK rates causing severe volatility in UK assets.

However, Tuesday saw the pound gain against the dollar and equities stabilise.

“It felt like the calm after the storm on Tuesday morning as sterling stabilised and the FTSE 100 made modest progress,” said AJ Bell investment director Russ Mould.

Miners rally

Mining stocks were among the top performers on the FTSE 100 on Tuesday as the promise of increased demand for natural resources in China helped lift the sector.

“Hopes that tough Covid restrictions could soon be in China’s rear view mirror have helped lift sentiment that one of the key roadblocks to a global recovery could be removed,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdow.

“Strict curbs have lifted in Hong Kong and there is growing expectation that  Beijing will change direction on its zero-Covid strategy and open up the country by Spring next year to boost employment and incomes, which have been suffering due to rolling lockdowns.”

“These glimpses of light at the end of what’s been a gloomy tunnel in China have helped lift commodity giants in early trade in London with Anglo America and Rio Tinto among the top risers on the FTSE100, amid hopes of higher demand for metals.”

Housebuilders drop

Housebuilders were again under pressure as a number of UK Banks and Building Societies pulled mortgages from the market due to uncertainty around rates.

If lenders are unable to forecast base interest rates, it makes issuing mortgage rates so difficult that they decide to pull them from the market.

A housing market without an adequate supply of mortgages will likely slow over time.

Taylor Wimpey traded at the lowest level since 2013 on Tuesday as investors digested the news.

FireAngel Safety Technology Group – broker downgrades after interims announced

Mark Watson-Mitchell
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FireAngel Safety Technology Group – broker downgrades after interims announced

The six months to the end of June for the FireAngel Safety Technology Group (LON:FA.) showed some promise of profits about to show through after years of development expenditure.

The Coventry-based business specialises in home safety products, such as smoke and carbon monoxide detectors and accessories.

The group sells its products through distributors and retailers to the retail, trade DIY, fire and rescue service and utilities markets. 

The group’s first half year to end June reported a 15% increase in sales at £25.6m (£22.2m), while the underlying pre-tax loss was £1.6m (£1.5m).

Chairman’s Statement

Commenting upon the group’s outlook Executive Chairman John Conoley stated that,

“I am delighted by the revenue performance and the continuing success of our margin improvement activities. Our execution so far this year has largely conformed to our plans which delivered the expected underlying margin improvement before the combined impact of adverse currency movement and inflation.

While the circumstances outside our control have been particularly frustrating, the Board expects 2022 to demonstrate the first proof that we have turned the Company around with more still to come.”

Analyst’s Opinion

Greg Poulton at Singer Capital Markets is less confident about the group’s prospects, now rating its shares as a Hold, with a more than halved Target Price of 11.7p.

His estimates are for current year sales to rise from £43.5m to £57.1m, while its losses of £3.5m of last year could be similar this year.

For the next year to end December 2023 his figures are for £65.0m revenues and £1.6m of losses.

For 2024 Poulton estimates £75.0m sales, £2.5m profits and 1.6p of earnings per share.

Over at Shore Capital their analyst Rob Sanders forecasts that this December year-end will see £57.0m sales, with an adjusted pre-tax loss of £3.5m.

For next year he sees £61.4m sales and £0.9m of losses.

Jumping forward Sanders sees the 2024 year with £74.0m revenues and a much more encouraging £2.8m of profits, worth 1.4p in earnings per share.

Conclusion – shares to tread water

The development of this group may well be ongoing, but its various hassles make costs difficult to control.

With a backdrop of strong demand for its products, its brokers still have faith in the group’s prospects but have accepted the delays in the growth figures.

The shares, which are down 2p to 9p on the results statement, may well trade in a narrow price band for quite a while.

Sterling stabilises as Bank of England promises to change rates as much as needed

UK Investor Magazine
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Sterling stabilises as Bank of England promises to change rates as much as needed

Sterling stabilised against the Dollar on Tuesday as the Bank of England stepped in to provide assurance to markets following significant volatility in the pound and other UK assets.

GBP/USD was trading up 0.9% at 1.0786 at the time of writing.

Markets are now pricing in a full 1% move higher in interest rates at the Bank of England’s next meeting. There is also growing speculation the Bank of England will call an emergency meeting to make an interest rate hike.

The pound came under extreme pressure after the UK government released their mini-budget on Friday which would require tax cuts to be funded by government borrowing.

UK 10-year Bond yields rose to 4.2% as investors continued to dump gilts and worries about the UK housing market started to mount as a number of mortgage providers said they were no longer be making mortgage offers due to uncertainty about interest rates.

eEnergy launches eSolar capital-free solutions for organisations

UK Investor Magazine
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eEnergy launches eSolar capital-free solutions for organisations

AIM-Listed eEnergy announced on Tuesday it would be rolling out its eSolar solution to organisations and providing an end-to-end service.

The solution will provide capital-free access for organisations to install onsite solar panels to help reduce the cost of their power supply.

eEnergy will deliver end-to-end solutions covering design, specification, installation and ongoing operations and maintenance.

Following a trial period to gauge the demand for the service, eEnergy believe they can deliver solutions totalling 8.9 MW, equivalent to circa 30,000 standard 300w panels.

eEnergy hopes that by removing the capital requirements they are able to target a broad range of organisations and complete installation in a short time period of 4-6 months from initial agreements.

“The launch of eSolar is another exciting step on our journey to providing organisations and businesses across the UK and Ireland with an end to end net zero solution,” said Harvey Sinclair, CEO of eEnergy Group.

“In addition to eCharge, eSolar provides our customers with the very real ability to generate their own energy, giving them increased energy independence in the knowledge that they’re using green and sustainable sources as well as achieving significant cost savings.”

AIM movers: MusicMagpie dives and Eden Research gets US approvals

Andrew Hore
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AIM movers: MusicMagpie dives and Eden Research gets US approvals

MusicMagpie (LON: MMAG) has been hit be weak consumer spending with lower sales of technology. That has hit the share price making it the biggest faller on the day with a 71.3% decline to 7.9p. Rental income is growing, though, and that is good for longer-term revenues. The original pre-owned books and music operations are trading as expected. The second half should still be better than the first half, although a full year pre-tax loss is forecast on flat revenues. A small profit is forecast for 2023. Net debt is expected to be £8m at the end of the year. This is going to hamper investment in growth. The April 2021 placing price was 193p.

Brighton Pier Group (LON: PIER) bounced back well in the year to June 2022, but the ending of business rate relief and lower VAT for food and leisure, along with cost increases, will mean that trading will be tougher. The year end is being changed to December. The 12-month pre-tax profit of £6.5m was better than expected. Cenkos still has a forecast for the year to June 2023 and the pre-tax profit has been sharply downgraded to £2.1m. The share price slipped 18.4% to 57.5p.

Logistics firm Xpediator (LON: XPD) ran into problems with its systems at the UK freight forwarding division. That hit profit and cash collections. A rise in net debt means that there is no interim dividend and there may not be a final dividend, either. Excluding a goodwill write-off, interim pre-tax profit fell from £3.6m to £3.1m. The new management team has already put a lot of effort into improving the operations and full year profit could be flat at £9m. The performance of the warehouses requires improvement, but central European operations are still trading well. The share price fell 12.1% to 29p.

Delays obtaining a niche component has knocked £2m off this year’s forecast revenues for embedded computer products manufacturer Concurrent Technologies (LON: CNC) and it means that it will not do much better than breakeven in 2022. Investment in R&D is increasing, and eight new products will be launched this year. It will take a couple of years for the sales of those products to build up. US outsourcing partner Nextek has been approved as a manufacturing partner and this will help Concurrent Technologies to win further US defence business. The benefits of these investments will not show through in the short-term and the share price has reacted to the short-term trading delays by slumping 13.9% to 71.5p.

Sustainable biopesticides developer Eden Research (LON: EDEN) has obtained US EPA approval for its three active ingredients and two formulated products. There was a 24% rise in the share price to 4.65p. Mevalone (a biofungicide) and Cedroz (a nematicide) sales should start next year via existing distribution partners. State approvals are required before launching in an individual state. Eden Research is reducing its losses, but a cash raising may be required in the next 12-18 months or so.  

Alan Rosenthal has been buying shares in mattress supplier eve Sleep (LON: EVE) and this has helped the share price recover. He owns 8.19 million shares. There was a 29.6% increase in the share price to 0.875p.

Tavistock Investments (LON: TAVI) boosted its balance sheet through the sale of Tavistock Wealth for up to £40 and the ongoing financial advisory operations are growing. Full year revenues from continuing operations grew 35% to £31.3m and there was a small profit before exceptionals. Net cash is more than £15m with more cash to come from the disposal. Allenby estimates a sum of the parts valuation of 17.3p a share. The shares are 13.3% ahead at 8.5p, which is just above NAV.

Morocco-focused potash project developer Emmerson (LON: EML) has reached agreement with its strategic investors to extend the commitment period for the $40m convertible loan note to subscription to the end of September 2023. They are also investing $6m at 6p a share and are being issued 50 million warrants exercisable at 8.2p each. The share price rose 12.7% to 6.2p a share. Existing shareholders were given the chance to subscribe for up to £1m in shares through an offer at 6p a share via REX. Emmerson expects to start construction of the mine at Khemisset in 2023. Potash prices remain high, although they have fallen back to $800/ton, which is higher than the price used in the 2020 feasibility study that came up with an NPV of $1.4bn for the project.

Gulf Marine Services – higher utilisation levels and higher day rates will help to drive the shares higher

Mark Watson-Mitchell
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Gulf Marine Services – higher utilisation levels and higher day rates will help to drive the shares higher

Operating out of the Middle East, North Africa and Europe Gulf Marine Services (LON:GMS) provides self-propelled, self-elevating support vessels to groups in the offshore, oil, gas and renewables sector.

Its interim results to end June showed revenues up 29% from $51.4m to $66.4m and a big increase in its EBITDA to $37.3m ($26.5m), leaving its profits after tax up more than six-fold at $13.1m ($2.0m).

Stronger usage

Higher utilisation levels of its fleet of vessels at a time when day rates had been rising was helpful.

It was also boosted by the group’s management continuing to focus on saving operating costs.

Reduction in debt

There was also a good first half reduction in the group’s net debt to $341.4m ($371.3m) as part of the ongoing deleveraging strategy.

Orders increasing

The group anticipates seeing continued improvements in day rate and utilisation levels, but at a more gradual rate.

Its secured backlog was $163.3m as at 30 June 2022 ($215.4m) and it is currently working on a number of projects that will have a favourable impact on its backlog. 

Executive Chairman, Mansour Al Alami, stated that:

“I am pleased to report GMS operational results for first half of the year which provides us a solid platform for achieving our full year EBITDA guidance. The first half performance reflected higher day rates, improved utilisation and efforts made on continuous cost savings.

We will realise the benefits of improved day rates on new contract awards announced during H1 2022.  As the Middle Eastern market continues to increase production, we expect an increase in demand for our sector, which in turn will lead to an increase in day rates and utilisation over time.”

Reaction

The group’s shares initially dipped on the back of the results on very high dealing volume but are now regaining composure at around the 6p level, still looking undervalued.

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