New issues are back
As FTSE 100 index hits a new 21-month high, IPOs seem firmly back on the agenda

The London market has become a more welcoming place for new issues, as this month has seen the flotation of both Promethean and African Barrick Gold. The maker of interactive whiteboards Promethean, joined AIM with a £400m market cap, having raised £186m at 200p. Even though African Barrick Gold priced its flotation at 575p per share, which was at the lower end of the indicated price range, it still gave the business an initial market capitalisation of £2.3bn, which is sufficient to propel the stock into the FTSE 100 index, following the next reshuffle in June. Now SuperGroup, owner of the highly fashionable SuperDry clothing brand, plans to raise £120m in a stock market float, valuing the company at £395m. Signs are that more companies are ready to test the water, as a queue of pent-up potential IPO candidates has been growing during these tough times in equity markets. The press has highlighted that Brazilian iron ore producer Ferrous Resources is sizing up a flotation, which would also take it onto the FTSE 100 index. Ferrous Resources has only been in business for three years but, in this short period, mining entrepreneur Gordon Toll has created a business, which is now apparently worth several million pounds, through a number of well-timed acquisitions in 2007. Waiting in the wings also seems to be: high street fashion retailer New Look, which may move to resurrect its plans for a £1.7bn flotation, Madame Tussauds owner Merlin Entertainments, travel services business Travelport and value retailer Matalan. Any companies looking to list need to be aware that investment managers have yet to forgive the private equity teams for dumping companies on to the market laden with debt; and have been giving any such vehicles the cold shoulder. 

Low risk expansion strategy

One of the few retailers that enjoyed a good recession seemed to be Halfords Group, which saw strong sales in bikes and tents, as money conscious consumers tried to save on bus fares and went camping for their family holidays. The Group is the UK market leader in its four key market areas of: car maintenance, car enhancement, travel solutions and leisure. An interim management statement from Halfords, reported that full year earnings are expected to be ahead of market forecast due to strong profit generation, coupled with improvements in gross margin, helped by the performance within higher margin products and service categories and ongoing cost control. Sales over the 50 weeks to 19 March 2010 rose by 2.6% and 1.3% on a like-for-like basis. David Wild, Chief Executive Officer, commented: “Halfords retail performance continues to be robust, with full year earnings now anticipated to grow by approximately 25%. The acquisition of Nationwide Autocentres, completed during the quarter, logically extends our successful service proposition and provides a further opportunity for future growth..”. Nationwide has been growing at a compound growth rate of 6% and broker HSBC sees this acquisition enhancing earnings in the coming three financial years by 7%, 10% and 17% respectively. This deal is expected to be followed by further acquisitions over the next twelve months. The pre-close statement also brought news that Halfords is closing its loss making seven stores in the Czech Republic and Poland as, for the time being, the management will be focusing on lower risk opportunities in the core market.

Big EC contract win

It looks as though Pentagon Protection is smartening up its act. The Company has some terrific products that are highly relevant in today's world of heightened levels of security. In recent weeks, David Marks has joined Pentagon and it looks as though he is set to be running the business. David is well known in the small cap sector, as he grew SectorGuard into a £30m plus turnover business through a series of acquisitions. A day later, Rivington Street was hired as brokers. Pentagon's security and safety film is installed to windows to save lives, protect property and conserve energy; with customers including: Barclays, HSBC, DHL, PC World, Bank of America and Eurostar. In September 2008, the Company widened the product range by acquiring SDS Group Limited, which produces anti-terrorist equipment including portable X-ray machines. Final results, announced last week, revealed the turnover more than doubled to £2.95m, helped by SDS, which accounted for £1.52m of that figure. Pentagon's operating loss, before exceptional items, was reduced by 30% to £425,014, with a loss in the second half of just £30,846, due to improved turnover as SDS' sales are strongly biased towards this period. Since the year-end, Pentagon has been awarded a €3m contract by the European Commission; plus a number of other new contracts for supply of equipment and services over the next twelve months.

Long term structural growth

The office rental market in the UK continues to be difficult, as was seen in the recent full year results from Regus, the world's largest provider of outsourced workplace spaces. Final results came in towards the bottom end of expectations, with revenue 2% lower at £1,055m, operating profit before exceptional items down 27% at £107.8m and basic earnings reduced by 40% to 7.1p. However, the total dividend was increased by 33% to 2.4p, which reflected the board's confidence in the Group's future growth prospects, as well as the continuing strong cash generation. Regus now has a global footprint in 78 countries and last year the number of workstations increased by 5.3% to 161,455. At the time, Mark Dixon Chief Executive said: “In a challenging economic environment, Regus has proven resilient, flexible, delivering a sound performance and ending the year with a very healthy net cash position of £237 million. Despite pressure on our price and occupancy, our strategy of creating a long-term balanced business mix has proved successful over the past year as we increased global brand awareness, further diversified our product mix, and achieved controlled, geographic growth including the opening of 45 new centres.” Looking ahead, the bulk of the growth in 2010 will come from opening new centres in the US and Asia Pacific. In the coming year, the board expects to enter up to ten new markets and grow the available workstations by something like 10% to 15%. Even though there looks to be long term structural growth in the workstation market caused by the trend to more flexible working, this facet of the commercial property sector really begins to benefit at a later stage of the business cycle.

From chocolate to resources

Trading in the shares in chocolate maker Sweet China has just begun once more. The stock was suspended in September 2009, pending a strategic and financial restructuring of the business. Its Hong Kong trading business, Sweet Essential Limited (SEL), has gone into liquidation and now the board has written off this entire investment. Another subsidiary, Sweet China Trading Limited, continued trading over Christmas, although quality problems coupled with concerns over Chinese food products and the liquidation of SEL, led to cancelled orders and heavy discounting was required to clear the goods before the end of the season. Sweet China has a joint venture with a leading Chinese confectionery maker, Guan Sheng Yuan (GSY), to sell White Rabbit chocolate bars. Changes in the shareholding structure of GSK in recent months seem to have delayed the implementation of this joint venture and the board now cannot rely on this joint venture actually happening within a reasonable time frame. The delayed announcement of interim and final results bore a lot of red ink. Going forward, the brand IP is being sold for £50,000 to Ian Walker, who is a major shareholder and the owner of Shen Zen Valuable Holdings, which was the main supplier of Sweet China’s products. No money is changing hands, as this is the amount that the Company will pay to buy back and cancel his 36.7 million shares. Rivington Street Corporate Finance has put a proposal to the board to turn the Company into an AIM-listed investment company focusing on natural resources; and has raised £115,000 in a convertible loan with a 12% coupon to provide working capital. An informal CVA has been entered into which will see creditors claims being discounted by 75% with the balance paid in shares at 1p equivalent. These proposals will need the approval of shareholders at a general meeting scheduled for mid-April. 

Beefing up the boardroom

Resources play, LP Hill, is the latest vehicle backed by Gerry Nealon who became an Executive Director in August 2009. Gerry is currently the Chairman of AIM-listed, Bezant Resources and used to be Chairman of Sylvania Resources and Commercial Manager with Dwkya Diamonds; both companies were listed on the Australian Stock Exchange (ASX) and AIM. Having raised £850,000, LP Hill lined up the acquisition of the Tranomaro Mineral Development Corporation, which owns a 80% stake in a subsidiary with exploration and mining rights for uranium and thorium over 14.84km² in southern Madagascar. The purchase price was £1.145m funded by £200,000 cash and 3 million shares. Last week two new Non-Executive Directors with good mining pedigrees, James Slade and Bernard Olivier, joined the board. James Slade has more than twenty five years experience in broking and private equity and was a founding shareholder of Aquarius Platinum, where he served on the board between 1997 and 2004. Dr Bernard Olivier has worked as a geologist since 1998 in many African and Asian countries; and worked on both exploration and mining projects, covering a wide range of commodities including: gold, gemstones, uranium, diamonds, platinum, base metals and coal. At the same time Ocean Equities has been brought in as broker, which might suggest that the Company could be looking at some bigger deals.

Rivington Street shares in the post

The specialist business research company, IQ Holdings, has now completed its transformation into a shell. The board completed the disposal of Rosslyn Research Limited and Viewpoint Field Services to PLUS-quoted Rivington Street Holdings (RSH) in February for £1.8m to be paid in shares. Currently, the Company is in the midst of doling out the 4.5 million Rivington Street Holdings (RSH) shares to its shareholders on the basis of 36 RSH shares for every 10,000 IQ shares held. This distribution is expected to be paid to shareholders on 29 March. Following this move IQ has become an Investing Company under AIM rules and the board now has a strategy of looking to acquire or take an interest in a business which is involved in either real estate, manufacturing or marketing.

Trading in Core Business shares recommences

Ahead of the recent AGM at The Core Business, a Creditors Voluntary Arrangement was approved by creditors and now trading has resumed in the shares. At the AGM, Leo Knifton and Nigel Weller from corporate finance outfit Alfred Henry were appointed directors. As was mentioned the other week a capital reorganisation followed by a financing will see existing shareholders substantially diluted as following a consolidation an investor with 100,000 shares will end up with just 16 new ordinary shares. The name will be changed to Chalkwell Investments which will be a shell company aiming to seek a move into natural resources via a reverse takeover. 

In's and Out's from the Bridge Hall CFD Desk

As I finished last week, the Bears are still in their caves looking out at the Bulls ever relentless push up the FTSE 100 mountain. The track back in the market, that many traders have been looking for, has failed to materialise and in the last week any signs of weakness were not exploited by any bearish attitudes. On 25th February the FTSE 100 hit 5259, since then it has come very close to moving nearly 500 points higher and in doing so, it has not had much interruption along the way.
The main event of the week was obviously Alistair Darling's pre election Budget. This turned into a slight non event, with election smoke and mirrors leading the way. The City's main concern is the UK's triple A rating being at risk due to downgrades from rating agencies due to the United Kingdom’s overhanging debt burden.  Mr.Darling completely skirted this issue and gave no indication whatsoever as to how the debt will be tackled. The city views this as a dangerous game. The Tories have indicated, should they win the election, that they would call an emergency budget to show how they would tackle the debt burden, this would go some way to control the fears of the rating agencies and leave the UK's triple A rating intact.      
Kingfisher (KGF.L) was the main trade we ran through the weekend, in anticipation of their trading statement out this week. Sometimes you can see a price run up or fall prior to trading statements but in this instance it was all fairly subdued. To follow that, the trading statement was all pretty much in line with expectations, so overall it was a fairly unappealing position. As the market was a strong beast again, we did look at various short positions for day trades, within specific mining stocks. Rio Tinto (RIO.L) was the main one and this, together with Antofagasta (ANTO.L) provided day trade Long and Short opportunities, as they have been quite range bound over the last week or two.
We built quite a large position into Sainsburys (SBRY.L), to run through to their trading statement. We expected that this would prove to be quite a negative report, with subdued sales growth due to the harsh winter conditions, the increase in VAT and not withstanding the loss of market share to Morrisons (MRW.L) in particular. This didn't disappoint us, but movement in the share price was quite limited, although it did give us a small window to trade in. Man Group (EMG.L) had an appeal to us, with a view to taking on a position once their trading statement had been released to the market. This gave us a clearer view to see where their AHL Fund stood and provided us with more of a level playing field in which to place our trades.
Next week could be quite a subdued week, with the Easter holiday period finishing the week, volumes may start to get thinner in the market. Economic data is quite a rare commodity at the start of the week but Wednesday brings a raft of large macro economic data from the US. The last working day of the week brings some UK Manufacturing PMI data followed by US unemployment claims.   
Can this market continue its surge? I think not, weakness is beginning to show and a bearish attitude may start to grab hold. Election jitters have not hit the market yet and the air of uncertainty an Election brings causes the market to have very nervous wobbles. The Bears may well be gathering again to really drag this big bull run down.
Happy trading for the coming week and we will be in touch next week for another update.

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Featured stocks

The Core Business (CORE)
AIM
Share price:  25p
12 months high-low: 4,200p – 25p
Market value: £0.11m
www.thecorebusiness.co.uk   

Halfords Group (HFD)
FTSE 250
Share price:  471p
12 months high-low: 497p – 280p
Market value: £991m
www.halfordscompany.com   

IQ Holdings (IQH)
AIM
Share price:  0.12p
12 months high-low: 0.43p – 0.09p
Market value: £1.54m
www.iqholdings.co.uk
 
LP Hill (LPH)
AIM
Share price:  35p
12 months high-low: 41p – 20p
Market value: £9.80m
www.lphill.com.au   

Pentagon Protection (PPR)
AIM
Share price:  0.40p
12 months high-low: 0.79p – 0.13p
Market value: £2.57m
www.pentagonprotection.com   

Regus (RGU)
FTSE 250
Share price:  109.9p
12 months high-low: 120.5p – 59p
Market value: £1,044m
www.regus.com

Sweet China (SWC)
AIM
Share price:  0.75p
12 months high-low: 4p – 0.75p
Market value: £0.73m
www.sweetchinaplc.com   

Directors dealings

Directors dealings can provide a useful insight
       
Director buys
Centaur Media (CAU) 40,000 @ 51p
Collins Stewart (CLST) 250,000 @ 77.69p
IPPlus (IPP) 2 directors 110,000 @ 6.5p
Lloyds Banking Group (LLOY) 200,000 @ 61.06p
Macfarlane Group (MACF) 2 directors 112,000 @ 21.25p
Quercus Publishing (QUPP) 10,000 @ 52p
Vectura Group  (VEC) 172,224 @ 44.75p
Versatile Systems (VVS) 3 directors 1,064,000 @ 5.17p – 5.84p

Director sells
Advanced Medical Solutions (AMS) 3 directors 2,406,157 @ 35p
Anglo American (AAL) 9,904 @ 2,750p
BP (BP.) 75,600 @ 638.4p
Petrofac (PFC) 4 directors 255,147 @ 1,201p
Prudential (PRU) 2 directors 111,134 @ 525p
Regus (RGU) 143,107 @ 109.75p
Serco Group (SRP) 120,798 @ 590.59p
Torotrak (TRK) 141,672 @ 26p
Tullow Oil (TLW) 4 directors 222,686 @ 1,227p
Whitbread (WTB) 4 directors 56,417 @ 1,512p

The above list of transactions represents a selection of the directors' buys and sells reported last week

Written by Dr Michael Green - Independent analyst – DOC Investments Limited – doc@docinvest.co.uk




 

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