The FTSE 100 barely changed at 7,150 a mere 0.25% gain, while the AIM All-Share shifted a ‘gnats’ to 0.18%. US Interest rates were unchanged, but a rate hike was signalled for next month.
There could be a restraining balance of power on Trump with the Democrats gaining ground at the Midterms. UK GDP was relatively better than worst expectations of 0.4% at 0.6%.
The Red flag figures could perk-up markets are on Tuesday when an increase in average earnings to 3% is likely to be reported followed by an increase in Retail Sales on Wednesday to 2.5%.
To explain the markets likely continuing malaise, rearrange; confidence, long crass, stuck, gloomy, Brexit and hard.
Reviews
ELCO – 75p – Visualisation purchase
TPG – 6.42p – Add-on acquisition
ULS – 84.2p – Which? deal
INFA – 0.59p – Potential offtake partner
NBI – 151p – Adding to the tools fleet in Asia
Elecosoft (LSE: ELCO)
75p (73p/77p)
Mkt Cap: £58.5m
Next results: Finals, March
Architecture and construction software provider Elecosoft (LSE: ELCO) is buying Germany-based Active Online, which provides software for visualising soft furnishings and textile materials. This fits well with the ESIGN subsidiary, which focuses on visualisation of floorcoverings. The two companies already work together.
Elecosoft is paying €3.45m in cash and shares and it is raising £2.25m at 70p a share. In 2017, Active Online generated revenues of €2.5m and pre-tax profit of €124,000.
There appears to be plenty of scope to sell the technology outside of Germany.
A full year pre-tax profit of £3.5m is forecast for 2018, rising to £4.6m in 2019. That puts the shares on 17 times prospective 2019 earnings. Net debt is expected to be £3.2m at the end of 2018.
Active Online is a business that takes Elecosoft into new areas and provides cross-selling opportunities, which the group has shown that it can benefit from with other acquisitions.
Trading strategy
Still good value.
Original recommendation: 28p/29.5p
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TP Group (LSE: TPG)
6.42p (6.34p/6.5p)
Mkt Cap: £48.7m
Next results: Finals, March
Engineer TP Group (LSE: TPG) has acquired Westek Technology for an initial £3m. Wiltshire-based Westek supplies rugged, high performance computer servers and it generated revenues of £3.5m and pre-tax profit of £200,000 in 2017. Management will remain with the business.
Net cash was £16.4m at the end of June 2018, so this deal will not make much of a dent in that. Using the cash to buy a profitable business will boost earnings, which will be enhanced in 2019.
This year, pre-tax profit of £1.5m is forecast, rising to £2.8m in 2019. The shares are trading on 21 times forecast 2019 earnings. More acquisitions could further enhance those earnings.
Trading strategy
Buy for further earnings enhancing acquisitions.
Original recommendation: 3.5p/4p
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ULS Technology (LSE: ULS)
84.2p (83.6p/84.8p)
Mkt Cap: £54.6m
Next results: Interims, 3 December
Online conveyancing intermediary ULS Technology (LSE: ULS) has secured a formal partnership with Which? Mortgage Advisers. ULS will provide conveyancing technology and services.
ULS’s eConveyancer platform will be used to help Which? customers to select a legal firm for their property transaction. This will further diversify revenue sources.
This partnership follows the recent trading statement ahead of the interim figures. Full year profit could edge down from £5.5m to £5.3m, originally £5.8m was expected, with a recovery next year to the level originally expected for this year. The dividend is expected to rise from 2.3p a share to 2.4p a share.
Earnings per share are likely to fall this year but the 2018-19 prospective multiple is 14. ULS has a solid base from which to grow when the property market recovers.
Trading strategy
Good value.
Original recommendation: 88p/89p
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Infrastrata (LSE: INFA)
0.59p (0.57p/0.61p)
Mkt Cap: £6.6m
Next results: Finals, January 2019
Infrastrata (LSE: INFA) has found a potential offtake customer for its Islandmagee gas storage project in Northern Ireland. A letter of intent has been received from a major gas trading company regarding utilisation of the gas storage capacity.
This is the result of many months of discussions. A commercial structure has been agreed, which involves an initial term of 12-15 years with options to extend. The costs of cycling the facility will be charged to the client.
Negotiations continue, and an agreement should be secured before June when the final investment decision will be made for the project.
A shareholder meeting is being held on 5 December at 1 America Square conference centre, 17 Crosswall Street, London. Pre-registration is required for the attendance. To confirm attendance please email [email protected].
Trading strategy
Buy.
Original recommendation: 0.46p/0.49p
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Northbridge Industrial Services (LSE: NBI)
151p (150p/152p)
Mkt Cap: £42.4m
Next results: Finals, March
Northbridge Industrial Services (LSE: NBI) has been one of the stronger performers in the past few months.
Northbridge is paying up to A$4m (£3m) for an oil tool rental fleet in Asia. The opportunity comes about because of the liquidation of competitor. This should double the size of Tasman Oil Tools’s fleet in Asia and some pf it was already being hired by the company’s Malaysia joint venture.
Northbridge is using its own cash and increasing its three-year loan facility by £1.5m to pay for the assets. The replacement value of the assets is $10m.
Chief executive Eric Hook has bought 6,369 shares at 149.8p each.
Northbridge will benefit from the reduction in competition as well as the discount purchase of assets that means that capex requirements will be lower. The purchase will also help the group to grow in Asia, a focus of group growth.
Trading strategy
Buy for further growth.
Original recommendation: 138p/145p
By Andrew Hore & Jon Levinson
Andrew has been writing about small companies for 25 years, following the fortunes of many companies, both successful and unsuccessful. He worked at the Investors Chronicle for 12 years, ending up as smaller companies editor. He then went on to write AIM Bulletin and he is currently editor of AIM Journal and AimMicro.com. He is a former AIM journalist of the year and was on the shortlist for the journalist of the year at the Small Cap Awards.
Jon has been an analyst, a journalist, a fund manager and is currently a corporate broker. He will strictly never write on corporate clients. His MBA dissertation was on filling the Smaller Companies Equity Gap. When writing the Penny Share Focus he learned that not all that glitters is gold.
