Anite, IMI, Globo, Pan African, Spectris

During a week away five of my companies issued announcements last week:

Anite is a global provider of hardware and software solutions, systems integration and managed services within its core markets of Wireless and Travel. I have a holding in my growth portfolio (epic code: AIE).

Anite issued a trading update on 16 October warning of a continued shortfall of business in their Handset Testing division, consequently the expected shortfall in first half profits compared to last year will not be fully recovered in the second half and management has therefore reduced its expectations for the full year outcome. 

The expectation for the half year is that revenue in Handset Testing will be around 25% down on the comparative period last year when it reported £40.5m.  This will result in the Handset Testing business to be around break-even for the first half of this year compared with £11.4m last year.

Management have stated that they expect second half Handset Testing revenues to be broadly in line with the £46.5m achieved in the second half of last year. 

Trading in the smaller Network Testing and Travel businesses continues to be at least in line with expectations, with good year on year growth.  Management have previously stated that they expect growth in Network Testing and the Travel Business to be mid to high single digit growth and low to mid single digit growth respectively.

If I add these indications from management for the full year then I am expecting full year sales to be around £125m, compared with £132.5m last year.  Broken down by - Handset Testing £30.4m for the first half and £46.5m for the second half and assume Network Testing grows by 9% to £28.5m and Travel by 5% to £20.4m for the full year.

Since the higher margin Handset Testing has declined from the previous year, I'm assuming that full year margins will be in the region of 55% (59% LY) and underlying overhead costs to be around £48m (£44.7m LY); producing an underlying operating profit of about £21m.

I'm assuming net interest costs of £0.3m (£0.2m LY) and a tax charge similar to last year of 27%, that would produce underlying earnings of £15m and an EPS of 4.9p.  This values the business on Friday's closing price of 89p at a P/E of 18x.  The press lead us to believe that this is partly due to a potential acquirer in the form of Teledyne of the USA "running the ruler" over the company and partly due to the belief that this set-back in the Handset Testing business is temporary.

  

IMI is a global engineering group focused on the precise control and movement of fluids in critical applications and comprises five platform businesses - Severe Service, Fluid Power, Indoor Climate, Beverage Dispense & Merchandising. I have a holding in my income portfolio (epic code: IMI).

IMI made two announcements on 16 October, the first of these informed the market that they had disposed of their Beverage Dispense and Merchandising divisions for $1.1bn (£690m).  These were not core to the IMI strategy of owning fluid technology businesses that are market leaders in global niches that exhibit one or more of the following growth drivers dealing with - climate change; resource scarcity; urbanisation; ageing population.

IMI will use the proceeds to return £620m of cash to shareholders and £70m to the UK pension fund that had a net deficit of £109m at 31 December 2012.

The £620m return of capital (that can be taken as income or capital gains through a "B" & "C" share scheme) will equate close 200p per share, allowing for the continuation of the buyback programme that will likely reduce the number of shares in issue to around 310m.

The current value of IMI is 15.8x its Enterprise Value to EBIT (EV/EBIT), allowing for the use of the £690m proceeds and reduction in EBIT from the disposal, IMI's core business will have an EV of 17.7x EBIT.  Theoretically this should equate to a share price of approximately 1320p ex-distribution.


The second announcement related to their IMS that was brought forward due to the disposal announcement.  Management state that trading in the period is in line with management expectations and that revenues for the three months to the end of September on an organic basis are 3% ahead of last year and 1% lower year to date.  On a reported basis, revenues are 4% up for the three months to September and flat year to date.  Management remain confident that they will deliver full year results in line with current market expectations, which looks to be about 87p per share, including the businesses to be disposed.

A technology innovator delivering mobile, telecom and e-business software products and services. I have a holding in my growth portfolio (epic code: GBO).

Globo announced a placing on 16 October of about 10% additional shares at a price of 71p, raising £24m (€28m) gross.  This follows on from their recently agreed €20m revolving credit line and a small asset acquisition for $5m.

The price of the placing was equivalent to a discount of 11% on the SP of the previous 10 trading days, which is not unreasonable.  Although disappointingly three directors placed a total of 1m of their own shares at the placing price (this did not include the CEO).

As I have pointed out in a previous post, Globo is still burning cash, hence the need for these additional funds, as they seek growth in the important North American market.  It may be some time before Globo becomes a cash generating growth story.

 

 

A small South African based precious mining group that produces gold and platinum from high grade ore bodies at a low cash cost.  I have a holding in my growth portfolio (epic code: PAF).

Pan African Resources were responding to media speculation regarding their participation in the disposal process by AngloGold Ashanti Limited of its Navachab mine.  So on 18 October they stated that there can be no certainty that such participation will result in any transaction relating to Navachab.

Navavchab is a 74,000oz gold producing open pit mine in Namibia, which I believe would take PAF away from its core competency of underground gold and platinum mines in South Africa that they have operated so well.  The mine has an all in cash cost of $929 per oz.

It would appear that PAF are on the short list of bidders and are partnering with Giyana Gold.

 

Spectris develops and markets productivity-enhancing instrumentation and controls.  Operating in four segments - Materials Analysis, Test & Measurement, In-line Instrumentation and Industrial Controls.  I have a holding in my growth portfolio (epic code: SXS).

 

On 18 October Spectris issued their 3rd quarter IMS.  Sales for the three months ended 30th September 2013 were 5% higher than the comparable period last year, including a contribution of 1% each from acquisitions and currency, so therefore on a like-for-like basis sales increased by 3% for the quarter compared to last year. 

 

Management stated that operating cash-flow conversion continues to be strong with net debt at 30 September approximately £135 million, a reduction of around £119 million since the start of the year.

 

They mention that Customer activity remains strong and they are encouraged by quarterly sequential improvements in their short cycle businesses as well as in North America and Europe. However, overall trading conditions are mixed and the timing of recovery in the business to more normalised growth rates continues to be unpredictable. Based upon a current view, they anticipate EBITA performance for 2013 to be around the lower end of market expectations at £214m.