From UK-Analyst.com: Wednesday 14th July 2010

How to find the best small cap bargains

Unemployment in the U.K. fell by 34,000 to 2.47 million in the three months to May, the first drop for four months, suggesting that the labour market may be stabilising at least temporarily. Economists expects unemployment to remain fairly stable over the next few months, but are divided over whether it will start rising again next year when public spending cuts start to bite. Meanwhile, U.S. retail sales fell for the second month running in June and businesses slowed their build-up of inventories, according to commerce department figures, signalling that the fragile consumer recovery could sputter through the summer.

At the London close the Dow Jones was up by 33.98 points at 10,397 and the Nasdaq was up by 17.77 at 2,259.8.

In London the FTSE 100 was down by 17.5 points to 5,253.52; the FTSE 250 was down by 42.79 points to 9,895.61; the FTSE All-Share was down by 9.45 points at 2710.58; and the FTSE AIM Index was down by 0.79 points to close at 672.88.

Brokers' Notes

GE&CR initiated coverage of Northbridge Industrial Services* (NBI) with a "BUY" recommendation and 242.5p target price. The research house expects that the industrial equipment supplier will report substantial growth in profits and turnover in its interims come September. Meanwhile, during the coming year, it anticipates further bolt-on acquisitions to build on the Tasman deal. GE&CR believes that the current rating is a throw back to the one off problems of 2009, which fails to discount the strong growth potential from the existing business as well as the upside generated by the Tasman deal. Northbridge shares went north, rising by 2.5p to 137.5p.

Evolution Securities retained its "BUY" recommendation for Gem Diamonds (GEMD), while lowering its target price from 301p to 267p. While the broker believes that the mining company represents low risk diamond exposure, i its opinion the stock offers little near term growth without the long-awaited expansion at Letseng Diamond Mine in Lesotho. Evolution is also cautious that constrained mining flexibility has impacted the recovery of "specials" at Letseng, reducing near-term revenues and income. Given the additional growth potential at Ellendale, Australia, and at its Gope pipe in Botswana, the broker sees considerable upside potential albeit it may require external financing. The shares failed to shine, edging back by 0.6p to 221.4p

Download your FREE VectorVest Stock Analysis Report!
VectorVest is a stock analysis and portfolio management system that provides recommendations on over 16,000 companies in UK and US markets. Back test strategies, learn how to buy low and sell high and stay on the right side of the market for consistent growth.

Click here and find out how VectorVest values companies in your portfolio.

Panmure Gordon reiterated its "BUY" recommendation for the IT infrastructure services company Computacenter (CCC), while increasing its target price from 394p to 398p. The broker said that first half results were in line with its expectations as it made minor adjustments to its second half assumptions, taking earnings per share from 30.2p to 30p in 2010. Panmure said that it expects a weaker spend from the U.K. government, which accounts for 28% of the group’s revenue, but this is likely to be off-set by the increase in 'pull forward' revenue. This will arise from the already announced VAT increase from 17.5% to 20% from January, which means product sales are likely to be brought forward. The shares moved down by 2.9p to 300.8p.

Edison Investment Research conducted a research note on Ashley House (ASH), the supplier of project management and consultancy services. The research house commented that full-year results were in line with the board's expectations and, importantly, there have still been no project cancellations. Nevertheless, there were delays due to uncertainty over health budgets, which caused a dip in profits. This was compounded by disruption caused by an unsolicited bid approach for the group's property partner AHMP. Moving on, NHS trusts remain nervous over spending commitments, but at the period-end Ashley House was on-site at eight schemes, valued at 20 million pounds compared to only six the previous year, valued at 11 million pounds. The project pipeline continues to grow, which currently stands at 264 million pounds, up 8% the year before. Ashley shares remained unchanged at 37p.

Blue-Chips

ICAP (IAP) shares fell by 20.5p to 415.7p despite the interdealer broker reporting a good start to the year. The firm said group revenue grew by 8% in the first quarter ended 30th June compared with the same period last year. On the same basis profit grew by 5%. In spite of this, the company said, "volumes slowed significantly in June" as customers and investors risk appetites reduced. ICAP concluded that if the mixed pattern of business continues for the rest of the financial year, it is not unreasonable to see profits between 336 million pounds and 360 million pounds.

Get free annual reports on a wide range of companies
Delivered direct to your door or e-mail inbox
Search alphabetically, by industry or stock exchange
All completely free of charge
Click here to order your free company reports now.

BAE Systems (BA.) shares were down by 9.6p to 318.9p after completing the acquisition of the ship construction company Atlantic Marine Holding for 352 million dollars (231 million pounds). The acquisition will be funded from the defence developer's existing cash resources, and will be used to expand the firm's existing ship repair and upgrade capabilities to further serve the U.S. Navy and other maritime customers. The business being acquired generated EBITA of 38 million dollars (25 million pounds) on sales of 308 million dollars (202 million pounds) for the year ended 31st December 2009. 

Mid-Caps

Ashmore Group (ASHM) shares rose by 9.7p to 273.3p subsequent to the fund manger reporting assets under management up by 7% to 2.3 billion dollars (1.5 billion pounds) in the quarter ended 30th June. The drivers of this, the group reported, were net inflows of 2.9 billion dollars (1.9 billion pounds) into the external debt, local currency and special situations themes. Performance fees for the year are estimated to be 82.9 million pounds, up by 55% from the previous year. With strong operational momentum, potential upgrades to earnings per share and a well supported 4.6% yield, Evolution Securities reiterated its "BUY" recommendation and 285p target price.

Barratt Developments (BDEV) shares edged back by 0.7p to 104.3p even though the house-builder announced that profit will be ahead of market expectations. In a trading update, the firm reported operating profit of 85 million pounds for the year ended June 2010, up 4% to the previous year. It made 11,377 completions in the year, down 14% to the previous year, with an average selling price of 174,000 pounds, up 11%. The increase in average selling price is primarily due to a significant change in product mix, with houses representing 60% of completions in the year versus 46% in the prior year.  In the meantime, Barratt expects the housing market to remain challenging due to limited mortgage lending and possible cuts in government funding.

ROBINIA INVEST - YOUR PROFITABLE AND ETHICAL ALTERNATIVE!
With Robinia plantations in Germany we offer you the opportunity to participate in sustainable Green Investments.
Our unique Premium Investment Plan offers a great return after only 10 years.
Real portfolio diversification & Balance.
Apply for a prospectus TODAY!

London Stock Exchange (LSE) shares climbed up by 21p to 625.5p as the exchange reported mixed market conditions. In a trading update, the firm said revenues rose to 158.2 million pounds in the first quarter ended 30th June, up 1% on the same period in 2009. Total income, which includes net interest income, was 166 million pounds, up 2%, beating analyst expectations that the figure would be roughly flat. The company said it expects conditions to remain mixed and that it would continue to focus on improving the efficiency of its business and its competitive position. Keeping its forecasts unchanged, Shore Capital reiterated its "BUY" recommendation.

JD Wetherspoon (JDW) shares served down by 17.5p to 420.2p after the pub operator returned to sales growth in the fourth quarter. The operator of more than 700 managed pubs across the U.K. said sales from pubs open at least a year grew 1% in the 11 weeks to 11th July, with total sales growing at 5.8% over the same period. Commenting on this, the group said its sales, profit and cash flow continue to be resilient and the performance of its recently opened pubs is "encouraging." Panmure Gordon reduced its target price from 594p to 580p, reflecting slightly harsher macro-economic conditions, but reiterated its "BUY" recommendation.

Small Caps, AIM and PLUS

Corero (CORO) shares pushed back by 7p to 27p on news the software company has raised 6.5 million and sold its financial markets division - which incorporates Blue Curve and Radica CAPS. The firm - a specialist provider to the education and banking and securities markets - said it has raised new capital through a 2 million pounds placing and 4.5 million pounds subscription. The proceeds will be used to grow the business systems division. The financial markets division has been sold to Brokerhorse Limited, a subsidiary of Rivington Street Holdings* (RIVP), the media and financial services group, which will assume the division's 2 million pounds convertible unsecured loan stock. Rivington shares advanced by 2p to 28.5p.

MDM Engineering (MDM) shares fell by 22.5p to 90p as the Africa-focused engineering group announced "slowed" business due to general caution in the market. In a trading update for the full year, the company reported a drop in pre-tax profits and earnings per share both by 56% to 5 million dollars (3 million pounds) and 9.25 cents (6.06p), respectively. This decrease was primarily driven by the settlement with First Uranium Corporation on the close out of the Ezulwini project, as well as the suspension of both Mine Waste Solution's phase 1b and phase 2 projects in early February 2010. However, the firm anticipates that the project pipeline will recover towards the latter part of the 2011 financial reporting period. The board is proposing a final cash dividend of US0.85 cents (0.56p) per share.

Music technology group, NXT (NTX), shares moved down by 1.62p to 9.13p following a mixed year. Revenue in the second half of the financial year showed an improvement on the first half, but total revenue for the year was significantly down on last year, as the company was unable to close a licensing deal of the magnitude seen in 2008/09 with the Nissha agreement. The slow licensing activity has impacted the financial position of NXT, flowing through to a loss after tax, and also creating some pressure on short-term cash flow. Nevertheless, the board is confident that resources are efficiently deployed and that the short-term cash position is being properly managed.

For more details on a Unit Trust established to gain from higher gold prices
Ideal for SIPPs and ISA's
Managed by Tom Winnifrith and advised by Malcolm Burne
Visit www.t1psim.com

Trading at EMIS Group (EMIS), the healthcare software supplier, remained in line with management's full year expectations. Overall, turnover was 28.9 million pounds in the first half of the financial year, pending the roll out of EMIS web - a system allowing GPs to share information in real-time. Regarding the NHS White Paper proposing that responsibility for decision-making and commissioning of NHS services should be put in the hands of GPs, the group welcomes and expects to benefit from the anticipated changes. Encouraged by this, Evolution Securities re-iterated its "BUY" recommendation and 459p target price. The shares fell by 40p to 312.5p.

ASOS (ASC) shares climbed up by 46.5p to an all time high of 943p after the on-line fashion retailer reported retail sales up by 54% to 61.7 million pounds in the first quarter ended 30th June 2010. This was led by demand for maxi dresses, sun dresses and festival wear like denim shorts. More specifically, U.K. sales rose by 32%, and international sales, which accounts for 37% of the total, were up by 111%. Commenting on the financial performance, Nick Robertson, CEO of ASOS, remains confident that this year will be another year of "excellent progress." Collins Stewart reiterated its "HOLD" recommendation and 752p target price, believing that there is little risk priced in.

Legion Group (LGNG), the provider of security services, said it has traded in line with expectations. Despite a continued period of economic uncertainty, the man-guarding division has produced a stable performance without material change to expected revenues, the firm added. The group has seen a noticeable increase in interest in its car parking division, following a change of operational management. The directors believe that the order book is healthy and indicates an assured outlook. Legion shares jumped up 0.35p to 0.9p.

* Northbridge Industrial Services is a corporate client of Rivington Street Holdings (RSH), the ultimate owner of this website. The SF t1ps Smaller Companies Growth Fund, which is managed by a subsidiary of RSH, owns shares in