Tuesday's free share tip on UK-Analyst.com is from Tom Winnifrith of t1ps.com
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Buy Brady at 67p Says Tom Winnifrith of t1ps.com This stock was originally tipped at 60p just 19 days ago on t1ps.com. If you had invested then, you'd already be seeing a great return. To make sure you get all Tom's new tips (with e-mail alerts) the moment he publishes them, join t1ps.com now. This tip is one of at least 20 published each year on t1ps.com. On Sunday night, Tom also published his top 14 bargain stocks, including a brand new tip, which he believes is the cheapest stock on AIM. To see the full list of 14, plus get frequent updates on all tipped stocks including this one, visit www.t1ps.com. Despite the increase in price since the original tip, Tom believes this is definitely still a buy. Here's his explanation of why:
AIM-listed Brady Plc is profitable and has a
rock-solid balance
sheet... Brady plc (BRY) provides trading and risk management software and services to the global commodity markets. The company was founded in 1985 by now non-executive director Dr Robert Brady, initially to supply pricing models for foreign exchange and interest rate options to Midland Bank in London. This evolved into a focus more on commodities than the general treasury segment, which was dominated by large software houses offering lower margin solutions. The company joined AIM in June 2004 and is now led by CEO Gavin Lavelle who joined in September 2007. I met Lavelle, who has a wealth of experience in this area, last month and having undertaken strategic and operational reviews on his appointment, he now looks to be driving Brady forward rapidly. A programme of organic growth has been augmented by acquisitions. In January 2009 Brady announced it had acquired Commodities Software (UK) Ltd, a company providing software for the risk management and administration of raw materials for the metals market. This brought substantial further intellectual property developed over 25 years into Brady and has provided the company with the capability to offer clients the ability to manage raw material contracts from mines through to refined products and associated derivative hedges. In 2009 Commodities Software significantly out-performed expectations and Brady now looks to be working the same trick again – with the announcement on 16th March this year of the c.£2 million acquisition of the commodities business of Viveo Switzerland SA, a Geneva based company providing software for trading of soft commodities, oil, gas, and metals. This broadens Brady's product offering (giving it access to greater expertise in the soft commodity and energy asset classes), expands the company’s presence in mainland Europe and “creates an opportunity, similar to the successful Comsoft acquisition in 2009, for Brady to apply its sales capabilities and infrastructure to Viveo Switzerland, accelerating its growth”. Brady added “the acquisition is expected to be earnings enhancing in 2010” – and has subsequently already announced contract wins resulting from Viveo with ING Belgium, Brussels, Geneva Branch, an unnamed “leading global commodities trading organisation”, leading cotton trader Reinhart AG and leading global farming co-operative group InVivo. Since the start of June alone Brady has announced five new contracts – the most recent on 8th July being that major global miner Xstrata Copper has chosen to implement Brady's risk management technology at an enterprise level across its operations and projects. Back to 2009 In a year in which the company acquired Comsoft in January, signed six significant new licence contracts and achieved project acceptance or “go-live” with nine more clients, Brady’s calendar 2009 results (released on March 10th) showed a 63% increase in underlying operating profit to £1.14 million, which saw pre-tax profit rise slightly, to £1.04 million. The pre-tax profit performance was achieved despite a £296,000 decline in finance income (due mainly to the significant reduction in interest rates during the year) and £140,000 of exceptional costs related to an aborted acquisition. Revenue was 32.7% higher at £8.19 million (c.17% up excluding Comsoft) and the company remained cash generative from operating activities despite a net £450,000 working capital outflow and £585,000 of tax payments. However, together with a net £2.23 million of investment spending (£1.70 million due to the acquisition of Comsoft) and £336,000 of dividend payments, these saw cash (and net cash) decline from £7.83 million at the end of 2008 to £5.87 million at the end of 2009. Net current assets at 31st December 2009 totalled £5.19 million and net tangible assets £5.12 million.
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Guide. Outlook Having demonstrated an ability to secure contracts with some of the biggest industry names, Brady is steadily building its presence, e.g. in North America, and has also opened an office in Singapore. It has much in terms of its market going in its favour – with demand from Asia continuing to drive commodities trade and a continued move towards electronic trading, particularly as regulatory and accounting compliance demands are being stepped up. The company noted in its March results statement that it was “encouraged to see a more advanced pipeline which, in monetary terms, has also increased in the last twelve months and confirms a general trend towards higher value licence deals” and that it “has stronger visibility into the first half of 2010 than it had a year ago in relation to service and development revenues attached to a number of substantial implementations attached to licence deals secured in 2009”. Forecasts & Evaluation Brady enjoyed growth across all its revenue streams in 2009 – licence revenues up almost 21% to £2.52 million, professional services & development revenues up more than 45.5% to £2.81 million and recurring maintenance revenues up approaching 33% to £2.85 million. The fast growing installed base of live customers provides a base of defensive, recurring income and the company is forecast to grow pre-tax profit to more than £1.5 million this year and approaching £2 million next, generating earnings per share of c.4.3p rising to around 5.25p. With an estimated (net) cash pile of more than £4 million remaining, Brady is continuing to look for acquisition opportunities to enhance its anticipated growth - and given the recent track record in this regard I, for one, would not back against its management doing so. The shares currently trade at 67p, which ex the balance sheet cash of around 20.8p per share, places them on an adjusted earnings multiple of 10.7, falling to 8.8. Given the fast growth profile supported by a defensive base and leading name customers, a leading product offering in a market with strong IP and relationship barriers to entry and the cash-heavy, debt free balance sheet, I regard a forward p/e of 15 + net cash as a justified rating. This suggests a share price of 93p, and I'd expect more in the longer-term as organic growth continues and management continue to add value via acquisitions. There is also an anticipated dividend of 1.4p per share this year, rising to 1.5p per share next year - a decent if not spectacular yield of c2%, which is not to be sniffed at in the current low interest rate environment. There are risks - the company noted in its March results for instance that “the economic climate continues to create significant challenges in accurately forecasting the timing and value of new deals” but with the current rating far from aggressive and that significant balance sheet backing, shares in Brady plc at 67p and up to 69p, with an initial target of 93p, are a "buy". Remember, if you want to receive updates on this stock – right up until Tom believes it's time to sell – plus get 20 hot new tips each year, join t1ps.com now. Click here to join t1ps.com now and get all this plus Tom's latest hot tip and his 14 bargain stocks to buy now.
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