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Read on to see an article posted on the OMG blog on 15 August 2016:

Sunny side down

STM Group (LSE:STM)

Reviews

TRX – 113.5p –  Two ways 2 win

STM – 48p – Reassurance

PHD – 119p – In line

The FTSE 100 increased 2.3% to 6,916, with the FTSE 250 improving 2% and the AIM All Share was up by 1.5%. The cause of economic effect on the market is obscured by QE covering  the deteriorating short term growth prognosis. Major capital investment projects are on hold, illustrated by UK Construction, which is in a technical recession after declining 2.2% last quarter and is forecast to decline further for the third Qtr.

Internationally, Eurozone GDP rose by 0.3%, which was inline. Missing expectations however, was China’s Industrial output slowing by more than expected at 6%. US Consumer Confidence, at 90.4 was below the 91.5 expected.

Buy Now - £54/year

This week ……………….

…..there are some key UK stats; with Employment on Wednesday, Retail Sales on Thursday and a new red flag, Public Sector Borrowing (PSB) on Friday.  The expected jump in the PSB requirement will handicap Philip Hammonds, the Chancellor’s latitude for fiscal stimulation and increased Government expenditure in his first Autumn Statement. Inflation is reported on Tuesday, with the CPI at 0.5% and the lower exchange rate it is likely to further increase from these historically low levels.  

The US has a busy Tuesday with Industrial Production and Price Index and others. This is followed with Interest Rates Minutes reported on Wednesday with Employment on Thursday.

Markets  may turn cautious

 

Reviews

Tex Holding (LSE:TXH)

  1. 5p ( 110p-117p)

Mkt Cap £7,2m

Next Results: Finals Dec Rns March

On an historic P/E 6x yielding 6.6%, this engineering and plastics group increased its interim dividend by 20% to 2.5p, which is to be paid to those on the register on before the 16th September.

Last week’s interims showed a 15% increase in turnover to £20.8m, while profits before tax decreased by £2k to £495k. The disappointing profits growth was due to the business mix, the costs of relocation and abortive quotes from the plastics division.  Since the Interims  sales volumes in the Plastics Division have improved.

The Engineering division benefited from six months trading from G&M TEX Ltd and a strong opening six months from Tex Engineering Limited.  The Boards & Panels Division was buoyed by two larger projects for the Quikaboard product. The Engineering Division also currently has a number of projects in progress that are due to be completed in the second half of the year.

Financials

The current ratio of 1.8x,which indicates the working capital is cautiously sufficient, although a £2m term loan agreed, as a Brexit precaution. The NAV is £9.8m and gearing is 27%.

Trading Strategy

The growing  6.6%  yield is attractive and profits should increase in the  second half making the PE6x  seem undervalued and a P/E of 9x would seem more appropriate.

48p (46p/50p)

Mkt Cap: £28.3m

Next results: Interims, September

Buy Now - £54/year

STM Group (LSE:STM) has proved reassurance that its strategy of reducing fees for the QROPS pension product to generate additional business is starting to work. This has helped the share price recover following the decline after the profit warning.

The initial fee is being waived for a six month period. New QROPS business in July was 28% higher than in June and 15% ahead of May’s figure. STM’s Malta pension contact plan has been approved by HMRC.

Trading strategy

The share price has recovered but there is still long-term potential.

OMG recommendation: 52p/55p

 

Proactis Holdings (LSE:PHD)

119p (117p/121p)

Mkt Cap: £47.4m

Next results: Finals, 12 October

Spend control software provider Proactis (LSE:PHD) says revenues and profit were broadly in line with expectations in the year to July 2016. Revenues were 13% higher at £19.4m, while EBITDA grew 10% to £5.3m. Recent acquisition Due North has achieved £400,000 of annualised savings, which provides scope for upgrades for 2016-17.

The Activate service has been renamed Supplier Commerce and it has gained three significant clients. Proactis needs to show that it can sign up the suppliers to these clients and generate the expected recurring revenues.

The shares are trading on 18 times earnings, falling to less than 15 for 2016-17.

Trading strategy

The share price has fallen back in the past three months making the shares particularly attractive.

Original recommendation: 78p/82p

Buy Now - £54/year

Read more sample articles:

15 Sep – COG Could go Mad

2 Aug – Follow the Fundamental Momentum

1 Aug - Political game playing

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