Great balance sheet, but little else to shout about.

Indigovision released their full year results today which show maintained revenues for the full year, but significantly lower profits. Given the earlier trading update in August, the results didn’t come as any surprise.

After the first profit warning, as previously mentioned, I sold the remainder of my holding in Indigovision to crystallize a 750% profit overall.

I commented at the time, both here and on the ADVFN bulletin board that I could see the SP falling below £2 in the short term, and that is exactly what has happened.

Whilst investors shouldn’t be surprised by the final figures, the outlook statement doesn’t instill any confidence in near term trading.

Whilst sales in the first seven weeks of their new financial year are comparable with last year, the order book is lower and concerns are expressed about economic conditions.

The shares took another hit today and dropped a further 14% to end at 182.5p by the close, putting them on a P/E ratio of 22.

On a P/E basis the shares look expensive, however Indigovision boasts a strong balance sheet, a 4% dividend yield, the company is cashflow positive, and has no debt.

On balance, I’m not tempted back in just yet though. Although I wouldn’t be entirely surprised by an opportunistic bid, the short term outlook isn’t encouraging, and with falling sales, higher overheads and continued margin pressure, it appears possible that they will record a loss in the first six months, and I can’t justify buying the shares purely on the possibility of a bid approach.

With a long term horizon, Indigovision may prove to be a bargain at below £2 and I will certainly keep monitoring the situation, but as I mentioned in a previous blog, it appears that Indigovision need to peddle faster just to keep still, and unfortunately this is proving difficult.

Surgical Innovations

Those of you who take a peek at my blog on a regular basis will be aware that until relatively recently I was a shareholder in a company called Surgical Innovations. I bought shares in SUN for just below 2p and sold them for over 10p, crystallizing a fivefold profit in just over a year.

Whilst I could and can see a very bright future for this company, I was more than happy with my gains, and stated at the time that whilst I could see potential upside in the SP over the medium to long term, I felt it unlikely that the SP would multi-bag again in such a short time period.

Surgical Innovations released their interim results today, and there is nothing in the report that would lead me to change my mind.

The shares took a hit today and are now trading below my sell price. On the face of it, the results are disappointing with both revenues and operating profits falling against the comparable period last year. However, a one-off industrial contract did flatter last year’s figures, and there has been a temporary reduction in OEM orders due to the phasing of larger orders. This largely masks an excellent 29% revenue increase in SI branded products, and an impressive 7% improvement in margins. Basic earnings per share at the interim stage are 0.12p.

The company is confident that growth prospects will be achieved in 2012 and 2013, and current trading is encouraging with strong customer demand.

Previous broker forecasts for 2011 are for an EPS of 0.6p. Given the improvement in margins, and the expected progress in the second half, this doesn’t look too outlandish. This gives a forward P/E ratio of 17.5 (SP 10.5p at time of writing). The market capitalization is about £40m with a NAV of approximately £11m. Revenues at the interims came in at £3.2m with a profit before tax of £474,000.

Great little company, great prospects for growth going forward, but at this stage in its development it looks fairly priced to me.

As I mentioned in a previous blog, Surgical Innovations will remain on my monitor, and I may reconsider buying again on any significant SP weakness.

Third quarter results for Avesco and other updates

Avesco released their third quarter results today, and they certainly didn’t disappoint. The underlying growth story remains firmly intact, and in my opinion this is still a hidden gem.

Whilst the final results will give a clearer and fairer picture of progress, the nine month comparatives point towards a company that is steadily growing organically and has a very bright future.

Trading profit for the nine month period virtually doubled from £1.7m in 2010 to £3.2m this year, whilst the operating profit of £2.8m has increased more than four-fold. Diluted EPS comes in at 6.1p with an adjusted figure of 7.9p.

The nine month figures also appear to indicate another slight improvement in margins to around 34% (about 33% last year).

Clearly, the company has achieved significant growth this year which is even more impressive given that last year they benefitted from the Shanghai Expo, the Football World Cup and the Winter Olympics.

If you dig a bit deeper into the report, you will see that all three divisions (Creative Technology, Full Service and Broadcast services) were profitable. CT and FS are the most indicative of the underlying progress since they are less dependant on the major events; both produced a significant uplift in profitability, with CT producing a 21% increase in revenues and a 120% increase in operating profits. Broadcast services benefits the most from the even year effect, and will almost certainly show a huge uplift in revenues and profitability next year.

Ian Martin the Chief Executive commented:-

 “The Avesco Group enjoyed another period of strong growth during the nine months ended 30^th June 2011, with further progression in revenue growth and profitability.

Looking towards 2012, we expect to benefit significantly from the “even year effect”, notably with the inclusion of business generated from the European Football Championships and the London Olympics. In addition, we have a full 12 months’ contribution from a number of multi-year projects that we have begun during 2011”

I have highlighted the last sentence since this appears to be something I wasn’t personally aware of, but which looks significant.

It is amazing to think that Avesco is still valued at a 24% discount to its tangible net asset value which currently stands at £1.50 per share. The possible payout from Disney is approximately £1.40 per share.

Essentially this profitable and growing business with revenues well in excess of £100m is being accredited with having no value (apart from its assets). It must still be one of the most undervalued companies on the market.

In other updates, Zetar’s Finance Director has bagged himself £20,000 worth of shares in the company at prices around the £2.50 mark.

DCD Media appear to have secured their short term future, with the help of one of their major shareholders, through the issue of convertible loan notes and Subscription Shares. Existing shareholders will see their holdings significantly diluted. Taya Investments, another major shareholder, are noticeable by their silence. Taya were once rumoured to be a possible bidder for DCD Media. They don’t strike me as a company that would be happy to see their 20% stake significantly diluted by this funding proposal. This story may yet have further to run?