Cml Microsystems (LON:CML) (CML, 86.5p, £12.93m) CML has announced an agreement with Toshiba Electronics Europe that will see CML benefit from Toshiba’s library of Application Specific Integrated Circuit design and manufacturing services. The agreement is with CML’s Hyperstone which is a manufacturer of flash memory and solid state memory disk controllers. First products are already underway with samples expected in Q1 2011. Given the positive outlook from Intel overnight we see upside in the price a return CML to the BUY with a 119p price target or a modest 12x prospective PER.
Peel Hotels (LON:PHO) (PHO, 65.0p, £9.11m) We are pleased with the progress made in the 28 weeks to 22 August 2010. An increase in 'staycation' has driven revenues to increase by 15% to £8.3m (H109: £7.2m) and l-f-l increase in revpar by 6%. Tighter cost control led adjusted PBT to grow by 33% to £0.10m (H109: £0.08m) and adjusted EPS to 0.5p (H109: -0.4p). A reduction in capex has reduced net debt to £14.2m. The balance sheet remains strong with tangible net assets of £23.7m. The increase in the interest charges has encouraged Peel to dispose of two properties in Newcastle and Wallingford – marketing has already commenced. The value of the assets for sale has not been disclosed. The outlook statement is mixed. The group need to ensure their marketing campaign is invigorating. If the revpar continues to increase, the group may introduce a dividend. The asset play nature of the group encourages us to retain our highly SPECULATIVE BUY. We believe the disposal f a property could act as a short-term catalyst to increase the share price.
Sarantel Group (LON:SLG) (SLG, 1.75p, £5.09m) Trading statement for the year to September reports that, although revenues are broadly in line with market expectations, and despite shortages and delays it has managed to push gross margins slightly higher. It has added some 400 new customers during the year – reflecting the quality and performance of its GPS antenna with near perfect smiths circle reception plots. More importantly the group has signed a manufacturing outsourcing deal with Elcoteq which should deliver annualised savings of £0.5m and rationalise 2 UK facilities into 1. The group ended the period with £0.6m of cash (£1.6m at the March interims). With a fund raising possible we cut the group to a HOLD in anticipation of dilution.
Walker Greenbank (LON:WGB) (WGB, 38.25p, £22.34m), the luxury interior furnishings group, reports a solid set of interims to 31 July 2010. A recovery in the market has driven strength in brand and manufacturing revenues – ahead of pre-recessionary levels. Sales to increase by 16% to £33.67m (H109: £29.14m), adjusted operating to almost double to £2.06m (H109: £1.05m), adjusted PBT up 2x to £1.8m (H109: £0.6m) and adjusted EPS up 1.2x to 1.8p (H109: 0.83p) – an impressive performance. Stronger cash generation has reduced net debt to £3.4m (H109: £6.7m). The reintroduction of an interim DPS 0.15p highlights confidence in the profitability and cash generation going forward. In the current consumer conscious market, wallpaper and fabric printing are a relatively cheap way of modernising a home. The mid-market brands Harlequin and Sanderson were the best sellers in H1 and the premium brand Zoffany has returned to growth. The outlook statement is positive. The strong momentum in H1 has continued into H2. Strong investment in new product launches gives us excellent growth opportunities in domestic and international markets. We believe the group is trading in line with 2011 current market estimates of PBT of £3.6m, EPS of 4.63p and DPS of 0.68p. The share price has risen by 70% since our buy recommendation and it has now almost reached our target price of 40p. The stock trades on a 2011 PER of 8.3x with a yield of 1.8% and a 2012 PER of 7.4x with a yield of 2.1%. We believe the triple digit earnings growth, market share gains and quality products are not reflected in the current valuation. We remain buyers of the stock, and increase our target price to 47p – equivalent to 9x 2012 earnings. BUY
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