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Buy MinorPlanet at 54p By t1ps - Charles Vintcent
Argues the Small Cap Shares Newsletter These recommendations do not constitute advice, please read the risk warnings
Telematics company Minorplanet Systems (MPS) For the half year just ended, on a turnover of £11.6 million - up 1.8% - the company posted a pre-tax profit of £0.3 million. Gross margins rose by 5% to 72%, primarily as a result of a better sales mix, improved lease terms, and lower product cost. Total overheads rose by 5% to £8.8 million, due to higher selling, marketing and product development costs. In contrast, operations and administration costs were marginally lower than last year. Interest earned on internal finance leases fell by £0.3 million to £0.8 million, due to lower activity on the internal leasebook. Interest payable halved to £0.1 million, due to the benefits of a fundraising in November 2005 and the subsequent improved trading performance. Basic earnings per share rose to 0.69p from 0p in 2006. A positive cashflow of £0.2 million was generated from operating activities and the internal leasebook compared to an outflow of £1.6 million in 2006. However, this was offset by capital expenditure and interest costs. The total cash balance fell by 29% to £2.7 million. Net borrowings were reduced by £0.1 million to £0.4 million. Interest cover of four looks reasonable. The business The UK subsidiary continued to be profitable in the first half, despite an increase in overheads of £0.5 million, due primarily to the increased investment in sales and marketing. Turnover growth of 10% was achieved largely through increased penetration of the corporate sector with the signing of several major new contracts. Improved gross margins were also generated in the UK, despite the inevitable price pressure in the larger corporate arena. The Irish business also performed strongly in the period, growing its revenue by 23% - representing an immediate payback from higher sales and marketing investment in this territory. Holland and Australia again operated at around breakeven in the first half. Australia, however, has traditionally performed better in the second half, following the main holiday season in December and January. Germany continued to incur losses, albeit at a reduced level compared with the second half of the 2005/06 financial year. Although a welcome increase in sales activity has been seen in recent months, volumes are not yet high enough to achieve break even. Increased resources are being applied to distribution operations in southern Europe and opportunities in the Middle East and Africa are being actively pursued. The company recently announced the acquisition of the 49.9% minority interest in its Australian subsidiary, Minorplanet Asia Pacific Pty Limited (MAP), which it does not currently own, from Vineport Pty Limited. The £1.7 million cost will be satisfied by issuing 3.4 million new ordinary shares of 1p each in the share capital of Minorplanet to Vineport. An additional payment of £152,400 may be liable if MAP achieves earnings before interest and tax in excess of £0.72 million in the period to 31 August 2007. It is anticipated that the increased involvement in this unique and innovative market will bring significant benefits in terms of knowledge and technology. Conclusion These results for Minorplanet show a steady improvement and we are encouraged by the investments, new contracts and the small pre-tax profit that was posted. In the second half of 2007, the company plans a series of product launches and the continuing development of a graduate sales training scheme. These investments are expected to help increase market share across the various sales territories and, combined with continued tight cost control and the anticipated increased penetration of telematics products in the commercial vehicle industry, should ensure further progress is made during the second half of this year. The acquisition of the minority stake in MAP is good news and we should see the Australian subsidiary posting a profit by 2008 at the latest. Although the German subsidiary continues to make losses, we are cautiously confident it will break even by 2008. The recovery over the past year under a new management team has been truly impressive. From posting a loss of £52 million in 2003 and the company looking dead and buried, Minorplanet is now poised for a very strong growth in profits and earnings. The current year should see sales of £27.1 million, pre-tax profits of £2.5 million and earnings of 7.9p. In 2008, we expect pre-tax profits to rise to £3.2 million on the back of £33 million of sales, and earnings to hit 9.6p. The shares trades on a current year multiple of 6.8 falling to 5.6 in 2008, which looks good value. BUY Small Cap Shares is a monthly newsletter, but also provides a real-time tip update service on its website. Although it will tip AIM shares, its focus is on fully listed small cap shares.
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