Member Info for jange

Investment continues This performance reflects the consistent investment strategy of management. New collections have been regularly introduced across the brand portfolio throughout the recession to stimulate customer interest, while the capabilities of the manufacturing operations have been progressively extended, developing the techniques to offer wider opportunities to the group and third-party design teams. We have nudged our 2013/14 target higher, although because of the continuing challenging trading climate, we prefer to remain conservative........................

Another good year The profits target we set at the time of the interim results announcement is, as we suspected, proving conservative, despite the tough UK consumer trading climate. While revenues are reported to be just 2.3% ahead of last year, higher gross margins supplement the reduced overhead base, enabling management to indicate profits above City expectations. We are raising our underlying pre-tax target by £0.3m to £6.2m, implying a year-on-year rise of some £0.5m.

Walker Greenbank continues to defy the challenging UK consumer trading climate. Increased overseas sales, especially into North America, and higher licensing income are helping to sustain the momentum, while the benefits of margin improvement are coming through to the bottom line. The share price has responded positively since the interims last autumn and again following this morning’s announcement, but is only beginning to reflect the group’s consistent trading performance.

Business description Augean manages hazardous waste through: Land Resources (45% of 2012e sales), Waste Network (19%) and Oil & Gas Services (28%), plus its ANSS subsidiary (8%). It provides services in12 locations and through mobile assets across the UK.

Valuation: On course for value creation The pre-close statement highlighted that the new strategic markets are beginning to create value across the group. Though the pace may be a little slower in 2012, we believe the long-term value case holds true based upon a DCF of the new strategic markets. With the group restructured to commence dividends, and cash generative growth anticipated to be delivered from new markets in 2013, shareholders will also begin to benefit from increasing cash returns.

Activity in the core business appears largely as we had forecast, with Land Resources delivering year-on-year improvement while the challenges remain in Waste Network. As such Augean is therefore anticipated to meet our revenue targets of c £42m. With the indication that LLW volumes derived from the framework agreement with Low Level Waste Repository Ltd have been slightly slower to release, with some delays into Q113, we are easing our PBT forecasts by c 8% in 2012 as lower margin volumes from other shorter-term LLW contracts have replaced these volumes. We remain confident that volumes will increase through 2013.

New market strategy delivering Trading in H2 was described as satisfactory and although there was a slightly slower uptick in LLW, the group is still expected to hit our £42m revenue forecast for 2012, a c13% year-on-year increase. This is supported by the strategy to expand into new markets as laid out in our October 2012 Outlook note and has proved the ability of the group to create new waste streams and ventures to capitalise on its combined capabilities. With integration of the new businesses complete, contributions should increase further in 2013.

Augean’s pre-close statement highlighted that progress has been made across all strategic markets and performance in the core has been maintained despite the uncertain economic environment. With revenues broadly expected to be in-line with our £42m forecasts, mix issues in Low Level Waste (LLW), where framework agreement volumes have not flowed through at predicted rates as yet, cause us to shave our PBT forecast by c 8%. We see this merely as a timing issue as LLW volumes build and framework contracts begin to deliver increasing quantities. With full year results on 23 March we view the stated intention of the Board to initiate a maiden dividend as a signal of the group’s confidence that the value from the new strategic markets will begin to show through in earnest throughout 2013.

In FY12, capex ran slightly ahead of depreciation for the second year running, with additional investment in a small acquisition (Xeroflor) and the new JV (Saudi Arabian geotextiles).We view net debt (£83.6m, neutral cash flow post-investment, positive FX effect) as comfortable (c 2x EBITDA and approaching 10x cash interest cover). We are likely to trim estimates by c £1.5m (vs current FY13 above), substantially due to a more gradual Saudi JV ramp up and ongoing, although reduced, Yarns losses.

The bulk of Low & Bonar’s operations (ie Bonar and Technical Coated Fabrics) delivered results in line with our estimates overall. The Yarns loss was c £0.5m larger than anticipated, although this shortfall was more than made up by lower finance costs and share-based payments, leaving PBT £0.2m ahead of our headline estimate. Euro exposure (50%+ revenues) was adverse, but constant currency growth rates for the core operations were respectable, given the wider GDP backdrop with margins also improving. A Yarns impairment charge (of £11.2m, leaving a carrying asset value of c £17m) reflects the company’s current value in use projections.

FY12 results modestly exceeded expectations, achieving some y-o-y progress in the face of significant euro and Yarns headwinds. The two largest divisions delivered constant FX revenue growth and margin expansion, while also making organisational changes in preparation for an enhanced global sector strategy. Resolving the Yarns drag would make these actions more visible, demonstrating underlying business momentum, and further enhance the rating attraction on slightly lower estimates.

Business description DDD Group develops and licenses IP and technologies in the TV, PC and mobile markets for converting 2D content to 3D and supplies originally made 3D content.

Valuation: Continuing strong growth potential DDD has established a strong position in the 2D to 3D conversion market across multiple display segments. In 2013, management expects to add licensees in new 3D consumer markets and to expand Yabazam!’s content availability. We continue to believe that DDD should be able to participate fully in the growth in the 3D market through its 2D to 3D offerings in the 3D TV, PC, gaming, mobile and content markets.

Maintaining FY13 until prelims, expected in April In recent months, DDD has announced the expansion of the group’s Yabazam! 3D Smart app on both Samsung and LG Electronics 3D platforms, the launch of 3D gaming technology incorporating DDD's software in i-cafes throughout China, as well as licensing rights to Samsung to undertake offline conversion of content from 2D to 3D. We anticipate an update on these new revenue sources when the group reports FY12 results, expected in April. Until then, we are maintaining our FY13 estimate, which includes a more than doubling in normalised EPS to 1.9c.

Compared to FY11, royalty-based shipments by TV chip manufacturers grew 67% and PC software shipments grew 172%. While mobile IP shipments declined by 58% due to delays in next-generation mobile and tablet 3D display panel availability, management is expecting a return to growth in 2013 with the emerging demand for tablet PCs with 3D functionality. In light of the positive trading update for FY12, we are raising our normalised EPS estimate to 0.9c, up from 0.6c. This takes account of the higher than estimated revenue and gross profit, as well as a small increase

DDD provided a FY12 trading update highlighting that total revenue for FY12 is expected to be $8.6m, up 56% from FY11. Gross margin is expected to be 97%, up from 94% in FY11. With both these metrics ahead of our estimates ($8.0m revenue and 95% gross margin), we are raising our normalised FY12 EPS estimate to 0.9c, up from 0.6c. This is a strong performance, as the group continues to leverage demand for its TriDef 3D technologies, with c 15m units shipped in FY12, up 67% from FY11. We are maintaining our FY13 estimate at present and will review this when DDD reports its full FY12 results, expected in April. The balance sheet remains strong with net cash rising $0.5m in FY12 to $3.6m. Since December, DDD shares are now also trading as ADRs on the US OTCQX market (DDDGY), which provides US-based investors with easier access to dealing in DDD shares.

Valuation: Premium rating DIVI has traded at a premium for most of its life and currently is trading on a premium of 5.9%. Arguably, the persistence of the premium could reflect investors’ demand for equity income in the current economic environment and DIVI’s attractive performance record relative to its peers. It is also underpinned by DIVI’s commitment, subject to the board’s discretion, to offer shareholders a chance each year to sell all or part of their holding at NAV.

Sector outlook: Equity income still in demand There was no let-up in investors’ demand for income in 2012 and, increasingly, they seem to be happy to source this from smaller companies. As long as managers’ portfolios are positioned in stocks that can sustain or even grow dividends despite the general economic malaise, the sector could continue to do well in 2013 and beyond.

DIVI is a UK growth and income investment trust investing in UK quoted companies with good and growing dividends. However, its investment strategy is genuinely different from its peers. DIVI invests without reference to any index benchmark and places great emphasis on diversifying its portfolio. While most other investment managers in the sector weight their portfolios toward the largest higher-yielding stocks in the UK market, increasing their stock-specific risk, DIVI moves down the market cap spectrum, mitigating the increased liquidity risk by operating with a diversified portfolio. DIVI’s portfolio also has exposure to a wider spread of industries. The corollary of this is that DIVI’s portfolio can have greater exposure to non-FTSE 100 constituents than those of its peer group and performance can differ markedly from the usual UK benchmarks.

2012 was a successful year for The Diverse Income Trust (DIVI), as, in total return terms, its share price rose by 39.1% vs 12.3% for the FTSE All-Share Index. Even in NAV terms DIVI was the best performing UK growth and income investment company (average 18.8%) last year. Over the course of its first accounting period, DIVI declared dividends of 2.19p per share, equivalent to 2.02p annualised or just over the 4% yield on the 50p offer price forecast at the time of launch. On the back of this good performance, DIVI has just completed its second C share issue. Shareholders will benefit over time, as the larger asset base dilutes fixed overheads and liquidity in DIVI’s shares improves. Later in 2013, with the improved liquidity and a market cap in excess of £100m, DIVI should qualify it for inclusion in the FTSE All-Share Index making it more appealing to a wider spread of investors.