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Shareworld - City Confidential - February 2010

City Confidential - A Shareworld Contributor

February 2010

JUDGES SCIENTIFIC (JDG) – 141p

 

Recommendation – BUY 

With a significant share buyback programme recently being put into operation, shares in Judges Scientific should be underpinned in the short term.  The company clearly believes that the current share price comes nowhere near to reflecting its true value, otherwise it would be keeping more of its powder dry for acquisitions.  It is hard not to share that view given the track record to date and the recent trading update, revealing that there was a chunky order backlog at the end of 2009.  Even in the current depressed market for smaller companies, it is difficult to find companies trading on such a low multiple of earnings.  The very manageable level of debt also means that the shares are not as risky as the rating might suggest.  Final results, which were released towards the end of March last year, could draw greater attention to this interesting business. 

Judges Scientific, formerly Judges Capital, is a designer and manufacturer of scientific instruments.  The company was founded in 2002 by Chief Executive David Cicurel, who has operated as a turnaround specialist in the past and more recently acted as an ‘active value’ investor using his own funds.  The company aims to grow through the acquisition of quality businesses. 

ACTIVITIES 

Given the growth by acquisition strategy, the shape of the overall business continues to change and it is highly likely that there will be further additions moving forward.  There are currently four operating subsidiaries:- 

Fire Testing Technology Limited – this is a leading manufacturer of instruments designed to measure the reaction of materials to fire.  The company was formed in 1989 and was thought to be the world’s first instrument company dedicated to the design, manufacture and service of reaction-to-fire test equipment.  Fire Testing Technology Limited owns Aitchee Engineering Limited, which makes engineering parts and finished products for a variety of industries.  This business was started in 1971. 

PE.fiberoptics – formed in 2005 by the senior management team of the PerkinElmer Fiber Optics Group, when the fiber optics business was bought from PerkinElmer.  PE.fiberoptics took over responsibility of all customer support, including warranty for PerkinElmer products purchased by customers from the Wokingham site.  The business aims to maintain its position as a leading player in fiber optic test equipment.  

UHV Design Limited – this company specialises in the development and production of instruments used to create motion, heating and cooling within ultra-high vacuum chambers.  Based in East Sussex, the company has some innovative products and sells around the world through a number of agents. 

Quorum Technologies Limited – the most recent addition, acquired in June 2009, Quorum designs, manufactures and distributes sample preparation instruments for use in electron microscopy.  Products are marketed mainly under the Polaron and Emitech brands.  Applications for the technology include life and materials sciences and industrial technologies such as semiconductor production. 

FINANCIAL

The latest set of results available at this stage cover the six months to 30 June 2009.  Sales were £4.52m, with continuing activities accounting for £4.13m.  This is an increase of 18.6% on the first half of 2008 when sales were £3.48m.  Pre-tax profits before amortisation of intangible assets were £848k (2008: £712k) and earnings per share on the same basis were 15.5p (2008: 12.6p).  An interim dividend of 1.3p (2008: 1.2p) was declared, which was covered by adjusted earnings 12 times.

The balance sheet is reasonably strong, with cash in hand of £2.5m as at 30 June 2009, compared with £1.6m as at 31 December 2008.  Net debt was stable at £997k (31 December 2008: £996k), although £889k was still owed in respect of the Quorum acquisition as at 30 June 2009.

In a recent statement, the group has also revealed that it intends to purchase up to 300,000 shares, being 7.4% of the issued share capital, with immediate effect.  These will be bought on the market in the normal way, but this should help to at least underpin the share price.   

OUTLOOK 

The company has stated that at the end of 2009, its order backlog represented 11 weeks of sales.  This compares with 19 weeks as at the end of 2008, but that was an exceptional time as the company has already flagged up.  Given the state of the world economy, recent trading performance has been remarkably bouyant and this bodes well for the future.  It is likely that 2009 will prove to be a bumper year, due to factors including the exceptionally strong order book, which was carried into the period.  However, performance in the current year is currently expected to broadly match that level, which makes the current share price look undemanding. 

Good quality, earnings-enhancing acquisitions continue to be sought.  The ongoing strong trading performance and bank support should ensure that if attractive opportunities emerge then there will be no problem in financing suitable acquisitions.  The business in its current format already looks undervalued so if additions are made at the right price there is potential for the share price to soar.  It briefly touched 185p in October and it would be no surprise to see that level tested or even surpassed after full year results have been released. 

Share Price – 141p      Market Capitalisation - £5.7m

2008/10 Price Range – 179p – 60p     Next Results Due       - March 

 
 

FT Sector: AIM

Address: Unit 19, Charlwoods Road, East Grinstead, West Sussex  RH19 2HL

Telephone: 01342 323600

Website: www.judges.uk.com

Aggressive Growth Portfolio IV –  February 2010 (2707)

 

So, at long last, the fall in the market for which we have been waiting months finally arrived in January.  And, as so often is the case when the market falls, the Aggressive Growth Portfolio has outperformed, increasing in value by 4.1% during the month, whilst the two indices against which it is benchmarked have fallen.   

Ashley House has reported interim results to the end of October and, although these were pretty good, the disappointing statement on short-term prospects led to a fall in the share price.  The results are covered on page 8 in News Update, but we have decided to cut our losses and sell as we could do with the money to re-invest.  The sale of 5,000 shares at 69.5p has generated net proceeds of £3,441 and a loss of £746.  

Elsewhere, Lees Food issued a positive trading update during the month, with group sales for 2009 being £18.2m, some 13% ahead of 2008 and also better than market expectations.  There were exceptionally strong sales in the run up to Christmas and pre-tax profits for the year should also emerge ahead of forecasts.  Although the shares have moved up nicely they are still not expensive.  Another company issuing positive news was Kentz, which confirmed that it had performed well in 2009 and revenues and profits would be in line with expectations.  The shares are showing a useful gain and so we are going to take this to raise funds for re-investment.  The sale of 1,800 shares at 217.5p has raised net proceeds of £3,876 and a gain of £542.  China Shoto, the largest Chinese producer of back up batteries, has revealed that pre-tax profits for 2009 will be materially ahead of expectations.  The shares have moved up sharply on the news and we have taken advantage of this to sell half the holding, disposing of 1,000 shares at 325p to raise net proceeds of £3,217.  This generated a handsome profit of £1,456.  We have also raised the stop-loss again, this time to 300p.    

It is pleasing to see that Jamie Reynolds, who has recently joined the company as chief operating officer, has added to his holding in Managed Support Services, buying 77,000 shares at 9.74p.  In a similar vein, the wife of the chairman of Renew Holdings has purchased 50,000 shares at 37p.  The company also held its AGM during the month, stating that despite challenging market conditions, trading for the first quarter has been satisfactory and the group remains well funded with net cash of over £13m at 31 December.   

To generate additional funds for investment, we have also sold 8,000 shares in Regenersis at a price of 44.5p.  The shares have failed to perform and the net proceeds of £3,524 produced a loss of £211.  With the funds raised we have invested into each of the main featured companies this month so that the portfolio is now fully invested.     

No dividend income or interest was received this month.  
 

   

Start date: 1st January 2009 with £50,000.  Cash includes interest and dividends of £1390

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