Small cap share tips: Clarity Commerce, Boomerang Plus, CVS

By THIS IS MONEY
Updated: 09:21 EDT, 26 November 2008

Our regular review of the latest developments and hottest tips in the exciting world of the Alternative Investment Market is written by analysts at the UK's leading authority on fast-growing companies, Growth Company Investor.

Turnaround at transactions specialist

Transaction software specialist Clarity Commerce Solutions has turned a £1.1m interim-operating loss into £80,000 first-half profits.

The Basingstoke-based company, catering for the ticketing, retail, leisure and hospitality sectors, has been working its way back to profitability after last year's shareholder revolt, led by ex-chairman Bob Morton, changed the previous regime.

Clarity, now chaired by John O'Hara and steered by chief executive officer Ken Smith, increased turnover 23 per cent to £8.3m in the six months to September and slashed its pre-tax loss from £1.3m to £39,000.

During the first half-year, the retail side, notably the company's MATRA acquisition, put in the strongest performance, aided by the compatibility of its software, and won a significant contact with Universal Studios in the USA, among others. Ticketing and leisure made progress, but hospitality made a small loss, which Clarity hopes to turn around this year, following a £200,000 contract win with Peel Hotels.

The company, which claims 'significant progress' in reducing costs, has renewed its bank facilities for a further 12 months on improved terms and cut net debt by £600,000 to £1.2m. That is before a £4.1m deferred payment in shares and cash for an earn-out agreement with the vendors of MATRA, whose co-founder Anthony Houldsworth joined Clarity's board last month.

Clarity, formerly a ragbag of acquired businesses with little central control, has become a more efficient operation. O'Hara and Smith expect a good second half-year, with 'strong acceleration' in the USA, and some analysts see pre-tax profits of £1m for the full year to next March.

The stock market remains unconvinced, with Clarity shares down from 77.5p three years ago to only 13.5p. That looks a decidedly grudging rating.

Clarity Commerce Solutions
Listing – Aim
Ticker – CCS
Share price – 13.5p
Market cap – £4.3m
Recommendation – Speculative buy

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Boomerang looks for bargains

Having walked away from merger talks earlier this year, Welsh television producer Boomerang Plus is cash rich and looking to pick up some bargains.

With its own in-house production facilities, the Cardiff-based company produces a wide variety of television programming ranging from drama and children's to comedy and extreme sports. A swathe of recommissions were won during the year to last May, with much business coming from Channel 4 and its Welsh counterpart, S4C.

Annual results showed all of this flowing through to the financials, with revenues, boosted by two acquisitions, doubling to £20.9m and underlying profits up 144% to £2.1m. Cash flow of just over £1m, plus £2.2m of proceeds from the IPO on Aim last November boosted cash levels to £6.3m.

Further acquisitions, to capitalise on a government drive to make more television programming in the regions, are being sought. Broadcasting regulator Ofcom is increasing its quota of programming made outside London from 30% to 35% and Boomerang sees this as an excellent opportunity.

Many London-based production companies struggle to win commissions, but if they used Boomerang's in-house studio and editing suites they would qualify for these regional quotas. 'We're looking for two different types of company,' states finance director Mark Fenwick, 'digital media companies and those with good exposure to the networks [BBC and ITV].'

Adding that 'valuations were racy in the sector but they have come down now', Fenwick hopes to add 'at least one' acquisition in the current financial year. Trading on only 9 times forecast earnings of 17.3p for 2009, shares in Boomerang Plus represent attractive fare.

Boomerang Plus
Ticker – BOOM
Listing – AIM
Share price – 158p
Market cap – £14.06m
Recommendation – Buy

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CVS remains deal-hungry

Norfolk-based CVS Group, the veterinary services provider consolidating a fragmented market, has hit the acquisition trail again. It has acquired The Village Animal Hospital (VAH) for an undisclosed sum, a Surrey-based practice with a main surgery in Caterham acting as a state-of-the-art animal hospital. VAH also has branches in nearby Redhill, Oxted and Smallfield.

In line with CVS's successful strategy, all the administration of VAH, which made £145,000 of EBITDA from £1.67m sales in the year to July 2007, will be consolidated within CVS's central facility, driving significant cost savings and synergies. VAH will be added to an existing portfolio of 151 veterinary surgeries, six veterinary laboratories and one pet crematorium.

Chief executive Simon Innes, the former Vision Express boss who floated CVS at 205p in October 2007, says this is an 'excellent' acquisition for CVS, providing the group with a 'major offering within the South East' and sitting alongside the 17 surgeries it already owns in the region.

CVS, which finances acquisitions, such as the recent Rossendale Pet Crematorium deal, from internally generated cash, recently reported encouraging maiden AIM preliminary results.

For the year to June, operating profits advanced by 41% to £4.1m, on sales up 60% to more than £62m. Based on forecast pre-tax profits of £8.4m and earnings of 12.99p for June 2009, shares in CVS are trading on a prospective multiple of 10.7.

That looks undemanding, given growth prospects in a market with defensive characteristics, based on the fact people tend to find money to spend on looking after their pets, whatever the state of the wider economy.

CVS Group
Ticker – CVSG
Share price – 138.5p
Market cap – £71.4m
Recommendation – Buy