Small cap share tips: SSP, Armour, OMG

By THIS IS MONEY
Updated:

 

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.

SSP Holdings: a strong defensive play

Chaired by experienced software sector mover and shaker David Rasche, SSP provides 'business critical' IT systems and services to the global insurance industry.

Boasting a strong track record of profitable growth, its systems and services improve productivity and efficiency for clients including Zurich, Fortis, Norwich Union and, most recently, in a ground-breaking deal, United India Insurance Company, one of the four biggest insurance companies in India.

In a recent trading update for the year to March 2008, SSP confirmed it would meet annual numbers following another year of double-digit sales growth, driving pleasing performances from its Insurer Systems and International divisions and enjoying good growth in transaction-related revenues in the UK broker market. Last July's highly significant Sirius acquisition boosted the group's position in its core UK and international markets. SSP achieved the £2m of annual costs savings envisioned at the time of the deal, while additional savings are expected in the current year. SSP said it had been particularly successful with Sirius' S4i product, for which the value of contracts won in the nine months since the acquisition have almost doubled those achieved 'in any previous full year'.

Continuing to win substantial new business, analysts see SSP as a defensive technology play, based on its exposure to the cash-rich general insurance market, favourable industry dynamics, as well as the high quality and visibility of its revenues.

When results emerge, Alex Jarvis of house broker KBC Peel Hunt suggests investors might expect earnings per share of 10.9p, from sales up almost 65% to £63.2m, placing SSP on a price-to-earnings ratio of only 11 times, falling to 8.9 times based on 2009's forecast 13.6p.

Share price – 120.5p
Market Cap – £99.57m
Ticker – SSPH
Recommendation – Buy

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Armour unfairly unloved

Trading substantially north of 60p a year ago, shares in Armour Group, the consumer electronics company focused on the in-car communications and entertainment markets, are looking unloved despite recent positive business progression.

Recent derating of the shares reflects worries about the tougher consumer environment, but having unveiled solid like-for-like growth at the interim, the management will be hoping the company meets with more amorous sentiment from here on in.

For the six months to 29 February, pre-tax profits edged up by 9% to £2.6m, on a rise in revenue to more than £30m (2007: £28.4m), with Armour generating £1.6m of cash, ahead of management's expectations. Chief executive George Dexter attributed good organic growth to ongoing investment in brands, sales channels and the group's extensive product range.

Recent highlights from Armour Automotive, European market leader in the design and supply of everything from mobile antennas to MP3 players (supplying its wares to Halfords, Carphone Warehouse and BMW among others), include the successful launch of a range of in-car Bluetooth music-streaming and hands-free kits, as well as a raft of new business wins.

Meanwhile, Armour Home, the distributor of hi-fi and home cinema systems to customers including Tesco, John Lewis and several large house-builders, had a good first six months with 'all our core brands and channels to market' exhibiting steady growth.

Forecasts in the market for the full year point to profits acceleration from £4.5m to £4.9m and in earnings from 4.7p to 5.2p. Outperforming peers in a tough market, the shares look deeply undervalued on a prospective price-to-earnings ratio of 6.6.

Share price – 34.5p
Market Cap – £23.63m
Ticker – AMR
Recommendation – Buy

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OMG: picture continues to brighten

At OMG, the provider of 'image understanding' technology for industries such as entertainment, life sciences and engineering, the investment picture continues to brighten.

The company, whose technology captures the movements of everyone from actors for the movie industry, to sports stars (for the purposes of video games or improving team performance), to children with Cerebral Palsy, with clients ranging from hospitals to Hollywood studios, has announced the acquisition of Mobile Video Services (MVS).

OMG is paying £2m in cash and shares for MVS, a profitable US-based provider of data collection services for the assessment of property taxation. Chief executive Nick Bolton says the earnings enhancing deal 'represents the next important step' in the development of OMG's 3D mapping arm Yotta, which collects and analyses highway data and street level imaging. Providing Yotta with a profitable foothold from which to expand its 3D mapping activities in North America, MVS occupies a leading position in the market for the collection of data for property appraisal, where its services are employed by an array of county and City departments as well as emergency services and law enforcement bodies.

This looks a strategically astute deal for OMG, which delighted with an 11% rise in profits to £1.84m, from record sales increased by 20% to £19.6m, for the year to September 2007. Closing the year with £6.2m cash, OMG trades on a historic multiple of just under twenty times, which isn't particularly cheap, but with demand for its products and services remaining healthy, it is worth considering shares in this market leading technology star.

Share price – 50p
Market Cap – £31.86 million
Ticker – OMG
Recommendation – Buy

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