BULL POINTS:
■ Automation and regulation set to drive demand
■ Improving revenue visibility
■ Shares undemandingly rated compared to peers
BEAR POINTS:
■ Commodity market volatility
■ Acquisition risk
Trading and risk management solutions provider, Brady, is looking well placed. That's because the group's software offering is focused on the metals, energy, and soft commodities markets. Also, with commodity markets being painfully under-automated - analysts at broker Edison Investment think commodity market automation is more than a decade behind that of the equity markets - then the opportunities look impressive. Indeed, Brady targets all key commodity players, from brokers and the London Metals Exchange (LME) to trading companies, and its clients include such names as HSBC and Xstrata.
Moreover, demand should be further driven by this year's planned automation of the London Metals Exchange (LME). Also, changes in compliance and regulation, coupled with price volatility, are also pushing such players as mining companies to upgrade their systems. Additionally, Brady's client base and offering has been broadened by January's acquisition of ComSoft, which provides raw materials-related management in the metals market. Inevitably, though, there will always be a degree of integration risk with acquisitions.
BRADY (BRY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 50p | MARKET VALUE: | £13.8m | |
| TOUCH: | 48-51p | 12M HIGH / LOW: | 53p | 37p |
| DIVIDEND YIELD: | 2.6% | PE RATIO: | 18 | |
| NET ASSET VALUE: | 25p | NET CASH: | £7.8m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 2.43 | 1.92 | 6.10 | nil |
| 2006 | 4.64 | -1.04 | -2.70 | 1.00 |
| 2007 | 5.71 | 0.64 | 1.82 | 1.10 |
| 2008 | 6.17 | 1.04 | 2.73 | 1.20 |
| 2009* | 7.57 | 1.18 | 2.80 | 1.30 |
| % change | +23 | +13 | +3 | +8 |
NMS:500 MARKET MAKERS: 3 BETA: 0.38 *Edison Investment Research estimates | ||||
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Brady's relatively new management team - a new chief executive, non-executive chairman and finance director were appointed in 2007 - are delivering impressive results too. In fact, Brady signed nine licences during 2008; well up on the three or so licences that are usually secured annually. Visibility has also been bolstered by impressive growth in the group's recurring maintenance revenue stream - Brady reported that this had jumped 36 per cent with its full-year results earlier this month and now accounts for 35 per cent of group sales.
Certainly, the highly cyclical nature of commodity markets remains a risk. But that's largely mitigated by a continued need for automation, while demand for Brady's products should also continue to hold up well on the back of the regulatory, compliance and risk management needs of commodity market players.
