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07 Feb 19. Kromek proposes share placing to fund business expansion. The detection technology firm proposed a conditional firm placing and an open offer to raise £21m through the issue of around 84mln shares at a price of 25p each. Kromek will use the proceeds to increase manufacturing capacity and support its medical imaging business. Kromek Group PLC (LON:KMK) has announced a share placing to raise funds for the expansion of its business. The detection technology firm, which focuses on the medical, security, and nuclear markets, said it was proposing a conditional firm placing to raise £20m through the issue of 80mln shares at a price of 25p each, a 9% discount to its last close price of 27.5p. The group also proposed an open offer to raise £1mln through the issue of around 4mln shares at the same price.

Kromek said the £21mln it was looking to raise would be used to “significantly increase” its manufacturing capacity and associated working capital to support its medical imaging business, expand sales and marketing for its D3S radiation detection devices, and strengthen its balance sheet to provide flexibility.

The placing was conditional on shareholder approval at a general meeting scheduled to be held at 12 pm on 25 February.

Sir Peter Williams, chairman of Kromek, said over the last three fiscal years the firm had won contracts totalling US$138mln, reflecting “the conversion of our expanding order pipeline and customers increasingly launching next-generation CZT-based products”.

“With the growing demand for our flagship products in all our market segments, this fundraising will strengthen our ability to capitalise on these substantial opportunities. As such, the Board recommends all shareholders to vote in favour of the proposals, which will enable us to deliver increased value to our shareholders.” (Source: proactiveinvestors.co.uk)

06 Feb 19. Babcock eyes expansion but sees no quick fix for ‘nightmare’ year. Britain’s Babcock aims to expand its foreign business but will not chase risky growth to resolve a “nightmare” period in which the engineering group’s management and stock price came under fire, Chief Executive Archie Bethel said on Wednesday. Babcock, a key supplier of engineering and defense services to Britain’s Ministry of Defence with around 5bn pounds ($6.47bn) in annual revenue, has lost 25 percent of its stock market value in the past six months. Providing services ranging from the maintenance of nuclear submarines to aerial fire-fighting across Europe, Babcock now needs to rebuild its reputation and repair ties with investors.

“There is no quick route that’s safe,” Bethel, himself an engineer, told Reuters. He said he would not pursue radical options such as breaking up the group, although certain small assets could be considered for sale, such as a railway unit.

He believes part of the century-old group’s share weakness is due to investor fears about Britain’s exit from the European Union, the world’s largest trading bloc, and contagion around UK outsourcing after last year’s collapse of contractor Carillion.

But the height of Babcock’s woes came with a report published last October by an unknown research group called Boatman, which questioned Babock’s relationships with the British government, its accounting and its senior management. Bethel said his “own personal view” was the anonymous report was linked to a decision to close a shipyard in Devon. “This report included many false and malicious statements which the group strongly refutes,” it said at the time.

“We’ve had a nightmare six months,” The 65-year-old Scot said. “Not in performance or trading, that’s been fine. It’s nothing to do with business, but we’ve always prided ourselves as being able to sail below the surface.”

Bethel said he accepted that growth had slowed, because no company could grow rapidly forever, but Babcock remained entrenched in the supply chain of customers and had the potential to grow abroad.

“I still think 2, 3, 4 percent growth is hardly the end of the world,” he added.

The group had aimed to have 30 percent of its revenue coming from outside Britain by 2022, but having achieved that target already it may set a new target later this year.

“International is not an easy route, we’re not interested in dangerous countries,” he said.

Asked about the possibility of disposals, he said he could sell a few small businesses that do not fit within the group’s main areas of focus, but that he was in no rush.

Fears about Britain’s exit from the EU and the impact it will have on trade was behind the share’s weakness, Bethel said.

Added to that was uncertainty about what would happen if opposition leader Jeremy Corbyn became prime minister, a known critic of the outsourcing of public services to private firms.

“The last couple of years have been tough because we’ve seen a lot of the American (investor) side not move out but sell down, which was Brexit related, Corbyn related, sector related.”

In dozens of meetings with investors Bethel said he had had no consistent argument about what they were unhappy with. But the Boatman report unnerved investors and in January chairman Mike Turner said he would step down after a decade at the helm.

Bethel said he felt no pressure to quit himself and had not been urged by investors to do so. He added that a new chairman would not need to shake up the board.

“Staid is good as long as we make the profit and the cash.” (Source: Reuters)

06 Feb 19. Mace Security International, Inc. Acquires Tornado Security Products. Acquisition Strengthens Mace® Brand Market Position and Growth Potential. Mace Security International, Inc. (MSI) (OTCQX: MACE), a globally-recognized leader in personal safety and security, announced today the acquisition of the assets of Tornado Security Products, a personal self-defense company based in Ferndale, Washington. The acquisition was effective January 18, 2019.

“This transaction reinforces the Mace® Brand as the leader in the less-lethal, personal self-defense product category, and gives both brands access to new retail channels and partnerships,” said Gary Medved, President and CEO of MSI. “Most importantly, it empowers us to deliver even more best-in-class personal protection and security products to our valued customers.”

The Tornado brand and its associated product lines, including pepper sprays, stun guns and bear sprays for individuals and law enforcement, will be integrated into the Mace® Brand family. The acquisition is expected to have a positive financial impact within the first year of the transaction. (Source: BUSINESS WIRE)

06 Feb 19. Interserve saved in deal that wipes out shareholders. Debt-for-equity swap hands control of UK government contractor to banks. Interserve’s shares were badly affected after the company told investors it was in rescue plan talks. Interserve, one of the biggest suppliers of government services, has confirmed that it has reached an outline agreement that hands banks control of the business in a debt-for-equity swap. Interserve, which employs 75,000 people worldwide, including 45,000 in the UK, said on Wednesday that lenders had agreed in principle to a deal that will see shareholders effectively wiped out and left with just 2.75 per cent of the company. Lenders would convert £480m of existing debt to equity to reduce net debt to around £275m under an agreement that will see them write off more than half of the existing borrowings. The group’s most profitable division RMDK, a supplier to the construction industry, will also be kept within the group after the Cabinet Office objected to a plan by lenders to spin the business off. Under the proposals the banks would have £350m of debt secured against RMDK, meaning that lenders could seize the business if there are further difficulties in the group. The agreement follows months of fraught discussions to try and avert a Carillion-style collapse for the company, which employs 45,000 people across services such as schools and hospitals. Interserve has been battling for its future after being weighed down by debts, the costs of a disastrous investment in an energy-from-waste venture and a number of lossmaking activities. The company, which cleans the London Underground and maintains army bases, has a market value of £17m, compared with £500m two years ago. Recommended UK outsourcing UK outsourcers at risk of financial contagion Debbie White, the chief executive of Interserve, said it was a “significant step forward in our plans to strengthen the balance sheet”. She added: “This proposal has been achieved following a long period of intensive negotiation and has the support of our financial stakeholders and government.” (Source: FT.com)

06 Feb 19. France’s Dassault Systemes beats estimates on strong 3DEXPERIENCE growth. French software company Dassault Systemes said on Wednesday fourth-quarter revenue topped its guidance, driven by a strong performance by the 3DEXPERIENCE platform. The company, which in December announced the acquisition California-based IQMS as part of a strategy to expand the use of 3DEXPERIENCE to small an medium-sized companies, said revenue from the platform increased by 24 percent in 2018.

“2018 was a remarkable year, with a record level of large 3DEXPERIENCE transactions including important decisions within our core industries of aerospace, automotive and industrial equipment,” Chief Executive Bernard Charles said in a statement. Fourth-quarter revenue came in at 1.04bn euros (£918.9m) versus guidance of 982m to 1bn euros. Its operating margin was 37.4 percent, beating the company’s guidance of about 36.5 percent. The company also announced a contract with Airbus for the 3DEXPERIENCE platform. The contract is worth tens of millions of euros over two years, Chief Financial Officer Pascal Daloz told journalists during a call. For 2019 the company is targeting revenue growth of 10 to 11 percent, with an operating margin of about 32 to 32.5 percent, up from the 31.8 percent reported for full-year 2018. “We see a slowdown in the economy but for us the principle cyclical element is linked to the adoption of technology, and there we are rather in a ramp-up phase,” Daloz said. (Source: Reuters)

05 Feb 19. Pennant’s repeat buying opportunity. When I (Simon Thompson) advised buying Aim-traded shares in Pennant (PEN:114p), a supplier of training and support products and services that train and assist engineers in the defence and civilian sectors, it was predicated on the belief that the directors would deliver a step change in profitability for the 2018 financial year, and could build on this momentum as contracts in the pipeline are converted into firm orders.

They are certainly delivering as a pre-close trading update ahead of the release of annual results on Tuesday 12 March 2018 confirmed that last year’s underlying pre-tax profits will rise by 57 per cent to £3.3m on 16 per cent higher revenues of £21m. On this basis, expect fully diluted earnings per share (EPS) of 9.2p. The order book at the year-end was £37m, but this excludes a contingent contract (worth £25m to £30m and deliverable over 2019, 2020 and 2021) for the design, build and delivery of training equipment for which Pennant has been down-selected. The directors believe it will be confirmed in the first half of this year.

It’s not the only major contract win as the Canadian government awarded the company a consulting services contract for the use of Pennant’s OmegaPS suite of software that provides analytics around logistics support and asset life cycles. The initial value of the two-year agreement is C$11.9m (£7m), rising to C$30m (£17.7m) if extended for five years. Importantly, industry drivers are supportive of further contract wins as defence forces and other organisations move towards outsourcing training services. The use of ‘real’ equipment for training has safety implications, is expensive and often impractical, thus underpinning demand for Pennant’s training aids. Also, new capital equipment platforms for land, naval, air and rail are becoming ever more sophisticated, thus increasing the requirement for training.

Pennant ended 2018 with cash of £2m, and has just raised £1.8m in a placing of shares, at 110p to make a small strategic acquisition that adds around £200,000 to operating profit, and for product development purposes. It has also sensibly doubled its overdraft facility to £3m, and can extend it to £4m if need be, in order to meet the working capital requirements of funding its large contracts.

True, the shares have pulled back to just above my 109p recommended buy-in price, but the investment case is actually stronger now than it was six months ago when I initiated coverage (‘Pennant International: Poised for a return to growth’, 13 Aug 2018). Moreover, there is major upgrade potential. That’s because a contribution from the aforementioned contingent contract hasn’t been factored into analysts’ EPS estimates of 10p for the 2019 financial year. On a forward PE ratio of 11, Pennant’s shares rate a very decent buy. (Source: Investors Chronicle)

04 Feb 19. Italian company Leonardo completes full acquisition of Vitrociset. Italian defence contractor Leonardo has completed the 100% acquisition of Vitrociset, a manufacturer of protection, command and control systems, and other electronic products. The purchase of 98.54% of Vitrociset was closed after the receipt of antitrust approvals, including Golden Power and satisfaction of all the required closing conditions. Financial details of the transaction have not been disclosed. Prior to the acquisition of the aforementioned interest, Leonardo held a 1.46% stake in Vitrociset. The latest transaction follows after Leonardo exercised its right of first refusal and to buy the remaining stake of Vitrociset in September.

At the time of the announcement, Leonardo said in a statement: “The transaction creates value, enabling Leonardo to strengthen its services core business, mainly logistics, and simulation and training, and space operations activities, including space surveillance and tracking.

“Moreover, this initiative allows the national consolidation of the aerospace, defence and security value chain, increasing its competitiveness with significant market opportunities.

“Subsequently, the most appropriate corporate structures will be assessed, also to enable the possible entrance of other partners, who can contribute to a better positioning of Vitrociset in reference business.”

Founded in 1992 and based in Italy, Vitrociset has 989 employees, which includes 630 that are based in Italy. The company reported €163m of revenues and €236m of orders in 2017. The company provides specialised services and solutions for complex systems deployed in sectors such as defence and security, space, transport and critical infrastructures. (Source: army-technology.com)

04 Feb 19. Rohde & Schwarz founds R&S Marinesysteme GmbH to strengthen its naval business. Rohde & Schwarz is expanding its naval expertise in Kiel by founding R&S Marinesysteme GmbH. The company develops and implements solutions for communications management and reliable communications intelligence and radar intelligence on board naval vessels. The newly founded R&S Marinesysteme GmbH complements the expertise of the Rohde & Schwarz group in the national and international naval environment. The corporate group is investing in the Kiel location in order to provide even better support for the German navy and naval industry in current and future projects in close collaboration with the Hamburg location. Dr. Dirk Galda and Benjamin Marpe have been appointed managing directors of the new company.

With its solutions, R&S Marinesysteme GmbH creates the technical prerequisites for secure communications and a valuable contribution to situational awareness. One focus is on the implementation of information transmission systems that are used to manage and monitor the entire communications traffic and take into account critical cybersecurity requirements.

R&S Marinesysteme meets this need by offering solutions for detecting and analyzing communications and radar signals. This can also help improve tactical situational awareness and protect the platform.

“R&S Marinesysteme can rely on the Rohde & Schwarz group’s many years of experience in the navy business,” points out Managing Director Dirk Galda. Benjamin Marpe adds: “We are pleased to be able to now provide even more specific support for our customers with innovative software solutions for communications and for communications intelligence and radar intelligence on board naval vessels.”

01 Feb 19. Aeroplane parts maker FACC scouts for takeovers and ramps up Brexit production. Austrian aeroplane parts maker FACC is ready to spend 500m euros (£436.7m) on acquisitions to make it less dependent on suppliers, add new technologies and strengthen its core business, its chief executive said. The Chinese-owned group makes components for wings, tail assemblies and fuselages as well as engines and cabin interiors for planemakers including Airbus, Boeing and Bombardier. It expects revenue of 760-770m euros ($881m) for its 2018/19 business year that ends in February.

“Half a billion (euros), that is the amount of money we could use to make acquisitions in the next five years,” Robert Machtlinger told Reuters in an interview.

FACC, which belongs to China’s state-owned Aviation Industry Corporation, is screening the market for suitable takeover targets but there are no negotiations yet, he said.

In recent months, the firm has been increasing production of parts it makes for Airbus and Rolls Royce that are needed for assembly in Great Britain, the CEO said, as it prepares for Britain’s exit from the EU.

A Brexit agreement that would secure tariff-free trade and safeguard just-in-time cross-border supply chains still looks elusive just two months before the divorce. Components for about four weeks of production are being sent to Britain, Machtlinger said. Quite a stretch for the company as normally the buffer would be two to four days.

“The majority of the (extra) costs are borne by the customer,” the engineer said.

Airbus, which accounts for half of FACC’s revenue, has threatened to shift future wing-building out of Britain.

That would not be a problem for FACC, Machtlinger said, as the company could easily adapt delivery routes.

Machtlinger, whose company generates half its revenue from European planemaker Airbus, a quarter from Boeing and also equips China’s planemaker Commercial Aircraft Corp of China (COMAC), does not expect the industry to be hampered by current U.S.-Chinese trade friction.

“Aviation is an export business for the U.S.,” Machtlinger said, adding that he did not think anybody wanted to change that.

He noted there was no such thing as a purely American plane: “This is a completely intertwined industry.”

The manager, who has been with the company for more than 30 years, expects revenue to pick up significantly in the second half of the 2019/20 business year with a 750m euros order for the new Airbus 320.

His goal for 2020/21 is to increase the margin on earnings before interest and tax (EBIT) to 8-10 percent from 6.5 percent last year and revenue to 1bn euros, he said. By 2030, he wants to make that 2bn euros, betting that COMAC becomes a major customer. Asked whether shareholders can hope for a higher payout for the current business year than the previous year’s 1.11 euros per share, Machtlinger nodded but did not elaborate. (Source: Reuters)

01 Feb 19. HEICO Corporation Subsidiary Acquires Solid Sealing Technology, Inc. HEICO Corporation (NYSE:HEI) (NYSE:HEI.A) today announced that its Electronic Technologies Group acquired 85% of the stock of Solid Sealing Technology, Inc. (“SST”) in an all cash transaction. HEICO stated that it expects the acquisition to be accretive to its earnings within the year following the purchase. Further financial terms and details were not disclosed. Watervliet, NY-based SST is a leading designer and manufacturer of high-reliability ceramic-to-metal feedthroughs and connectors for demanding environments within the defense, industrial, life science, medical, research, semiconductor, and other markets. SST employs approximately 50 team members and operates out of a single 26,000 square foot, state-of-the-art facility in Watervliet, NY. Since the company’s founding in 2004, SST has been known as a leader in its field for its custom design capabilities that draw from a broad range of sealing technologies.

SST’s two co-founders, Gary Balfour and Alan Fuierer, will retain 15% ownership of SST. Mr. Fuierer will assume the role of SST’s President from Mr. Balfour, who will remain with SST in a senior advisory and shareholder role. SST will continue to operate in its current location, and no staff turnover is expected.

Laurans A. Mendelson, HEICO’s Chairman & Chief Executive Officer, and Victor H. Mendelson, HEICO’s Co-President and CEO of its Electronic Technologies Group, jointly noted, “SST is a wonderful company that fits perfectly with HEICO. Alan and Gary have built a special business by focusing on their customers’ needs and products for extremely demanding environments. Their company is known for the highest quality throughout their business— ranging from their designs, their products, to the way they treat their team members, and SST won’t compromise its high standards. We are thrilled to have Alan, Gary and the entire SST team join the HEICO family.”

Gary Balfour and Alan Fuierer, SST’s co-founders, jointly commented: “We wanted to find the right home for SST—one that understood the need to invest in people, engineering, products and equipment, as well as one that would stand by the legacy we and our team built over the past 15 years. We wanted our team and customers to be treated properly. HEICO is the right home for our company and we’re excited about what SST can accomplish with HEICO.” (Source: BUSINESS WIRE)

31 Jan 19. Microsoft shares slip on second quarter revenue miss. The results, which came in after-hours on Wednesday, reported revenues of US$32.47bn, up 12% year-on-year but just a touch below analysts’ expectations of US$32.51bn. The computing giant said the miss was partially down to a shortage of computer chips which had affected PC makers Shares in computer giant Microsoft Corp (NASDAQ:MSFT) shares slipped in pre-market trading in the US on Thursday after its second-quarter revenues missed expectations. The results, which came in after-hours on Wednesday, reported revenues of US$32.47bn, up 12% year-on-year (YoY) but just a touch below analysts’ expectations of US$32.51bn, while the company swung to a US$8.42bn profit from a US$6.2bn loss a year ago, which was connected to a new tax law enacted in December 2017.

The revenue miss was partially attributed to a shortage of computer chips, which the company said had dented the expected sales of its Windows operating system in the quarter and was expected to also affect sales in the coming months as Microsoft’s computer-making customer suffered a 5% drop in revenue over the period.

However, the company is relying more and more on its Azure cloud-computing business to drive growth, with the division boasting a 76% expansion in the quarter replicating the previous three-month period.

The firm’s capital expenditure, which is now used largely to build massive data centres supporting Azure, jumped YoY to US$3.9bn from US$2.7bn.

Social networking site LinkedIn, which Microsoft bought for US$27bn back in 2016, also saw revenues climb 29% in the quarter.

Revenue for the firm’s productivity and business processes arm, which includes LinkedIn as well as its Office365 subscription earnings, was up 13% at US$10.1bn while gaming revenues were up 8% in the holiday quarter.

Analysts upbeat on cloud prospects

In a note, analysts at broker Wedbush were upbeat about the company’s prospects going forward, saying that while the second quarter results were not a “clean beat”, the firms “positive outlook for the March quarter and strong underlying cloud, Office 365/Azure, and enterprise demand trends for 2019 speaks to a company still in the middle innings of a renaissance of growth”.

“We are bullish on MSFT into 2019 given our thesis that Azure’s cloud momentum is still in its early days of playing out with the company’s massive installed base, Office 365 transition on consumer/enterprise providing growth tailwinds for the next 12 to 18 months at least, and newer integrated product initiatives around consumers and cloud services (LinkedIn) are still playing out.”

Wedbush added that despite Amazon Inc (NASDAQ:AMZN) being a “major force” in the cloud computing shift, they believed Microsoft “with its army of partners and dedicated sales force have a major window of opportunity in 2019 to convert enterprises to the Azure/cloud platform”.

In pre-market trading, Microsoft shares were down 2.2% at US$104. (Source: proactiveinvestors.co.uk)

01 Feb 19. Houlihan Lokey Advises Fulcrum IT Services. Houlihan Lokey is pleased to announce that Fulcrum IT Services, LLC (Fulcrum), a portfolio company of Boyne Capital Partners, LLC (Boyne) and Grindstone Partners, LLC (Grindstone), has agreed to be acquired by Huntington Ingalls Industries, Inc. (HII).  Headquartered in Centreville, Virginia, Fulcrum is a leading mid-tier government services company that applies a powerful combination of advanced technology and deep mission expertise to complex problems in intelligence, special operations, and high priority civilian markets. The company leverages its specialized capabilities in advanced engineering, cyber security, software development, and big data engineering to enhance its customers’ situational awareness and deliver predictive threat analytics. Fulcrum has also developed unique experience and capabilities in the Command, Control, Communications, Computers, Combat Systems, Intelligence, Surveillance, and Reconnaissance (C5ISR) domain. Fulcrum is a trusted partner to some of the most discerning customers including the U.S. Special Operations Forces (SOF) and Intelligence Community (IC). Fulcrum’s customer intimacy and extensive knowledge of the geopolitical threat environment position the company for continued success as part of HII.

Boyne is a Florida-based private equity firm focused on investments in lower middle market companies. Founded in 2006, Boyne has successfully invested in a broad range of industries, including healthcare services, consumer products, manufacturing, and business and financial services.

Grindstone is an Alexandria, Virginia-based private investment and advisory firm focused on small to mid-cap investments in partnership with management. The firm’s founder, Michael Bluestein, has over 30 years of experience in leveraged buyout and growth capital investing in a broad range of service, manufacturing, and software sectors.

Headquartered in Newport News, Virginia, Huntington Ingalls Industries is America’s largest military shipbuilding company and a provider of professional services to partners in government and industry. For more than a century, HII’s Newport News and Ingalls shipbuilding divisions in Virginia and Mississippi have built more ships in more ship classes than any other U.S. naval shipbuilder. HII’s Technical Solutions division provides a wide range of professional services through its Fleet Support, Mission Driven Innovative Solutions, Nuclear & Environmental, and Oil & Gas groups. HII employs more than 40,000 people and is a member of the S&P 500 index.

Houlihan Lokey served as the exclusive financial advisor to Fulcrum.

If you would like more information about Houlihan Lokey or have questions regarding our role in the sale of Fulcrum, please contact one of the ADG team members listed below.

Houlihan Lokey’s Aerospace•Defense•Government (ADG) practice is among the leading M&A advisory services to aerospace, defense, government services, and homeland security companies. Since 2016, Houlihan Lokey closed 55 transactions and with a staff of approximately 30 investment bankers in Washington, D.C. and Los Angeles, the ADG practice is one of the largest dedicated industry banking groups worldwide.

01 Feb 19. Honeywell boosted by aerospace growth. Higher business aviation and defence sales help industrials group beat analyst estimates. Strong defence and aviation sales in the final quarter of 2018 helped to boost revenue at Honeywell, the US industrial conglomerate said on Friday. The company — whose products range from thermostats to jet engines — reported aerospace sales up 10 per cent on an organic basis, driven by “double-digit” organic growth in US and international defence and business aviation. The company posted earnings per share for the quarter of $1.91, beating analyst estimates of $1.89, after overall sales grew 6 per cent on an organic basis to $9.73bn. On a reported basis, sales fell 10 per cent, after the company spun off two units last year. “We have good momentum exiting 2018 after an exciting year. We continue to transform the portfolio, as we demonstrated with the successful spin-offs of our Homes and Transportation Systems businesses,” said Darius Adamczyk, Honeywell’s chairman and chief executive. “We now have a simpler, more focused portfolio spread across six attractive end markets with approximately 60 per cent of the portfolio growing sales at or above 5 per cent organically for the full year,” he added. The company said it expects sales growth of 2 to 5 per cent in 2019. (Source: Google/FT.com)

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