Shires, not market professionals, wisely stirred to buy Xaar shares
Your columnist has a news alert set for inkjet printing technologist Xaar as part of his monitoring of Silicon Fen companies. Lately the daily email has been full of news about Sir Xaar, a promising two year old colt.
In a news report on sportinglife.com a couple of weeks ago trainer Bryan Smart said: "Sir Xaar looks super and has strengthened through the winter. He never stopped improving last year and is as far forward as I would like him at this moment in time." Sir Xaar is apparently an improving prospect for next month's 2000 Guineas at Newmarket.
Intriguingly, this neatly sums up Xaar plc, too, except in so far that it’s 15 years old rather than two and as a spin out from one of the Cambridge high tech Cluster's key catalyst firms, Cambridge Consultants, it probably has a better pedigree .
Today, through chairman Arie Rosenfeld who was addressing shareholders at the AGM, Xaar reported that "trading in the first quarter of 2006 has been in line with our expectations."
There were comments by some market watchers that this news lifted the price today.
I beg to differ.
Shares don't usually rise when the market is told things are going as expected unless it had been led to believe bad news was imminent. I reckon the rise has been driven by an item in the Sunday Telegraph, the newspaper that informs the wealthy shires of England.
The Telegraph opines
The Telegraph said Xaar had impressed analysts at a presentation day at the Ipex printing exhibition two weeks ago. It is tipped to increase its pre-tax profit for this year to £12.8m, compared with £11m last year. It trades on a price to earnings ratio for 2007 of 16.8 - a premium to its peers, but justified, the Telegraph said. It recommended the share as a "Buy".
So what happened? Today it gained 25.25p, or 8.6%, to reach 322.5p, valuing the company at £194.62m. The share price has come off recent long-time highs of 337p (it has only been higher during dotcom mania when it broke through 500p) suggesting the professionals have been taking profits. Look at Xaar's gains in perspective. It is up
• 5% on the month
• 3% on the quarter
• 27% on the half-year
• 52% on the full year
The shires, probably courtesy of the Telegraph, see it differently. The proof of the pudding, or more precisely my argument, is that today's share price moved on small volumes, in fact a total of just over 100,000 shares traded. The largest trade was 5000 shares (£15,500), hardly the stuff of aggressive hedge fund intervention.
Like the Telegraph, I like Xaar, even though I didn’t manage to get to Ipex. Silicon Fen Business Report spoke to them a while ago and the message was that the firm is extending their inkjet technology into new areas with improved effectiveness but also that their vision is broader as they search for new applications involving shooting liquid through smartly engineered 'heads'. It may sound trite but they have their feet on the ground while they reach for the stars.
And Xaar's numbers look good. It has performed well over several years except for a glitch in 2003, when revenue and pre-tax profit dipped. Since then it has powered on. In 2005 its revenue was £43m and pre-tax profit was £10m. For the current year the consensus forecast is for revenue of £50m, delivering pre-tax profit of £12.9m. Forecasts for 2007 are for revenue of £58m and pre-tax £15.7m, representing increases in earnings per share of 25% this year and 19% next year.
This is strong growth for a B2B company.
24th April 2006
