Pre 8 a.m. comments

A share which I held until recently, May Gurney Integrated Services (LON:MAYG) have today announced a recommended all-share merger with Costain (LON:COST), which will be renamed Costain May Gurney. They state that the combined group can make cost savings of £10m, so it seems to make sense for them to merge. Although I note that MAYG is on a lower PER, and has a better dividend yield than COST, so shareholders will need to sit down and crunch the numbers to work out whether the receipt of 0.8275 new Costain shares is a fair price or not for each May Gurney share.

EDIT: I flagged the value in May Gurney shares on my Blog 6 months ago when they were 138p. So following this morning's open 32% higher at 245p, that's a gain of 77% for readers who held until today. Naturally, as always, I sold too early a couple of weeks ago! My tag line should be, "good at research, rubbish at trading!"

 

Results for the year ended 31 Dec 2012 from Instem (LON:INS) look interesting. The numbers themselves are pretty lacklustre, with revenue very slightly down, and adjusted operating profit down by a quarter to £1.5m, although they say this is in line with revised market expectations.

However, it's the outlook which is interesting. Instem had a slow 2012, but then signed some impressive contracts in Q4 and in 2013 with major customers. So it is reasonable to expect improved results going forwards, and as we all know investing is all about valuing future cashflows, not historic ones.

Instem seem to be a software company serving the early development pharmaceutical sector. Historic growth has been fairly pedestrian, but it's all about the new contract wins, including a very impressive US Govt contract win, which put a rocket under the share price a month ago.

Revenues are 70% recurring, and high margin, so there is considerable operational gearing from new contract wins, meaning that profits could rise significantly on these new contracts.

The shares look reasonable value to me on the historic numbers, so could end up looking cheap once the new contracts flow through. Basic EPS is reported as 8.9p although that is flattered in comparison with…

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