Three of this morning’s biggest risers are Dixons Carphone (LSE: DC), BATM Advanced Communications (LSE: BVC) and APR Energy (LSE: APR).
What’s happened, and why are these shares rising?
Dixons Carphone
Dixons Carphone surprised investors this morning by announcing plans for a 500-store joint venture with US mobile operator Sprint.
Dixons will supply “mobile phone retail expertise and proprietary knowledge” to Sprint. The US firm will initially open 20 Sprint-branded stores in the US. If these are a success, the two companies plan to expand the venture to create a chain of 500 stores.
Dixons’ investment is limited to $32m for a 50% stake in the joint venture, so if things don’t go well, shareholders’ exposure seems limited. I reckon this could prove a success for the firm, assuming the Carphone Warehouse retail system translates to the US market successfully.
Shares in Dixons Carphone currently trade on a forecast P/E of 19, so they’re not cheap. However, I reckon shareholders should hang on, as there could be more to come.
Incidentally, Tesco investors may want to remember that the successful combination of Dixons and Carphone Warehouse happened under the watch of former chairman John Allan. Mr Allan has a track record of transforming companies, and is now chairman of Tesco.
BATM Advanced Communications
This small cap technology company makes specialised computer networking and medical equipment.
It’s been struggling to deliver on the promise of a few years ago, but this morning announced a new cyber security contract with “a government defense ministry”. The firm’s shares are currently up by 9%.
The initial value of the contract is only $3.7m, but BATM expects this to increase to $10m by 2017 and to $20m by 2020.
BATM is expected to return to profit this year. Broker forecasts for earnings of 0.2 cents per share put the company on a forecast P/E of 126, falling to 29 in 2016. It’s not a buy for the faint-hearted, but BATM is well funded and could yet prove to be a strong growth story.
APR Energy
Shares in temporary power provider APR spiked higher this morning after the firm announced a new $30m contract in Egypt.
The shares have slipped back somewhat since then, but have seen heavy buying in early trade. In reality, however, this deal isn’t anywhere near big enough to solve APR’s problems.
APR’s shares have fallen by 69% over the last month, after it warned that this year’s full-year loss would be worse than expected. APR has net debt of $547m and in June the firm warned that it might breach its financial covenants later this year.
APR faces a variety of headwinds, but the risk of debt problems should be the biggest concern for shareholders. These could result in the firm being forced to raise new funds through a discounted rights issue or placing.
While APR looks cheap based on its historical performance and its price-to-book ratio of just 0.3, I think the risks are too high. I intend to steer clear until the picture improves.
