Could Communisis plc, Flybe Group PLC & Blinkx Plc Deliver A 30% Profit In 2016?

Three small-caps with big potential? Roland Head takes a look at Communisis plc (LON:CMS), Flybe Group PLC (LON:FLYB) and Blinkx Plc (LON:BLNX).

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One of Thursday’s biggest fallers was marketing firm Communisis (LSE: CMS), which is down by 14% to 45p at the time of writing.

The drop was triggered by a profit warning. Full-year results are now expected to be “slightly below expectations”, although “double-digit growth” in free cash flow and adjusted earnings per share is still expected.

Current market forecasts suggest a 30% increase in earnings per share this year. We now know that the real gain will be less, but not how much less. This uncertainty concerns me. With only six weeks left until the end of the financial year, I’d expect Communisis to know more about this year’s expected results.

The good news is that Communisis shares are not expensive. After today’s fall, they trade on around 11 times 2014 earnings, with a trailing yield of 4.6%. Earnings are still expected to rise significantly this year, so I’d estimate the 2015 forecast P/E at less than 10, even after today’s warning.

Perhaps the biggest problem is that Communisis seems unclear about the outlook for 2016. All that Andy Blundell, Communisis chief executive, said this morning was that he sees “positive indicators” for 2016. With markets expecting a 14% rise in earnings per share next year, this isn’t very reassuring.

Flybe Group

Shares in regional airline Flybe Group (LSE: FLYB) have risen by 56% to 86p over the last six months, as the firm has found uses for its surplus planes and continued to expand.

Yesterday’s interim results seemed encouraging. Revenue was up 10% compared to the first half of last year and the group moved back into profit, with an adjusted pre-tax profit of £21.1m, compared to a £1m loss for the same period last year.

Best of all, Flybe continue to generate cash. Net cash was £86.3m at the end of September, up from £72m at the same time in 2014.

Flybe still has a lot to prove, but analysts are forecasting 2016/17 earnings of 11.6p per share. At the current share price of 86p, this gives a forecast P/E of just 7.4, which seems cheap given Flybe’s substantial net cash.

I remain a holder at Flybe and believe this stock could deliver more gains in 2016.

Blinkx

Last year, internet advertising firm Blinkx (LSE: BLNX) made a loss of $20.8m on sales of $215m. During the first half of the current year, Blinkx expects to lose $7m on sales of $90m.

A return to profit is expected next year, but even the company’s own broker only expects earnings of around 2 cents per share, which puts Blinkx stock on a forecast P/E of around 20.

Of course, one point in Blinkx’s favour is that it still has plenty of cash. At the end of September, cash and cash equivalents totalled $82m. This also helps to support the valuation for Blinkx shares. Almost half of the company’s share price is covered by net cash.

My concern is that this cash may not benefit shareholders. Blinkx doesn’t pay a dividend and is likely to continue to spend its cash until it either runs out, or manages to turn a profit.

The rise of ad blockers and other such software seems likely to make it harder for Blinkx to make money. I’m not hopeful of big gains in 2016.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Flybe Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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