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This month the Snippet column takes a look at the interim results of Nexus Management which were released on 16 May. I met with Chief Executive, Roger Richardson, on the day that the Interim results were released and I am grateful for his help in explaining to me the Nexus business and its prospects.
The business
Nexus Management is an IT managed services business based in London and in the United States. The core business employs 60 staff split evenly between the US and UK. The Company’s clients range from 25 to 2500 users with many in the 300 to 500 user range. Roger explained that the business aims to provide a premium proactive management service to its customers.
In addition to this core business, Nexus has another US Division in ‘Resilience’. This business, which was purchased in March 2009, specialises in network security products. Resilience is based in Baltimore and employs 13 people.
Previous Disappointments
The last two years have been particularly difficult for Nexus Management and the share price chart below reflects this.
The decline in share price follows major disappointments from two of Nexus’s previous business ventures:
- PD Financial – Nexus purchased a stake (which reached 24% at one point) in a California based marketing and finance company. PD’s very promising business failed when, in 2009, its banking facilities were withdrawn. Nexus wrote off the value of their investment in PD Financial in their 2009 results – a loss in these accounts of £3.7 million.
- Nerd Force – An IT Management franchise business which was purchased as a strategic fit with the Company’s investment in PD Financial. With the failure of PD Financial and the deterioration in economic conditions this business failed to perform to expectations and most of the assets of Nerd Force were sold for $320,000 in September 2010.
At 0.26 pence NXS has
a market cap of £2.9million
Roger explained that these two businesses depended on the healthy availability of credit and hence were victims of the credit crunch. PD Financial, in particular, seemed at one point to have excellent prospects – the business was profitable and achieving revenue of $20 million per month at its peak.
Roger commented that the board is very much aware that investors’ expectations have not been met in recent years and they are keen to rebuild confidence, but this will take time.
revenue of $20 million
per month at its peak
The Interims
In the Interim report the CEO describes the results as ‘pleasing’. The highlights reported by Nexus were:
* Revenue up 6.7 per cent to £3.2 million (2010: £3.0 million)
* Gross profit increased by 5 per cent to £1.61 million (2010: 1.53 million)
* Operating profit before exceptional items of £136,797 (2010: loss (£85,630)
* Cash at bank at the period end was in excess of £320,000
* Net cash generated from operating activities of £75,475 (2010: cash used (£49,836)
* Each subsidiary has traded profitably at an EBIT level in first six months
At the pre-tax level the Company reported a loss of £107,000.
Growth Equities & Company Research (GE & CR) issued a Research Note shortly after the interim figures were released. GE & CR forecasts that Nexus will achieve break-even (pre-tax) for 2011 but does not forecast figures for 2012.
Roger explained that following the Company’s previous issues Nexus are now particularly keen not to raise expectations and simple want to show an improving picture at each half-yearly report.
In seeking future growth, the Company is hoping to increase the size of their core Nexus Management business, particularly in the UK, and they would consider an appropriate acquisition opportunity to help such growth. In the US, Roger commented that they have made some progress in improving the Resilience business since it was purchased. However, he considers that they are only one third of the way through the turnaround of this business and he is optimistic about the future prospects for this business.
Roger commented finally that the core Nexus Management business has survived the economic downturn well. Today 95% of this business is based on monthly contracts over a period of 2 to 3 years...and most contracts are renewed.
AimZine Comment
Nexus is a very different proposition to what it was 2 years ago. It would seem that the on-going business has the potential for growth and profitability. The business will benefit from scaling up and it will be interesting to monitor progress here.
The recent results speak of a ‘solid’ start to the year and that the results were ‘pleasing’. Unfortunately, these adjectives fall short of the spectacular expectations that attracted many investors to Nexus and some selling of the shares by private investors may be a feature for some time.
As always, the purpose of this Snippet column is to highlight an interesting situation worthy of further research and monitoring.
Each subsidiary has a traded profitably
a very different proposition
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