Small Cap Wrap: Month: July 2009

AIM Breakfast - Archive

19 Oct 2009

This week: iDesign hits its targets, Formjet gets the Monk’s habit, and Milestone reaches a milestone

Ark Therapeutics Group (AKT 46 p / £95.27m)

Specialist healthcare group Ark last week announced that further results from its Phase III study (ASPECT) of Cerepro will be presented at the American Society of Neuro-Oncology Conference in New Orleans on 22 October 2009. Ark has five marketed devices in its woundcare division and three pharmaceutical products in late stage clinical development: Cerepro, Vitor and Trinam. We like this company as it has a completely novel mix of incredibly high class and innovative R&D and products that are being sold. It should appeal to investors as it moves into a commercial, revenue-generating phase. Its shares have been under pressure over the past few months and we would suggest buying on weakness, as Ark looks well placed to survive the flood.

Beacon Hill Resources plc (BHR 0.365p / £20.56m)

This AIM-listed resource company last week announced that it raised £725,000 by way of a placing at a price of 0.25 pence per Placing Share. The funds raised will be used, together with the £1m raised the week before last, in conjunction with the recent acquisition of Tasmanian Magnesite NL to develop the Company’s significant magnesite assets in North West Tasmania, with the aim of achieving production in the next 24 months. Chairman Justin Lewis commented on the next steps with this total £1.725m now raised: ―This development will include additional exploration and drilling to upgrade the current 39Mt magnesite resource, of which 13Mt is measured to JORC standard, and fund mine design and begin construction of the mine which we anticipate to commence in the latter half of 2010.” Beacon Resources needs to do some negotiating now to secure a joint venture partner to construct a calcination plant in the vicinity of the licence area, in order to process the magnesite into various forms of industrially important magnesia, and to secure off-take agreements with end users. Beacon Hill Resources plc aims to take a portfolio approach to resources and so we expect further news flow of acquisitions of assets. We understand that near to production is the theme for the management team.

Corero (CORO 48p/£0.7m)

Corero, the specialist provider of software solutions to the banking and securities and education markets, announced that it signed a major contract extension with a large global investment bank, for its Radica CAPS software. The bank, a customer since 2003, has purchased a perpetual licence, for an unlimited number of users, to use the software across all its processing centres in Europe, Asia and the United States. The news though appears to be a double edged sword for although the deal will provide Corero with a significant boost to revenue this year it will also have the effect of reducing future support revenues from this customer. Added to this are continued concerns over the balance sheet of the company lead us to believe that this is one minnow not worth catching.

Earthport (EPO 32.25p/£28.55m)

Shares in electronic payments firm Earthport have nose-dived back to terra firma after the company announced it is no longer in an offer period as defined by the City Code on Takeovers and Mergers. In July shares reached a cruising altitude of 75p. The company had been undertaking a review of strategic options, one of which was a takeover of the company. None of the takeover discussions came to fruition, the company said. This follows on from the announcement of a couple of weeks ago that it has yet to receive payment of a £2m debt due from its Middle Eastern partner. At the time we were a little worried notwithstanding positive news on current trading and contract wins. Bad news though comes in threes so fasten your seat belts and cabin doors to manual.

EPE Special Opportunities (ESO 33.5p/£8.89m)

We tend not to cover funds as we believe that our gentle readers prefer to invest directly in stocks themselves rather than pay 2 per cent for the privilege of an underperforming fund manager. One fund that we do like however is EPE Special Opportunities as this invests in distressed businesses typically following an administration. This is an area that would otherwise be difficult to get exposure to but which offers great opportunities at the moment. Last week the shares jumped from 26p to 37.5p after it said its portfolio was performing in line with expectations and that its current net asset value per share stood at 72p. The company reported that among its successes was the initial turnaround phase of tea and coffee merchant Whittards of Chelsea. We are bullish on this stock as we see further value in the portfolio and a decreasing discount to net asset value. A rare opportunity indeed.

Faroe Petroleum (FPM 143.5 p / £150.31m)

The oil and gas company focusing on exploration and appraisal in the North Sea and Norway last week announced a discovery at the Tornado exploration prospect, West of Shetland. The well discovered gas and oil in Tertiary reservoir sandstones and extensive data collection is currently underway. The participants in the well are OMV – operator (35 per cent), Dana Petroleum (30 per cent), Dong Energy (20 per cent), Faroe Petroleum (7.5 per cent), and Idemitsu E&P (7.5 per cent). Tornado is Faroe’s second Atlantic Margin exploration success, following within a month of the Glenlivet discovery. Faroe has nine firm and funded well exploration programmes to be drilled over the next 24 months. Faroe seeks to reduce its exploration cost exposure whilst retaining material interests, and has performed fantastically over the past three months, operationally and in its share price. Indeed Faroe could have far to go.

Formjet (FMJ 0.78p/£2.71m)

Shares in Formjet jumped 20% after the software supplier signed an extension of its distribution agreement with Ability Software International, which provides software packages for businesses. The big picture here though will be painted by Andrew Monk, the former CEO of Astaire Securities (formerly Blue Oar), who has taken executive control of Formjet with the view to an aggressive acquisition strategy. Time will tell whether the good Mr Monk’s deals will generate long term value but we suspect in the short term this will be an interesting play for those fleet of foot.

Hutchison China MediTech (HCM 172p / £88.11m)

This low risk, high reward specialty pharma, otherwise known as Chi-Med, last week gave an update in relation to the New China National Essential Medicines List Reference Prices which were published by the National Development and Reform Commission in China on 28 September 2009. The new Reference Prices represent the maximum allowable retail prices that drugs can be sold for in hospitals and pharmacies in China. About 45 per cent of Chi-Med’s drugs had Reference Prices cut by an average of 12 per cent, 49 per cent saw prices remain unchanged, and the remaining 6 per cent are to receive moderate price increases due to short supply. In response to this Chi-Med has said that they will not have to adjust their price tendering strategies or reduce ex-factory prices below current levels. We like this Company and are pleased to see that these new published reference prices will not affect Chi-Med negatively.

i-Design (IDG 14/£1.97m)

i-Design, which sells advertising space on bank ATM machines, has issued a reassuring trading update. It says results for the year to 30 September will be in line with market expectations. Unfortunately, at the half year the group was expecting to make a full-year loss of £1.2m. However, i-Design does now estimate that its end-of-year cash position will be around £1.7m, just £0.2m lower than at the end of March. As such, it is well placed to weather the recession and the banking crisis and to continue to develop an advertising channel that, unusually in this era of fragmenting media, continues to reach a mainstream audience. So, while the group faces a current tough environment, it does have some smart designs on the future.

Lifeline Scientific (LSI 69.5p/£5.92m)

Lifeline, a medical technology company whose primary Organ Recovery Systems business is to enhance human donor organ preservation during transport – a huge improvement over the traditional ice box solution – has seen its share price come back to life after a period of being frozen out. From a high of 150p at the IPO nearly two years ago the shares have been languishing at 40p the whole year until a series of positive news resulted in a revival. First, the advantages of the technology in terms of clinical benefits and costs-effectiveness were further demonstrated in studies presented at the American Transplant Congress. This builds on earlier studies demonstrating significant benefits in kidney survival and function compared to the traditional cold storage. Second, the company met expectations of making its first operating profit for the six months to June 2009 with a 123% increase in revenues to $7.8 million of which 86% came from consumables. Third, Lifeline secured a two-year, $1.5 million working capital facility to fund growth, and was also just awarded a development grant of $2.35 million from the US federal government. Last, an overhang from two large shareholders has been placed in the market with significant participation from directors. There is a significant unmet need for donor kidneys with hundreds of thousands of people on year-long waiting lists. Adding insult to injury, the traditional cold storage transport from donors to recipients led to many of the donor organs not being suitable for transplant after transport and the failure rate post transplantation is high. Lifeline’s LifePort helps increase the number of kidneys being made available for transplant while improving the quality of the organs. These are early days for Lifeline Scientific, which is developing other LifePort systems for the preservation and transport of the heart, lung, liver and pancreas. We think the share price will make a full recovery.

Milestone Group plc (MSG 1.8p / £1.59m)

The provider of digital media solutions and technology last week announced that it has entered a global agreement to sell the CEM (Customer Experience Management) Solutions of Ve Interactive Ltd. ‘VeCapture’ is a patented proprietary ecommerce tool, effective in securing additional form and shopping cart conversions from aborted online transactions. Milestone purchased 1.3 per cent of Ve Interactive ordinary shares for a total consideration of £101,111 and has the right to purchase an additional 1.3 per cent by the end of November 2009 for the same amount. Milestone has secured reseller rights which entitle Milestone to up to 15 per cent of the gross revenue it generates for Ve Interactive with all software installations and other costs being paid by Ve Interactive. With this second deal in a week, it looks like Milestone may start generating revenues in the short term. At the current valuation, this is an attractive play for those wanting some digital media exposure.

Monitise (MONI, 14.75p / £61.04m)

Monitise, which provides an end-to-end solution enabling banks and their customers to undertake banking transactions via mobile phones, has just registered its one millionth customer. Given that it had 750,000 registered customers in August 2009, this is some growth. And what makes it particularly interesting is that the group is seeking to expand away from professional services fees and licence revenues into sales on a per-consumer basis. As such, increasing consumer uptake of Monitise’s services has a very direct effect on its financial performance. The group had losses of £12m in the first half of 2009, but is pushing the right buttons to move towards profitability.

ServicePower (SVR 6.63p / £12.57m)

The Company that makes workforce management software last week announced the appointment of ServicePower Asia Pacific Pty Ltd as its exclusive distributor/reseller in Australia and New Zealand in response to growing market demand in the region. Service Power shares have performed very well over the past few months. We like this company and the current management team and remain intrigued to see what happens in the bid situation.

Silence Therapeutics (SLN 24.75p/£33.4m)*

The European Patent Office has upheld Silence’s core AtuRNAi patent with a few modifications not critical to the company’s core business. Silence is a leading European biopharmaceuticals company focused on RNA interference which is a gene silencing technology. The company has a research and development collaboration with AstraZeneca, a licence agreement with Quark Pharmaceuticals and an in-house cancer development programme that are all based on its proprietary AtuRNAi molecules. Silence’s shares are currently suspended after it announced it was in merger talks with a private US company. A deal is likely to be structured as a reverse takeover and will need to be approved by shareholders. We are waiting in anticipation of the admission document for further information about deal terms and what the other company will bring to the table.

YouGov (YOU 50.25p / £48.61m)

The purveyor of online market research got rather ahead of itself. The group, with a history of continuous growth, had assumed the near future would be much like the recent past, and so continued to staff up for new business. But the recession did a neat job of puncturing this illusion, with like-for-like sales for the year down by 3 per cent, giving revenue of £44.3m. And, at the analysts’ briefing, chief executive Nadhim Zahawi pointed to staffing costs as a cause of the group making a reported loss before tax of £0.7m in the year to 31 July. YouGov has, however, responded by reducing employee numbers, which is expected to lead to annualised cost savings of £2.5m going forward. And it does have a very healthy £12.5m net cash position. YouGov has benefited from the speed and cost-effectiveness of market research conducted online. And it is now moving into highly responsive real-time products, in which market research data can be produced in a matter of hours. The group was quick to take advantage of the benefits the internet can offer research, and these latest products suggest it remains ahead of the game — indeed you could call YouGov the guvnor.

*Price as at 29/09/10 when share dealing was suspended

*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

16 Jul 2009

This week: An energy company that’s a gas, the charmed Life of Ambrian, and an outfit that knows its Ukrainian tractors.

Alkane Energy plc (ALK 19.5 p / £18.1m)
The owner and operator of “Gas to Power” plants in the UK yesterday announced that it is trading in line with management expectations and has made good progress in the installation of new capacity. Alkane has a strong pipeline of new projects which are progressing well and the new site at Bilsthorpe has commenced production ahead of plan. Alkane jumped up 1 p on the news.

Ambrian Capital plc (AMBR 26.5p/£28.62m)
Many small cap stockbrokers have been hit hard with falling secondary trading revenues and corporate finance fees. Ambrian however seems to have bucked the trend with its eclectic mix of equities, futures and physical commodities trading businesses. This week Ambrian released a trading update uttering those immortal words that trading was “materially ahead of market expectations” but surprisingly the share price remained flat. Nevertheless, the shares have had a good run this year, up 100per cent from their lows in March so a period of Ambrianing along is excusable.

Ark Therapeutics Group plc (AKT 44.5 p / £90.6m)

The specialist healthcare group announced the UK launch of Kerraglove, a mittenshaped dressing device for hand injuries, particularly burns. Kerraglove will be sold initially to UK specialist burns units and accident and emergency centres by Ark’s current wound care sales force. This is another product developed and patented by Ark, which has undergone clinical trials and which adds to the other products in its wound care division. These products continue to maintain the 2008 reported growth trends; perhaps this new device will give a hand to accelerating these trends!

Bglobal plc (BGBL 21.3 p / £15.8m)
Last week we reported that this market-leading provider of smart metering services to the UK energy market had secured a new source of meter asset funding from Barclays and launched its new Energy Counts campaign for business customers. £3m was added to its market cap in the last week, with its share price having risen more than 30 percent. This week Bglobal announced that NPower now plans to aggressively increase the rate of roll out. Great news for Bglobal, who also announced preliminary results for the year ended 31 March 2009. Bglobal has installed 60,000 meters in the financial year to March 2009, with 120,000 meter orders queued for delivery. It reported an increase in turnover of 48 per cent to £6.6m. We believe that as the rate of the roll out increases there will be further improvements on operational efficiency and more reductions in the “cost per fit”. The group’s mission to reduce carbon emissions in the UK should continue to drive sales.

Boomerang Plus plc (BOOM 62.5p, £5.6m)
In a trading update for the year to end May 2009, Welsh-based television producer Boomerang says it has not been immune to the delays, cancellations and pricing pressure facing the industry as a whole. In particular, two projects have underperformed financially and profits for the year will be below expectations. Furthermore, trading conditions remain tough and are expected to hit the first half of 2010. Despite this, some advertising-funded commissions and recommissions have been secured; the group is cutting costs and has a net cash position, which provides a cushion against the economic downturn. And it should continue to benefit from the requirement for public sector broadcasters to take on more programmes produced in the regions. So Boomerang, like Lions’ star Shane Williams, is one that could well bounce back.

Burst Media plc (BRST 6.6p, £4.7m)
And talking of bouncing back, Burst Media had a stunning 23 per cent growth in revenues in the second quarter (April to June). But the group, which provides online advertising services in the US, expects first-half revenues to be down around $1.3m, at $12.1m, as the adConductor business (a software solution enabling third parties to set up and manage online ad networks) was hit by the loss of the TACODA account, following its acquisition by AOL. adConductor has, however, secured four significant new customers in the first half and Burst had a healthy $9.4m on the balance sheet at 30 June. Not bad for a group with a market cap of less than £5m.

Central China Goldfields plc (GGG 1.9 p / £3.4m)

How do you know when you have overstayed your welcome? A good clue would be when your partner throws a little cash at you and tells you they rather do the job themselves. Joint venture partner the Sichuan Bureau of metallurgy and Geological Exploration has offered to pay Rmb 71 million for Central China’s stake in its principal asset, the Nimu Project which is a porphyry copper deposit. The transaction has to be approved by Central China’s shareholders who have no other choice than to approve if they want to salvage what is left of their investment. After tax, the amount is roughly £4 million which will then be the company’s major asset along with a fairly inconsequential joint venture interest in the Dong Huo Gold Project. The board should pay close attention to other clues. For instance, maybe it’s time to pack up the whole company?

Landkom International plc (LKI 14.3p/£33.6m)

Landkom’s is a large scale producer of oilseed rape and wheat from its farms in the Western Ukraine. Following Landkom’s flotation on AIM in 2007, the share price has crashed from a high of 103 p in March 2008 to 12.7 p this week following the collapse in land prices and the lack of debt finance to fund planting and new land development. Things may be on the turn for Landkom as it has just announced a new venture into biodiesel using marginal quality crops not suitable for food production. Biodiesel has not necessarily been a winner for small cap investors and this week’s muted share price reaction reflects a degree of cynicism in the market. There is still much work to be done to get to full scale production so clearly no rush to be a bio of the stock anytime soon. NetDimensions plc (NETD 11.3p/£2.8m) NetDimensions is another one of those stocks whose business has a negative value after the company’s cash position is stripped out. In NetDimension’s case the company announced a cash position of $6.8m being equivalent to 16.5p per share. This is against a share price of 11.25p. This is all the more surprising given that the software-for-training group is forecast to be cash generative. In our view, one to net at this price.

Pulse Group plc (PGRP.PL 5.3p / £4.8)
With its finger on the Pulse, this leading provider of research services within the Asia-Pacific region, unveiled another research solution, this time for mobile users. Pulse Group provides research predominantly to market research and media companies wishing to conduct research within the Asia-Pacific region. The offering will be the first of its kind in Asia, and will supplement the online and traditional telephone market research models and is a more cost-effective solution. With this Pulse will gain additional access to the 1.5bn mobile subscribers throughout Asia, where mobiles dominate fixed line telephone systems. Pulse Group listed on PLUS in June 2008, although sadly is trading at half of its listing price. Perhaps one to watch were liquidity in the share improved.

Tenon plc (TNO 43.5p/£86.31m)
Tenon has proudly announced this week that underlying profits are in line with the expectations set prior to the global financial crisis and the onset of the UK recession. Tenon has its roots as a consolidator of small and mid-sized accountancy firms and now styles itself as an “adviser to entrepreneurs”. Of course the key to its trading resilience lies in its “recovery services”, the insolvency-related work for companies and individuals that find themselves crunched by credit. Indeed, there’s some irony that Tenon has had to announce itself a costs reduction program. Nevertheless, the shares are trading on a reasonable earnings multiple of 7.5 times do offer a counter-cyclical protection should growth not take off tenon to the dozen.


*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

09 Jul 2009

This week: A pharma aspirin’ for greater things, a marketing group with digital brainpower and no stain no gain for a dry cleaning outfit.

Alliance Pharma plc (APH 16.8 p / £27.1m)
The specialty pharmaceutical company issued a pre-close trading update this week. Trading has been strong with half year sales in the region of £13.2m, an increase of 33% over the first half of last year. The margins have improved and profits are expected to be not less than £2.7m. Alliance Pharma’s shares have increased five-fold this year. Independent research house, Hardman & Co, has upgraded its FY09 sales and profits forecasts to £26.9m and £5.3m respectively (previously £25.1m and £4.1m). Alliance Pharma has its own brand of aspirin, a range of emollients and other Over the Counter products that can be found on pharmacy shelves. Alliance Pharma gave the markets every hope that its share price would continue to do well; certainly the last ten days have seen a good rise in its share price (+30%), perhaps one where investors and company are truly “Allied”, particularly with a dividend payment promised for 2010.

Bglobal plc (BGBL 16.3 p / £12.8m)
The market-leading provider of smart metering services to the UK energy market, this week said it has secured a substantial new source of meter asset funding from Barclays which has made up to £15m of funds available to provide ongoing lease finance arrangements to customers buying Bglobal’s innovative smart meter services. A lack of available funds to drive forward Bglobal’s smart meter installation programme has held the company back, but we now fully expect it to go on to “be global” at some point, although this boost from Barclay’s should enable them to crack the UK at least. Separately on 6th July, BGlobal announced its new Energy Counts campaign for business customers seeking to comply with the government directives on carbon reduction. Don’t forget, the government has stated it wants all energy meters in the UK to be swapped for new smart devices by 2020; this is a massive opportunity for BGlobal and with the asset financing in place, what is there to hold them back?

Brainjuicer Group plc (BJU 130.0p/£16.8m)
Brainjuicer, the group that ‘juices’ the ‘brains’ of its in-house analysts to come up with innovative marketing ideas, has seen revenue growth of 22 per cent for the six months to 30 June. The company has an unusual approach, as its techniques focus on consumers as emotional, rather than purely rational, beings. And while this may seem a rather airy-fairy idea in our practical society, it’s certainly proving popular with makers of consumer goods. Small wonder, then, that Unilever is a 38 per cent shareholder. Revenue growth is, however, down from 42 per cent in the 2008 financial year, reflecting a tougher economic climate. But the group has a healthy £1.2m of net cash and its more `innovative ‘juicy’ products now comprise 54 per cent of turnover, up from 47 per cent in 2008. And these products are typically higher margin.

Digital Marketing Group plc (DIGI 39.0p/£26.3m)
Digital Marketing Group released a robust set of results for the year to 31 March 2009 with gross profits increasing by 13% and profits before tax by 19%. These results reflect the structural trends favouring digital media, but are also down to the relative defensiveness of digital marketing. This resilience is in turn due to several factors: digital marketing is more measurable than more traditional forms of advertising and marketing; it offers greater opportunity to capture data; and campaigns can be adapted at short notice. Despite this, trading at DMG became tougher in the second half, with slower client decision-making and reduced visibility – and management does not expect an improvement in the first half of the 2010 financial year. DMG has also announced the launch of Digital Brain: Search. This switched-on service takes into account the entire series of clicks online users make in order to go from initial search to actual purchase, enabling marketers to target consumers at several points along that journey. Similarly DMG announced the launch of DemographDMG, which applies insights into consumer psychology to digital marketing. The group undoubtedly faces a tough economic environment, but it has borrowing headroom, operates in an attractive niche and has applied its analogue brains to creating some innovative new services. As such, DMG looks well positioned not just to make it through the recession, but to prosper thereafter.

EPE Special Opportunities plc (ESO 26.0p/£6.9m)

EPE, the specialist investor in distressed and insolvent companies, has announced its latest net asset value per share of 72.7 p. This compares with the current share price of 26p and so must be seen as an attractive buying opportunity. The portfolio includes the specialist tea retailer Whittard of Chelsea, which was acquired out of administration in December 2008, and Autocue, the manufacturer of teleprompting tools used by broadcasters. In addition to the existing portfolio EPE raised £5m of new money last month to take advantage of opportunities to pick up bust business in the current recession. As EPE is the only private equity investor focussed solely on distressed assets that is quoted on a UK stock exchange we think there’s every chance it could go from bust to boom.

European Nickel plc (ENK 7.0p/£34.0m)

Two weeks ago we reported that European Nickel appeared to be edging closer to securing project finance for its flagship nickel laterite heap leach operation in Turkey. Well, we are delighted to see that progress continues apace. The Company announced this week the termination of an off-take agreement with BHP Billiton in relation to half of the output from the project and a new off-take agreement with their Chinese partner to take all of the output. The significance of this may not be immediately clear but we understand from management that as their Chinese partner will now take all the output the project now qualifies for Chinese state support thus ensuring Chinese bank project finance. This is a significant milestone and the company continues to remain on track to secure project finance this year. With the oft elusive funding package now coming together we continue to see great upside.

HML Holdings plc (HML 13.5p/£4.3m)
Two weeks ago we reported on the record results released by property management services company HML Holdings when the share price was 10p. This week, the CEO, Robert Plumb has snapped up 22,500 shares at 11.6p driving the share price up 15% to a nine month high of 11.5p.

Innovision Research & Technology plc (INN 23.0 p / £14.2m)
It pays to play tag. Having won three major contracts for its Near Field Communications (NFC) technology with some of the largest global semiconductor companies in the last few months, there is little doubt that Innovision’s technology is both market leading and at the stage where it is about to be implemented rapidly into a large number of mass market consumer applications. If there was ever a right time to seize the opportunity, this is it. Innovision has raised £5.4 million in order to increase its ability to win and deliver additional major contracts. As more and more handsets are enabled with Innovision’s NFC technology, the company will benefit from potentially large royalty streams. The market for tags could be huge with applications for contactless cards in ticketing, payments and loyalty schemes, smart posters, business cards, music downloads, easy pairing of devices and other peer-to-peer connectivity solutions no-one has thought of yet. Existing shareholders may balk at the non pre-emptive, heavily discounted placing that is conditional upon a number of approvals. Nevertheless, the company will probably never look back after this.

Johnson Service Group plc (JSG 13.5 p / £33.7m)

The dry cleaning group issued an upbeat pre-close statement this week. Overall trading conditions in the first half of the year are in line with expectations and the company hinted that it had a strong platform for growth in 2010. Johnson remains confident of achieving a satisfactory result for 2009 as it has won a number of contracts which will impact the second half of the year positively. You could say the company is leaving no stain unturned.

Plant Impact plc (PIM 30.0 p / £10.0m)*

The developer of plant stress management technologies, continues to make an impact and last week announced a placing to raise £1.46m. The company will use the proceeds to finance further development and testing of its range of nutrient products to provide further evidence of efficacy, thereby improving its commercial prospects. Blue chip institutional investors, such as Gartmore and Blackrock, supported the fund raise, and new investors participated also. We believe that Plant Impact has some potentially disruptive technologies which could contribute to easing emerging agricultural sustainability issues and which have access to the large and growing fertiliser & agrochemical markets – worth an estimated $111bn in 2008. Any weakness in the Company’s share price should only be seen as a buying opportunity. Great to see this one raise some monies, which should help it reap what it grows.

Toledo Mining plc (TMC 34.0 p / £10.0m)

When the going gets tough, the tough get fundraising. To have shareholders who support you when you need them is worth a lot of, err, nickel. Toledo, which has interest in several large nickel laterite projects in the Philippines, has raised £3.3 million of which one third is from the largest existing shareholder Daintree Resources. We assume the other major shareholder European Nickel did not participate as they focus on developing their operations at Çaldag in Turkey. However, a new large owner is the Kostyantin Zhevago controlled Fevamotinico with a ten per cent holding. After the company had to suspend mining and shipping activities last year due to lower demand and prices, this funding comes as a relief and opportunity for the company to pursue short term and long term goals. It has always been Toledo’s strategy to retain more value by processing the ore themselves, and part of this funding will finance a drilling campaign to prove a sufficient resource at the Berong project. Other funds will be used to meet conditions necessary to start direct ore shipping operations at the Ipilan project. Whilst this placing took place earlier than management had previously indicated, it provides resources to move ahead with projects during uncertain times. It is also a sign of increased belief by investors in Chinese demand for commodities.


*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.

02 Jul 2009

This week: A business that turns cash point machines into advertising space, a group that’s really got the power, lots of gold-diggers and sun, sand, sea and Cubus Lux.

Angus & Ross (AGU.L, 2.0 pence / £5.2m)

Consolidation usually brings economies of scale especially for mining companies operating in remote locations. Angus & Ross has now added another asset to their Greenland portfolio with the acquisition of the assets of Crew Gold’s Nalunaq gold mine in southeastern Greenland. Crew had produced more than 300,000 ounces of gold over a four year period before placing the mine on care and maintenance. Angus & Ross paid a total consideration of $1.5 million for the assets which include mining and exploration licenses, mining equipment, a fully operational mine camp and ship loading harbour facilities. A fully paid environmental bond worth nearly $3 million is included. By adopting a different mining method employing predominantly local labour and by producing a concentrate onsite, the company believes it can operate the mine profitably.

Angus & Ross estimates that it can achieve cash costs of $600 per ounce initially and lower thereafter as soon as it has constructed a process mill and gold plant on site which will eliminate the costs of shipping and externally processing the concentrate. Based on preliminary mine plans the company expects to produce a further 350,000 ounces of gold during a remaining 10 year mine life. Initial capital expenditure is expected to be $8 million and is likely to be financed by a combination of a gold loan and an equity placing. The company’s major asset is the Black Angel zinc-lead property in western Greenland which is planned to go into production in 2010.

Ark Therapeutics Group plc (AKT.L, 45.4 pence / £94.2m)

The specialist healthcare group announced on 24th June that it has made a major advance in its production technology and processes for commercial manufacture of adenoviral gene-based medicines. The new process has resulted in a very high quality finished product with improved yields of up to 100 times those achieved by more conventional processes, making Ark something of a gene genie. Ark is a company with exciting times ahead and one to watch, we believe that this new facility will give it enhanced production capacity and is further proof that the company is in the commercialisation phase. Separately, Ark also announced over the past week that it has signed an agreement with the private Finnish biotechnology company, Oy Lx Therapies Ltd to produce Vascular Endothelial Growth Factor C in an Adenoviral Vector (Ad VEGF-C). It is great that Ark can maximize its manufacturing capabilities, IP and regulatory expertise, in this specialized area which we believe they have a lead on globally, by signing up with other companies that need to tap into its expertise and we imagine that there could be more similar deals to come. Ark has five marketed devices in its Wound care division and three pharmaceutical products in late stage clinical development: Cerepro, Vitor, and Trinam. We like this company as it has a completely novel mix of incredibly high class and innovative R&D and products that are being sold. It should appeal to investors as it moves into a commercial, revenue generating phase.

Ceres Power Holdings (CWR.L, 197.5 pence / £132.1m)

Ceres confirmed receipt of a £2m payment from British Gas for the successful design, build and testing of a number of 1kW grid-connected Combined Heat and Power products. The Company expects to end its financial year on 30th June 2009 with cash of at least £22m. Ceres Power will now move into the next phase of development with British Gas. It also has relationships with Calor and EDF and would appear to be on target to be one of the fuel cell winners as it heads towards making this area of renewable energy a reality.

Correro (CORO.L, 2.6 pence / £1.2m)
Correro, the struggling software company, announced that its proposals to reschedule its convertible loan notes and a capital reorganisation were approved by shareholders at an EGM. Correro has in issue £4m of convertible loans issued to fund previous acquisitions. The loan notes were due for redemption in 2011 if not previously converted into shares at 25p, but with the current share price of 2.6p, conversion is a remote possibility. The loan notes bore a coupon of 8 per cent but this interest charge of £320,000 per year was clearly unsustainable against the last reported trading profit of £272,000. To address these issues the loan notes have been extended to 2015, the interest effectively halved over the next three years (and made up in the later three years) and the conversion price adjusted down to 8p. Doubtless these developments are positive for Correro in the short term but the company has previous history here as it rescheduled its loan notes once before in 2004. It is hard to believe there will ever be any value for the equity holders of Correro and maybe the time, energy and expense of any further rescheduling could be saved now by an orderly disposal of Correro’s business. Corre-to-go perhaps?

Cubus Lux (CBX.L, 19.0 pence / £3.4m)*
Cubus Lux, the Croatia-focused leisure resort operator and developer, announced that it has raised £212,000 by a placing of shares at 20p. Cubus Lux will use the proceeds of the placing for general working capital purposes and particularly to meet the expenses of its development of the 5* Olive Island Hotel and Apartment resort in Croatia. This flagship project promises significant value creation for the group once bank finance can be secured to commence construction. The management is confident it can secure the finance and given the Executive Chairman’s background in banking we believe this claim is credible.

CustomVis (CUS.L, 1.7 pence / £2.9m)
The leading developer, manufacturer and distributor of solid state laser systems for the refractive surgical industry has announced that it has signed a contract for a further cash sale of its Pulzar Z1 laser. This latest cash contract is in France, following a recent win in Iraq. The company expects revenue for the year to 30 June 2009 to be slightly higher than the market expectation of £1.7m, which is great news in what must be a tough climate for expensive capital equipment. Indeed, the group seems to have set lasers to stun.

Encore Oil (EO.L, 16.3 pence / £50m)

The show will never end if Encore is halfway successful in balancing the risk and opportunities of its large portfolio of prospects. In a recent update on its activities, we learned that gas is now expected from the Ceres field in Q4 2009. Encore holds a 10 per cent interest although half of that may be bought back by the previous owner. First gas sales could also be achieved from the 20 per cent interest in Kirkleatham gas discovery, which was made in late 2009 and which is pending planning permission. Q4 will likely also see drilling for oil at the onshore Markwells Wood property as well as the drilling of an appraisal well at the Cladhan light oil discovery. In 2010 we can expect to see drilling of a test well at Catcher and at the Bennett gas prospect, another appraisal well at the Cobra discovery and at the Biscathorpe structure. The company also announced that the sale of its 15 per cent equity in the Breagh gas discovery is imminent. With near-term revenue opportunities, proceeds from asset sales and a reasonably healthy balance sheet, the company is well placed to succeed with the pragmatic management of its E&P portfolio – so the fat lady ain’t singing just yet.

Herencia Resources (HER.L, 0.5 pence / £3.0m)

Shareholders of Herencia, the junior exploration company who is developing the Paguanta zinc-lead-silver project in northern Chile, now have one frustration less. The company’s major shareholder with a 46 per cent holding has been in administration and there has been a worry about the potential overhang. This week it was announced that Cape Lambert Iron Ore of Australia has acquired the assets of CopperCo including its shareholding in Herencia. Whilst Cape Lambert may not decide to hold on to this investment in the future, the risk of a forced sale at a depressed price has been successfully avoided. Deteriorating commodity prices and questions regarding the strength of the Chinese economy are two other frustrations that may be on the vane for Herencia’s shareholders. During 2008 the company’s extensive work resulted in an upgrade of the mineral resource, a completed scoping study and confirmation of high ore grades at depth. It is now important for management to further test the potential and move the project forward towards a feasibility study. This will require more capital, but with improved sentiment for mining shares, investors should pay attention to this promising project.

i-Design (IDG.L, 13.5 pence / £1.9m)
Listed in July 2007, one month before the credit crunch started to bite; i-Design has not exactly had it easy. But then a cocktail of a banking crisis and a recession is unlikely to make a business that sells advertising space on bank ATM machines flavour of the month. Look beyond the current economic malaise, however, and i-Design has a very interesting business model. Quite simply, the group’s technology, atmAd, allows banks to use their cash point machines to advertise their own services and, if desired, display advertisements from third parties. In the latter case, i-Design sells the ad space and shares revenues with the bank that owns the ATM. This arrangement lets banks make incremental sales at relatively low cost. Furthermore, ATM ads have key attractions for advertisers. First off, outdoor advertising is well-placed to reach a mainstream audience in an era of fragmenting media channels. Second, ATM advertising is highly measurable (as banks know how many people use their machines) and the audience is captive. Even so, two contracts with banks, which were expected to have been signed in the 2009 financial year, have been shelved for the time being, due to the credit crunch. Consequently, i-Design expects to make a £1.2m loss for the full year. First-half pre-tax losses widened from £0.29m to £0.37m, despite a 46 per cent rise in revenues, to £1.4m, driven by a 72 percent increase in media sales. Clearly, the group would benefit from an improvement in the economic climate, but it does have a cool £1.9m of net cash, which should help it ride out the storm for some time yet. Oh, and one final point of interest to advertisers: viewers of i- Design’s ads are almost always flush with ready cash.

ImmuPharma PLC (IMM.L, 88.5 pence / £68.6m)
The specialist drug discovery and development company announced its preliminary results for the year ended 31 December 2008 on June 24th. Key Highlights were that in the period its lead candidate for the treatment of Lupus, Lupuzor, was licensed to Cephalon Inc in a transaction worth up to $500m in milestone payments in addition to significant royalties. Good data for the Phase IIb study of Lupuzor and for its cancer compound IPP-204106 were demonstrated in the period. The company is in a strong cash position due to the Cephalon deal, share placings and grants awarded and has indeed become one of British biotech’s success stories. At the year end, Immupharma had cash of £12.5m and in February 2009, Cephalon exercised its option to license Lupuzor for a payment of $30m in cash, thereby further strengthening the Group’s cash position. ImmuPharma’s share price has been on a good upward trend for the past 3 months and financially this company is in great shape.

Lighthouse (LGT.L, 11.5 pence / £14.7m)

Lighthouse, the UK’s largest independent IFA, announced its own capital reorganisation to permit it to pay dividends in the future. Lighthouse‘s position is one of strength notwithstanding the maelstrom surrounding other financial stocks. Lighthouse has reported it is increasing revenues, is EBITDA positive and has a bullet proof balance sheet of no debt and £12m cash as against a market cap of £15m. No doubt this financial strength will be used to attract the best IFA’s on the market and for selective acquisitions. Lighthouse is clearly a shining beacon in a storm.

In last week’s Small Cap Wrap, we discussed Lipoxen (LPX, 13.8 pence / £21.2m).
This last week, is has had another great piece of news out on its co-delivery DNA vaccine patent which has been granted in the EU and US. We imagine that this will further add to Lipoxen’s ability to sign deals with partners.

Minster Pharmaceuticals (MPM.L, 6.1 pence / £3.6m)

If you are a drug company specialising in neurological and psychiatric disorders, and you have a problem, do you see a psychologist or a psychiatrist? Minster has opted for the consultative route by hiring Dr Rajinder Kumar, a renowned specialist in the commercialisation of CNS products. Dr Kumar, who was Global head of Clinical Psychiatry at GlaxoSmithKline and led the development of the $2 billion anti-depressant drug Paxil, is now engaged to assist Minster in formulating the development and commercialisation strategies for tonabersat and sabcomeline. Luckily, Dr Kumar will not have to charge for the time it would take to get to know these two clinical-stage compounds, as he was involved in their early development at SmithKline Beecham prior to their sale to Minster. After a very promising Phase II trial of tonabersat in migraine with aura, the expectations were high that the Phase IIb TEMPUS study of tonabersat in migraine prevention would also be successful. Whilst the study confirmed tonabersat’s high safety profile, unfortunately it did not meet the primary endpoint. The testing of neurological drugs is fraught with complications surrounding the placebo effect, patient compliance and retention and the measurement of pain. So what if the trial was poorly designed and the compound does actually work? Research on tonabersat’s novel mechanism of action has suggested that the compound could be clinically effective in epilepsy and neuropathic pain, and this is where Dr Kumar’s expertise will be welcomed. Minster claims to have enough cash to continue current operations for two years, but we would expect an announcement of the development strategy in the next 3-4 months. It is well worth sitting in the chair for that.

Research Now (RNOW.L, 335.0 pence / £62.7m)
Research Now, which provides panel data to market research companies, says it has seen ‘pricing pressure’ during the recession, but its growth story continues apace. Results for the six months to 30 April 2009 saw revenue up 24 per cent, to £23.6m, operating profit up 46 per cent, to £4m, and adjusted diluted EPS up 56 per cent, to 14.5p. This bears out the group’s oft-repeated mantra that its online collection methods let it obtain data ‘faster, cheaper, better’ than offline, a key advantage over rivals that use the more traditional techniques. The group has a presence in Europe, North America and Asia and management estimates that 50 per cent of US survey research is now done online, compared to just 20 per cent in Europe and Asia. This suggests scope for continued expansion in these regions. Impressively, 92 per cent of first-half sales came from business with existing customers, suggesting a relatively high level of client satisfaction. But the recent takeover of Greenfield, by rival panel data supplier ToLuna, means the group now faces a larger specialist rival. Despite this, Research Now is targeting further geographical expansion and is supported by a healthy net cash position of £6m. In addition, it is seeing gross margin gains due to an increase in supplying own-panel data rather than making use of data from third parties. As such the group is well-placed to continue to grow, despite the uncertain economic outlook, and could yet secure a ‘data with destiny’.

Sarantel Group (SLG.L, 2.5 pence / £4.8m)
Another week, another contract win. Sarantel has secured a contract with Harris Corporation to supply the LBS Pro GPS Antenna for their Unity XG-100 Multiband Public Safety Radio. This is a high end radio that covers four frequency bands with embedded secure Bluetooth technology and internal GPS and is designed to provide reliable and secure public safety communications for the emergency services. This proves again that when there is no room to compromise on quality, reliability and performance. Sarantel’s robust design combined with small size and high accuracy is the perfect, if not the only, solution. With this contract, Sarantel is getting even closer to reaching breakeven in 2010.

Serabi Mining (SRB.L, 1.3 pence / £1.8m)
Serabi is not taking a shine to the difficult credit markets. Sitting on an extensive exploration portfolio and a small gold mining operation in northern Brazil, the company is in need of more capital to execute on its strategy of developing further mines in the region. Without access to capital the company is unable to fully utilise its current assets and further prove the potential of the many exciting opportunities within its extensive land position. The company has just embarked on a road show to drum up interest from potential investors. Should investors fail to see the potential the company is likely to be bought out or have its assets auctioned off to another mining company looking for an entry or expansion into Brazil.

Sigma Capital (SGM.L, 12.0 pence / £5.6m)
Sigma Capital, the specialist asset management and advisory group, announced the acquisition of commercial offices in Cardiff let to the Environment Agency, the UK government Agency. Sigma has a focused investment strategy of targeting investment property and companies developing technologies relating to clean energy and energy efficiency. With net assets per share of 16p (which included 11p before the Cardiff acquisition) we see opportunities in the depressed property market as offering good downside protection with significant upside from the clean energy division, Frontier IP, which is to be PLUS listed. As such, Sigma looks clean, green and well worth getting to know.

Solomon Gold (SOLG.L, 9.0 pence / £4.0m)

More people are wising up to the golden opportunities at the company’s potential giant copper-gold prospect at Guadalcanal, the joint venture with Newmont Ventures. We reported last week that the company had raised £800,000 in a placing. This week the company has raised another £600,000 to fund work on its properties in the highly prospective southwest Pacific rim of fire, a region known for very large copper-gold porphyry deposits.

Upstream Marketing and Communications Inc (UPS.L, 1.1 pence / £1.4m) *
The Asia-Pacific-wide marketing and corporate communications company has announced its audited results for the year ended 31 December 2008 this week. Its revenue is up 33 per cent to US$6.158m (2007: US$4.613m) and it reversed the previous year’s loss-making performance by controlling costs with a profit of US$ 0.433m (2007: loss 0.643m). 2008 was a good year for Upstream, with high international interest in communications in China resulting from the 2008 Summer Olympics in Beijing. A recent trading update flagged that the sales pipeline would slow a little in 2009, but steps are being taken to mitigate this with a scaling back of the cost base and by increasing the marketing efforts with a view to supporting revenue generation. We believe that with its mix of sectoral expertise and geographies, Upstream should be on the up again soon.


*A corporate client of Hybridan LLP

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week.  Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies.