Small Cap Wrap: Month: October 2009

AIM Breakfast - Archive

12 Oct 2009

This week: Adventis takes tough action, Imaginatik collaborates to accumulate, and Milestone achieves an, erm, milestone

Adventis (ATG 19.5p / 8.34m)

Marketing services group Adventis has taken some tough action. The group has traditionally had significant exposure to the property market¸ which is great when housing transactions and property prices are on the rise, but a problem when they‟re on the slide. Consequently, Adventis’ property activities had, to use the popular euphemism, to be ‘downsized’. But this has led to annualised cost savings of £1.3m, not bad for a group that brought in £5.6m of gross income in the six months to 30 June 2009 (H108: £6.0m). Basic EPS, meanwhile, fell by 33 per cent, to 1.12p. But management signalled its confidence in the future by maintaining the 0.23p interim dividend. And Adventis did see a more resilient performance in other areas. In particular, its pharmaceutical and healthcare business made good profits, as did the technology and telecoms business. In addition, chief executive Charles Phillpot said financial services activity had „recovered somewhat‟ from 2008 levels. Following £2.3m of earn-out payments related to earlier acquisitions, Adventis‟s net debt increased to £1.8m, but management says the group has considerable unused bank facilities. As such, Adventis looks well-placed to fund future acquisitions at relatively distressed prices.

Earthport (EPO 38.25p / 33.86m)

The global payments utility announced that it has yet to receive payment of a £2m debt due from its Middle Eastern partner. The plan, announced in January, was that with the help of a local Middle Eastern partner the company would establish a sales office in the United Arab Emirates and that the partner would pay Earthport £2m. The sales office is intended to help Earthport to better service its existing Middle East sales pipeline and generate additional revenue streams from opportunities in the Middle East through its local presence. Now, however, the global economic slowdown has put the kibosh on the £2m payment. This follows on from the “strategic review”, which commenced in July and regarding which we‟ve yet to have substantive news. An update is promised this week and we await this with interest. In the meantime, it is encouraging to note that, despite the setback from the Middle East, the company has recently announced some impressive contract wins and appears to be trading well at the operational level. An (earth)port in storm seems needed.

Epistem (EHP 367.5p / £26.51m)

Epistem, a biotech company that develops drugs and biomarkers and provides contract research services to drug development companies, last week announced its preliminary results for the period to 30 June 2009. The year’s results saw an impressive 92 per cent increase in turnover and a maiden after tax profit. The Contract Research Services division saw 20 per cent sales growth, supported by the continuing expansion of the US government bio-defence contract and the launch of new service offerings. Biomarker revenues rose substantially, to £0.7m, albeit from a low base (2008: £0.2m) and this division recorded its first operating profit; further growth in this division is expected by management. The Novel Therapies division announced its first collaboration with Novartis, which has paid Epistem an upfront cash payment and provides research funding. If leads are commercialised, Epistem is eligible to receive tiered royalties on worldwide sales. The period in question saw the company strengthen its cash balance and, after meeting with management, we understand that the company is experiencing an improved trading outlook. Management stated in its results announcement that revenues are currently 20 per cent ahead of the comparative period last year. We get the sense that we may see some in-licensing activity now that Epistem has done its outlicensing deal in the novel therapies division. Epistem is a well-managed company and quote the CEO “Epistem should have a good year this next year”.

Goldplat plc (GDP 11.0p / £12.29m)

We discussed this African precious metals recovery and mining company a few weeks ago after they reported final results. They have now announced a resource statement for the Kilimapesa Hill mining project, which is a traditional mining operation as opposed to the company’s other precious metals recovery operations. Goldplat earlier this year purchased the remaining 50 per cent that it did not own from its former joint venture partner. An aggressive exploration and development programme was implemented at the project, which is situated in South Western Kenya within the historically producing Migori Archaean Greenstone Belt. The Measured and Indicated JORC compliant resource totals 31,400 ounces of gold with an additional 98,000 ounces of gold in the Inferred category. There are also a further 3,400 ounces of gold in nearby tailings. The plant is capable of a production of 3,000 ounces of gold per year giving Goldplat sufficient ore to run its Kilimapesa operation for more than eight years at the current capacity. Unfortunately, the company is still waiting for the Kenyan authorities to convert the exploration licence to a mining licence, which has delayed commercial production by several months. Nevertheless, we believe Goldplat is pursuing a sound strategy of advancing the junior mining business by taking advantage of their experience with small scale operations in historical gold mining areas.

Hutchison China MediTech (HCM 169.5p / £86.83m)

This low-risk, high-reward specialty pharma, otherwise known as Chi-Med, last week announced its joint venture with The Hain Celestial Group to develop natural and organic consumer products in Asia. The joint venture will market and distribute infant and toddler feeding products in China and other markets, which can leverage upon the worldwide retail network for product distribution of the Hutchison Whampoa group. Under the terms of the joint venture agreement, each partner will own 50 per cent of a newly created entity, Hutchison Hain Organic Holdings Limited, to conduct this marketing and distribution business. Infant nutrition is one of China’s fastest growing categories. At the time of Chi-Med‟s interims, Small Cap Wrap made the following comment: “Its infant nutrition business caught our eye. With a number of fraud products in infant nutrition in China in recent times and with the rising middle class population, we can see how Chinese parents will focus on getting the best for their (one) baby nutritionally.” We like this deal and, looking at the share price performance over the last 3 months, believe the steady upward trajectory has a long way to go yet.

Imaginatik (IMTK 8p / 12.74m)

Following on from a product launch and a series of contract wins, software provider Imaginatik says trading in the six months to 30 September 2009 has been in line with expectations. However, despite the fact that the second quarter was particularly strong, the group, which creates collaborative web-based software that helps large corporations develop strategic business ideas, still expects to make a loss in the first half. But the recent contract wins suggests the group is continuing to secure top-line growth and so is moving in the right direction for profitability. Someone else who‟s moving in the right direction is Matt Cooper, who will replace Howard Marshall as chairman of Imaginatik. Mr Cooper has been chairman of investment company Octopus Capital since 2002. Now, it seems, he will be spreading his tentacles wider.

Milestone Group (MSG 1.85p / £1.63m)

Media group Milestone last week announced that it had entered into an agreement with privately owned JumpStart Wireless Corporation, an enterprise wireless software company based in Florida, USA. Milestone has obtained the right to sell patented and patent pending technologies of Jumpstart in the UK. The company also purchased a small stake (less than 3 per cent) in JumpStart for £60,000. JumpStart’s technology saves clients significant costs in the field by cutting down on paperwork and seamlessly coordinating wireless devices and business software applications. JumpStart has a strong track record in the US, already working with partners such as Sage, Primavera and SAP. Milestone CEO, Deborah White, said: “JumpStart’s product is ideally positioned to thrive in the current economic climate, significantly reducing the time and costs involved in communicating with staff on the move.” Milestone also announced that it has appointed wireless expert Dr Marios Gerogiokas to direct the wireless sales and operations for Milestone. Under the terms of the agreement Milestone will receive a significant percentage of the gross revenue from all sales that it makes in the UK. Milestone has an added incentive, in that in addition to the cash reward for the sales it makes, it could also receive an equity award, provided it has reached certain performance metrics. With this deal, it doesn‟t look like Milestone has miles to go until it starts to generate revenues, and at the current valuation, this is an attractive play for those wanting some media exposure. The share price ticked up a little on the news.

New Britain Palm Oil (NBPO 380.0p / 551.00m)

A major manufacturer of palm oil, New Britain Palm Oil has just announced that it has entered into a 5 year supply agreement to provide Ferrero, one of the world‟s leading confectionary companies, with a significant amount of their sustainably produced palm oil for use in the manufacture of high quality chocolate. This deal looks even sweeter when you view the company’s finances: interim profits before tax of £2.2m, a robust balance sheet, strong cash flow and a share price that has doubled since the start of the year all point towards a potentially mouthwatering investment.

Ocean Power Technologies (OPT 330p / £33.71m)

AIM and Nasdaq quoted Ocean Power technologies has announced it has signed an exclusive agreement with a consortium of three leading Japanese companies to develop a demonstration wave power station in Japan. This agreement is the company’s first project in Japan and is in line with OPT’s strategy to form alliances with strategic partners in key markets. OPT now has a range of power generation projects globally, including those in Oregon and Hawaii, USA; Scotland and Southwest England; Spain; Australia; and Japan. The company is a pioneer in wave-energy technology that harnesses ocean wave resources to generate reliable, clean and environmentally-beneficial electricity and its PowerBuoy system is based on modular, ocean-going buoys that capture and convert predictable wave energy into low-cost, clean electricity. Given that the company operates in a $160bn industry its prospects should be good but the current market cap is some way below its last reported cash balance of $81.7m indicating a prolonged period of negative cash flows. Get your snorkel out if you fancy wading into this one, you might be under water for a while.

Sareum Holdings (SAR 0.41p / £4.0m)*

Specialist cancer drug discovery company, Sareum, and oncology-focused development and commercialisation company, Cancer Research Technology Limited, last week announced the publication of the latest results from their joint research collaboration with The Institute of Cancer Research. The results were presented at the National Cancer Research Institute Cancer Conference, in Birmingham, UK. Of particular interest was data showing how the drug candidate Chk1 (Checkpoint Kinase 1) can produce up to twofold increases in the efficacy of marketed cancer chemotherapeutics. Sareum is developing seven early-stage cancer drug programmes, one of which is ready for licensing and two are close to licensing. Chk1 is the most advanced and we believe that, as with some other Sareum cancer programmes, it is attracting interest from potential licensees. Major pharmaceuticals groups have a well-known need to build their cancer drug pipelines and to bring drugs to market quickly. We believe Sareum can be expected to react even more positively to any good news, particularly were the company to sign a deal.

Synchronica (SYNC 3.75p / £21.7m)

Synchronica has signed a contract to provide mobile email and synchronisation products to a mobile operator in southeast Asia that has more than 30m subscribers. The deal is largely on a revenue-share basis: Synchronica will receive at least $1 per subscriber per year, with an additional $0.5 a year for each subscriber using the group‟s back-up service. This is yet another attractive contract for the group, which secured nine contract wins with mobile operators worldwide in the half-year to 30 June, when revenues rose sevenfold, to £1.3m, and the operating loss reduced by 14 per cent, to £2.3m. Synchronica, then, certainly seems to be getting in sync.

TyraTech (TYR 21.5p / £4.70m)

TyraTech, a company with a unique eco-technology for safe and effective control of pests, parasites and insects, has seen its share price languish since the 2007 IPO. Clearly, there have been a number of setbacks; however the market seems to be ignoring signs that indicate an improvement in the underlying fundamentals. The key to understanding TyraTech‟s potential is the partnering strategy. Since the number of applications of TyraTech‟s technology is so vast, the partnership model ensures maximum reach into many markets at a fast pace and low cost. The development costs are carried by the partners while TyraTech receives license fees, royalties and additional upside from profit-sharing agreements at the same time as it is benefiting from increased margins from economies of scale in manufacturing. This year the company has substantially advanced its partnerships with Terminix (for household and commercial insect control), Arysta Life Sciences (for agricultural pest control in North America), TyraChem (for insect and fungal disease in tropical fruit) and with Clarke Mosquito. Last week the company also confirmed that it has successfully achieved the second milestone in its functional food contract with Kraft Foods, resulting in an immediate payment. The contract has been renegotiated to TyraTech‟s advantage, resulting in faster payment of the remaining reimbursement of the development costs. At a trading update in July TyraTech lowered expectations for the year, due to reduced revenues from the Sustainable Solutions business (a manure management solution for dairy farmers), in turn due to a bust in milk prices as well as the lack of traction with its Indian partner. Subsequent events and a substantial cost-cutting exercise make us believe that the company should be well placed to meet expectations of revenues of $9 million for 2009 and an end-of-year cash balance of close to $4 million. In a recent meeting with management we were told that the market expects the company to be EBITDA positive next year as revenues from the many new initiatives accelerate. There is no doubt that there is a huge demand for the many non-toxic consumer products that can be provided by TyraTech‟s technology. The company now seems to be better placed than ever before to deliver on its potential.

Vyke Communications (VYKE 20.25p / £12.80m)

Vyke is one of the market‟s fallen angels, having crashed to earth from 199p in November 2007. We wish we could have confidence the voice over IP telephony provider is about to find its wings again, but we don‟t. It has just announced that it has secured a £10m equity line of credit from a well-known purveyor of “death spirals”. Why death spirals? Because the way these lines of credit work is that, each time the company wishes to draw down on the line of credit it must give 10 day‟s notice. During this period the equity line of credit provider will be furiously short selling stock into the market to fund its payment obligation under the drawdown notice. The credit provider doesn‟t care that this pushes the share price down as he‟s being issued stock at a discount to the share price. The next time the company issues a drawdown notice the shares are pushed down even further – in a downward spiral. We fear this angel‟s sold its soul to the man downstairs.

WFCA (WFCA 4p / £10.63m)

WFCA, the largest full-service marketing group outside London, saw gross profit rise by 75 per cent, to £6.1m, and adjusted pre-tax profits rise eightfold, to £0.75m, in the year to 30 June. This was, however, driven by the transformational acquisition of WFCA Integrated in April 2008, following which the group changed its name from Ekay. More significantly, perhaps, reported basic EPS went into positive territory, at 0.37p, compared to an EPS loss of 4.62p in 2008. In the first half, WFCA integrated its operations into a new Tunbridge Wells head office, which is expected to remove £0.9m from the cost base on an annualised basis; and this should benefit the group as and when the economy improves. The first half was strong, but pressure was exerted on marketing budgets in the second half. There has, however, been some positive recent news, with the group winning several new accounts towards the end of the financial year. And a £2.5m equity raising between April and June helped eliminate long-term debt, and sets the group up well to continue to growth organically and through acquisition.

*Corporate Clients of Hybridan LLP

*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.

05 Oct 2009

This week: Cluff sets the gold standard, Plant Impact makes an impact, and more good news from Imaginatik

Cluff Gold (CLF 65.5p / £76.72)

The West African focused gold mining group announced the appointment of Mr Peter Gardner last week as CFO and at the same time announced its results for the six months ended 30 June 2009. The Company is on course to achieving its forecast annualised production rate of 100,000 ounces of gold by the end of the current financial year. The Company had cash at 30 June of US$7.6m. Algy Cluff, Chairman and Chief Executive, commented that operations at the Kalsaka Gold Mine reached standards set for successful commissioning with gold production of 26,772 ounces, and production for the full year is expected to be in the order of 60,000 ounces of gold. A resource update is expected to be published in October 2009 for the Baomahun gold deposit in Sierra Leone and a revised scoping study will follow later in the first quarter of next year. Algy Cluff has done it many times before, and we fully expect him to work his magic with Cluff Gold.

Cubus Lux (CBX 14.5 pence / £2.75m)*

The Croatia-focused leisure resort operator and developer announced its results for the year ended 31 March 2009. Trading at its operating companies, its marina and casino businesses, meet expectations and there has been ongoing progress at Olive Island, with the land secured during the period and the Board believes it is close to finalising construction finance for this flagship project as the credit markets remain difficult. A major new tender was won for a golf, wellness and beach resort at Valdanos, Montenegro and Cubus Lux is in the final stages of an Istrian resort tender. Cubus Lux had a loss for the full year of £2.1m, although this could reverse with currency fluctuations, and included in the loss was an exchange loss of £1.9m. The management is confident it can secure the finance and given the Executive Chairman‟s background in banking we believe this claim is credible.

Education Development (EDD 124.5p/£71.72m)

Education Development, a leading provider of educational qualifications and assessment services, gave a positive update on trading for its financial year to the end of September. Strong growth is being experienced as the company benefits from increased government spending on UK vocational qualifications and this is likely persist even on a change of government. The company’s overseas business also appears to be trading well. It’s an education.

EnCore Oil plc (EO. 14.75p/£45.34m)

Last month we commented on EnCore’s asset strategy and capital structure post the sale of the Breagh gas discovery interest. The challenge for EnCore is to convince the market of the value of its remaining assets which is now valued at zero with a current market cap slightly less than the net cash holding. At the AGM the shareholders authorised a share buy back programme of up to 100 million shares and this has now commenced. More recently the company announced that it is in negotiations to sell its onshore assets along with its interest in the Ceres gas field to Egdon Resources in exchange for equity. EnCore hopes that this arrangement will enable the market to better recognise the value of these assets when represented as a substantial stake in Egdon compared to owning them outright. This may well be the case as long as the market is able to correctly value Egdon. Nevertheless, there should be an increased valuation transparency and possibly a better focus on EnCore‟s key assets. These include the Cladhan light oil discovery where an appraisal well will be drilled in the second quarter of 2010, the Catcher prospect where a test well may be drilled in the spring or summer, as well as the Gas Storage business. These assets carry material potential and have relatively low requirements for capital in the present stage. We remain puzzled that the market is undervaluing the company’s assets and even more so management‟s proven record and ability in creating value with a consistent asset management strategy.

Freshwater (FWUK 38p / £5.87m)

Regional PR specialists Freshwater have taken some tough decisions, with, for example, staff numbers reduced from 123 to 98 between September 2008 and May 2009. But a trading update for the year to 31 August 2009 shows the benefits of these actions, with management announcing significantly higher profits in the second half of the 2009 financial year and stating that Freshwater was „trading robustly‟ in the final quarter. The group did, however, say it expected profit before tax to be below market expectations, but the board reassuringly stated it has “confidence for its future trading and profitability”. Well, that sounds like good PR.

Gasol plc (GAS 2.62p / £28.45m)

The oil and gas stock that has a strategic alliance with Afren, announced its preliminary results for the period ended 31 March 2009 last week. During the period, it completed the acquisition of African LNG Holdings Ltd and after the period, Gasol obtained the rights to develop and monetise the Group’s first gas asset- the Zafiro gas project in Equatorial Guinea- following a joint venture agreement with SONAGAS. Gasol made good progress in negotiations to access gas reserves in South East Nigeria, and also signed a co-operation with Electricite de France to assess the feasibility of developing, aggregating and monetising gas assets in the Gulf of Guinea for domestic and export purposes. Gasol continues to pursue sources of further funding required for both the short and the longer term. Its strategy is to identify and develop commercially attractive opportunities in the gas sector, with initial focus on liquefied natural gas, sourced from Africa’s Gulf of Guinea region.

Hasgrove (HGV 81.5p / £19.42m)

The digital marketing and Europe-focused public affairs group has not had an easy six months to 30 June. In particular, the group suffered the loss of more than £2m of retainer and project income from existing clients. Even so, Hasgrove was helped by a rise in new business, such that revenue declined by a relatively untroubling 3 per cent, to £15.9m, representing a fall of 6 per cent on a like-for-like basis. Adjusted EPS, however, dropped by a more dramatic 38 per cent, to 4.8p, as the group faced competitive pricing pressure, reorganisation costs and extensive pre-sales activity. Even so, there is a robust pipeline of association management work (where Hasgrove represents, for example, the public affairs interests of some medical associations) at public affairs subsidiary Interel, with clients attracted by its pan-European coverage. The group is also benefiting from relatively high-level involvement in clients‟ strategic planning; this suggests Hasgrove can become embedded into client operations – a key defensive attribute even if the sales cycle here is rather slow. And the rise in credibility of digital marketing provides a positive backdrop for the group‟s Amaze subsidiary.

Imaginatik (IMTK 8p / 12.74m)

In last week’s Small Cap Wrap we reported on Imaginatik’s new product launch and new contract win. And the positive newsflow has continued into this week’s Wrap, with the collaborative software provider announcing a two-year contract with a US-based global technology leader. This $6.3bn revenue behemoth seeks to use Imaginatik’s software and services to further advance its collaborative innovation programme across its 35,000 employees and 2m customers. Imaginatik’s share price rose by 11 per cent on the news.

Judges Scientific (JDG 160.5p/£6.48m)

When we last wrote on Judges in July we described it as one of the market‟s hidden gems . Well, we won‟t take all (only most) of the credit for uncovering it but the share price has since moved from 92p to 167p following an exceptional set of half year results to June. The company reported record sales of £4.5m (up 18 per cent) and record pre-tax profits of £870,000 up 14.6 per cent. As a consequence earnings per share were up 23 per cent to 15.5p (first half 2008:12.6p) and the interim dividend increased to 1.3p (first half 2008: 1.2p) which is covered a very conservatively 12 times covered by earnings. The company supplies scientific testing equipment and operates in markets which appear fairly resilient to recession with end customers often being government organizations. This, together with the increased regulatory requirements for the testing of manufactured products for fire resistance and such like leads us to conclude that the prospects for continued growth look good. The company has grown today date by astutely made acquisitions and with its supportive bank (yes, decent businesses are still be supported) and a cash balance of £2.5m we would expect to see further earnings enhancing acquisitions over time. Clearly written in the book of life on this day of Judgment.

Lipoxen PLC (LPX 15.75p/£24.29m)

The Technology Strategy Board has appointed Lipoxen, a biotech company that develops new and improved versions of existing drugs and vaccines, as lead partner in a consortium for the organisation‟s controlled-release nanoparticle research programme. Lipoxen‟s own participating influenza vaccine project will benefit from additional analytical support and the company aims to accelerate the programme as much as possible. Lipoxen replaces Cambridge Biostability (CBL) who went into liquidation a few months ago. Joining the company from CBL as Director of project Management is Dr David Moss, an academic with exceptional vaccine development knowledge and substantial commercial experience. Lipoxen‟s vaccine technology platform includes preclinical vaccines against HIV and malaria whilst the liposome delivery technology platform includes a long acting insulin and a long acting EPO, both of which are in clinical development about to enter Phase II trials. Last but not least, Lipoxen has a gene silencing platform technology which promises an effective delivery system. With exciting technologies, a cost effective business model and tier-one partnerships, Lipoxen has multiple chances of becoming a substantial company in the near future.

Motivcom (MCM 67p / £19.52m)

Purveyors of B2E communications services (that‟s „business-to-employee‟ services to you and me) Motivcom saw an 8 per cent decline in gross profit, to £11.2m, in the six months to 30 June 2009. But careful cost management meant the drop in adjusted pre-tax profits was also limited to 8 per cent, while a favourable tax charge led to a relatively modest 2 per cent decline in EPS. Furthermore, finance director Susan Hocken told Hybridan that some contracts with long-term customers came in the second half rather than the first half, so the group remains on track to meet full-year targets. And it‟s not hard to see why. Motivcom has a blue-chip client base, a proven track record (with many clients onboard for 10-15 years) and it provides services (including motivating employees and organising employee events) that companies often prefer to outsource. And many of these services are vital to corporate well-being, even during a recession. Small wonder, then, that Ms Hocken said she was „confident‟ of meeting expectations for the full year. Indeed, at Motivcom it seems you can get the staff these days.

NetPlay TV (NPT 29p / £56.58m)

It‟s all coming together for NetPlay TV, which provides interactive gaming programmes across a range of converging media (mobile, internet and television). First, Ofcom changed teleshopping rules in May to allow gaming to appear on terrestrial television channels between midnight and 6am, reclassifying transactional gaming as teleshopping. Then the group secured broadcast deals with Channel Five and Virgin Media Television. These deals are transformational for NetPlay, which plans to roll out its programme offerings elsewhere in Europe. The group remains in the investment phase, and so is not making a profit. But revenue from non-premium rate telephony business (the group has now exited premium rate telephony) in the six months to 30 June 2009 rose by a robust 49 per cent to £8.5m. And, looking to the future, NetPlay should benefit from first-mover advantage (as there is no other interactive gaming programme specialist) and from the increasing take-up of interactive gaming both in the UK and abroad. This, then, has been a watershed six months for NetPlay – fitting for a group that televises after the watershed.

NextGen Group PLC (NGG 0.08p / £3.23m)

Provider of biomarker testing services announced its interim results for the six months ended 30 June 2009 last week too. During the period NextGen divested of non-core businesses, closed its UK facility and moved all operations to the US, usually a dangerous move for any life sciences company and substantially reduced its cost base. Sales in the period were $1.6m, although some of this is from its discontinued operations, versus $2.1m for the period ended 30th June 2008, a decrease of 21%. During the period, the Company did a placing via new shares with warrants to an existing shareholder and a convertible loan (with warrants on conversion), again, we imagine to the same shareholder, for £270,000. We are not a fan of this company; management would appear to be the main shareholder still and as reported in its results statement “because of the nature and stage of the Group’s business and the services it seeks to provide, the timing of cash inflows continues to be unpredictable. This, together with the Group’s plans for growth, may necessitate alternative funding levels and the directors constantly review the need for such additional funds.”

Plant Impact PLC (PIM 23.75p / £7.47m) *

We often write on this small yet perfectly formed Company as simply put, it often has news. Plant Impact, which develops and markets ecologically friendly crop nutrition and crop protection products, last week announced it has triggered the first regulatory milestone payment from its BugOil licensing agreement with Arysta LifeScience. This is following the submission of two applications to the US Environmental Protection Agency for the registration of BugOil, the Company’s benign insect control product, which is based on natural plant extracts. Plant Impact expects first sales of BugOil in the USA in 2011.

ServicePower (SVR 5.25p / £9.95m)

The Company that makes workforce management software last week announced its interim results for the period ended 30 June 2009. Revenues increased by 18% to £9.4m (H1 2008: £8.0m) and the Company reported a loss before tax of £2.0m (H1 2008: £0.3m) reflecting one-off restructuring costs and foreign exchange losses. The cash balance at 30 June 2009 was £3.5m. The period saw new contract wins including Marsh Consumer Connexions, E.ON, ARINC Managed Services, and new partnerships were established with Guidewire Software and InfoQuest amongst others. ServicePower Asia Pacific was launched post the period end to meet the growing market demand in Australia and New Zealand. Mark Duffin and his team have done a cracking job of turning this company around and interesting to see that it is currently in a bid situation. ServicePower received an offer for the company, which its board considered too low, at the start of August. News of the offer sent ServicePower shares up 1.25 pence in early August or 20%, although the shares have drifted off since then. On the same day as the results announcement, Mrs. Sally Ann Gillings was appointed as Finance Director. Sally is currently ServicePower Company Secretary and has held the role of Group Financial Controller at ServicePower for the past five years. We like this company and the current management team and remain intrigued to see what happens in the bid situation.

Sigma Capital Group (SGM 15.75p/£7.37m)

Sigma, the specialist asset management and advisory group, has reported its half year numbers showing a pre-tax profit of £1.6m which is some £200,000 above the “in excess of £1.4m” expected by the market. This was because of a larger than expected gain of £3.6m on the sale of its university IP commercialization subsidiary to PLUS quoted Frontier Group and a 20% reduction in overheads. These benefits were offset by a £1.8m write down of the investment in its seventh limited partnership. As a consequence market expectations for the full year pre-tax profit have been raised to £2.3m although in the absence of any new property partnerships this we the second half is likely to show a small loss. The current share price is some way below current net asset value which includes 8p of Frontier goodwill and 9.6p of cash. Whilst short term earnings are dependent on a recovery in the commercial property market the group‟s property and venture capital portfolios have significant long term potential so there‟s no stigma to like Sigma.

Silence Therapeutics (SLN 24.75p/£33.42m)

We last spoke about Silence in June after the biotech company known for its RNAi development, a gene silencing technology, had started clinical trials of a solid tumour drug. Trading in the company‟s shares is now 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. The share price has been languishing for more than a year as investors have had a wait and see attitude in anticipation of another licensing deal. Maybe a corporate deal instead will just do the trick in creating some upside momentum again.

Spiritel (STP 0.8p / £4.73m)

SpiriTel, a leading telecommunications business, reported an improving set of results for the year to April with revenue up 18 per cent to £19.7 million (2008: £16.7m) and a pre tax loss of £1.7m (2008: £4.0 million), after non-cash finance costs of £0.8m (2008: £3.1m) but an operating profit 61% ahead of prior year at £1.5m (2008: £0.9m). The group supplies a full range of traditional and emerging Internet Protocol (IP) based products and services to over 2,300 SME and corporate clients throughout the UK and Ireland. The group reported that it has strengthened is its balance sheet by securing a new 5 year debt and overdraft facility of £4.5m agreed with Clydesdale Bank and the conversion of up to £6.9m of debt into shares at a conversion price of 0.6p per share. The company indicated that although the trading environment remained tough it was now benefitting from higher levels of earnings visibility, due to the emphasis on contracted and recurring revenues from SMEs and larger corporate customers. This, combined with a wide range of business-critical products and services, means SpiriTel looks well placed to weather the ongoing economic storm. That‟s the spirit, chaps.

Surgical Innovations Group plc (SUN 1.42p/£5.33m)

Surgical Innovations (SI) is not a household name, but if you are one of the many people who have had abdominal keyhole surgery, you may have been in closer contact with the company than you realise. SI makes laparoscopic tools and instruments used by surgeons in minimally invasive surgery. This is a large market dominated by some of the world‟s largest medical device companies where SI plays the role of David against Goliath. Like David, SI has to be flexible and innovative, and until recently the fight has been difficult and Goliath has been able to stall David‟s advances, especially in the US. However, SI has been sticking to its strategy of innovative design and this is slowly bringing results as the company gains inroads into niche areas with the recently launched LogiFlex product for obesity surgery and the LogiCut scissors produced for a number of OEMs. In an environment that is increasingly focused on cost savings, particularly in the bloated health care systems in the US and Europe, SI‟s products offer significant advantages and appeal. Basic to SI‟s offering is the concept of a “resposable” technology which combines both single use consumables and reusable components. This gives users a higher benefit with an optimal performance at a lower cost compared to the competitors‟ products that are either completely disposable or fully reusable.
To underpin the growth strategy the company has made significant capital investments over the last few years. Most importantly was the decision to move manufacturing in-house. This is now paying off in improved margins and product quality, the removal of bottlenecks for sales growth, better customer support and responsiveness and an enhanced environment that encourages further innovation and product improvement. The return on these investments is starting to be realised as evidenced in the interim results announced this week. For the six months to 30 June, revenue increased by 14 per cent, operating profit by 185 per cent and earnings per share by 67 per cent. Meanwhile, the share price has underperformed the market and we think investors are unduly underestimating the current value and growth potential of the company. Some scepticism may be deserved regarding the company‟s potential to crack the US market, but we think it is just a matter of time before that happens.

*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.