Small Cap Wrap: Month: March 2010

AIM Breakfast - Archive

15 Mar 2010

This week: Anglesey raises capital, Avesco benefits from sporting events, and Tristel counts on overseas expansion

3D Diagnostic Imaging (3D.P.PL 9.5p / £10.19m)
PLUS listed 3D Diagnostic Imaging, whose subsidiary, CarieScan Limited, is a leading producer of handheld devices for the early detection and monitoring of tooth decay, last week announced its interim results for the six months ended 31 December 2009. The Group, although it reported a loss of £478,000, gave a positive outlook. It has net assets of £862,000 and a cash position of £566,000. The share price has been stable since last December’s announcement of a new distribution deal in the UK and clearance to market CarieScan PROtm in the United States which we believe should provide good revenues to 3D Diagnostic.

Anglesey Mining (AYM 29.5p, £45.09m)
Anglesey has announced a deal with Canaccord whereby Labrador Iron Mines (LIM), its 50 per cent held subsidiary quoted in Canada,  is to issue new shares to raise $C35m (£22.5m) and Anglesey has granted an over allotment option to Canaccord to purchase up to 811,000 LIM shares at $C5.55. If exercised in full this will provide Anglesey with gross proceeds of C$4.5 million (£2.9m). The deal represents good vindication for Anglesey’s Labrador Iron ore assets and should enable a fast track to production. Perhaps of more immediate importance to shareholders is that this provides a benchmark for valuation. Analysts estimate that the deal values Labrador assets at £3.66 per share suggesting a value of £68.1m for Anglesey’s current 18.6m shares. Whilst there will be likely be some dilution given the options, the current £47m market cap suggests further upside potential. Given the 74 per cent rise in share price since January some holders will doubtless be tempted to take profits but we see further upside yet in them there Welsh hills.
Avesco Group (AVS 45.5p / £11.39m)
We reported on Avesco, the international provider of services to the corporate presentation, entertainment and broadcast markets, a couple of week’s ago following a dawn raid by Taya Investment Company of Israel which picked up 20.4 per cent of the company. Now the company has provided a trading update in which it said that it expects to trade profitably for the year to September and to be strongly cash generative. The group had a successful Winter Olympics at Vancouver and has contracts in place over the summer for the FIFA World Cup and the World Expo in Shanghai. Avesco continues to be an asset play stock with tangible NAV of £37.8m in excess of the current market capitalisation of £10.9m. We suggested last time that that was the time to take profits on the stock and this remains our view.
Bglobal (BGBL 46.2p / £36.2m)
The smart meter group has won a contract to provide meters to npower, the UK energy supplier, in a deal worth almost £7m over the next 12 months as well as recurring data services worth £0.6m annually. The group has also won a contract to supply 23,000 smart meters to schools with British Gas. On the downside the group was hit by the recent bad weather which put a dampener on installations but then not everyone can be smart all the time.
dotDigital Group (DOTP.PL 0.875p/£11.31m)
PLUS quoted digital marketing company last week announced its interim results for the six months to 31 December 2009. Revenues increased by 44 per cent, from £1,936k to £2,785k and profits after tax increased by 28 per cent, from £405k to £520k. The company has a healthy net cash balance of £2,081k. Peter Simmonds, CEO, commented: “Demand for digital marketing continues to remain strong and the board is confident that dotDigital is well placed to provide products and services that match clients’ requirements. We expect sales to new clients of our email marketing product to remain strong throughout 2010 and planned product enhancements due for release in the year will ensure we remain at the leading edge of the market.” We expect to see this Company using its quote to acquire other businesses that would be complementary to its existing operations, with the aim of expanding into new profitable areas in a manner which will be immediately earnings enhancing.
Equatorial Palm Oil (PAL, 14.25p / £11.6m)
Equatorial listed a few weeks ago on Aim, having raised £6.5m of new monies with an additional £1.1m to follow on. Equatorial now has the cash available to deliver. It has a land bank of approximately 169,000 hectares, 89,000 of which are on 50 year leases, and aims to be a sustainable, low-cost producer of crude palm oil in Liberia by developing its existing plantations which have proven suitability for cultivation of oil palms and the construction of a processing mill. The three separate plantations are at different stages and are well placed with good infrastructure close to deep water ports. We believe that the Company is on track with its nursery development, and to have the mill operational by the year end. Having fallen 3p from the placing price of 17.5p, we see this as a good opportunity to buy into an exciting company, notwithstanding that palm oil has risen 8 per cent from $790/tonne when the Company was fundraising a few weeks ago to $850/tonne, although last few days has been at $860/tonne, and that the Company now that it has the cash is focused on delivering shareholder value to become a sustainable, low-cost producer of crude palm oil.
Group NBT (NBT 319.5p / £83.08m)
Group NBT, the global supplier of domain name management and associated services, reported a strong set of interims to 31 December 2009. Revenues up 13 per cent to £21.7m, adjusted PBT up 31 per cent to £4.0m, adjusted EPS up 39 per cent to 12.09p. The group has clearly benefited from a weaker pound but even so on a constant currency basis, underlying PBT and EPS was up 25 per cent and 33 per cent respectively. Strong cash generation coupled with a proposed interim DPS up by 40 per cent to 1.4p, implies the group’s confidence in strong profitability going forward. Net cash increased to £8.83m (FY2009: £5.16m). The recession has had an impact as cancellation rates have increased and delays in decision making continue to affect sales finalisation, especially for new clients. However, Group NBT benefits from the ongoing structural shift towards internet commerce. The current 2010 estimates suggest pre-tax profit of £7.8m, EPS of 21.9p and DPS of 3.6p. In 2011, the market anticipates 15 per cent EPS growth to 25.2p. The stock trades on a 2010 PER of 14.4x, with a yield of 1.1 per cent falling to 12.5x in 2011.  The share price has risen 12 per cent since we first covered the company on 28 September 2009 when we suggested buyers should Not Be Tardy.  Now, we think the stock is fully valued and recommend Not to Buy Today but wait for any weakness.

Herencia Resources plc (HER 0.675p/£5.8m)
Herencia’s new drilling programme at the Paguanta zinc-lead-silver project in northern Chile has commenced and the first indications are positive.  The first two drill holes have intersected visible mineralisation, including massive sulphides and confirm the presence of a fifth vein located 75 meters south of the high grade Cathedral vein.  First assay results will likely be available in early April.  A third drill hole is now underway testing for a western extension to the Cathedral vein.
Herencia’s current drilling programme consists of 3,500 meter of diamond drilling that targets potential high grade extensions to the known mineralisation which included high grade assays in the previous drilling programme.  New assay results should be available during the April – June period which will allow Herencia to update its Mineral Resource Estimate by mid-year and eventually move to a Feasibility Study phase in the third quarter of 2010.
Marshall Lake Mining (MLMP 7.5p / £1.15m)
PLUS quoted Marshall Lake Mining last week announced that it had signed a letter of intent with White Tiger Mining Corp. of West Vancouver. The agreement grants an option to White Tiger to acquire up to 75 per cent of the joint venture interest in the Marshall Lake concession, a copper, gold, silver and zinc property located in Ontario (Canada) which is expected to give a potential 12.5 per cent return. The company’s share price has doubled over the past twelve months from 3.5p to 7.5p. We write on this stock for the first time and at this stage reserve judgment on the Company until we get to know it better, although resource stocks, particularly a gold play in a stable economy, are attractive currently, hence the share price rise.

Mechan Controls (MECP.PL 137.5p / £2.75m)
PLUS listed Mechan Controls last week gave a positive trading update, that it saw a strong finish to 2009 and is confident about 2010. It is actively seeking additional acquisitions to complement its existing business and is also exploring new market places. Mechan recently appointed a new distributor in the US and this is expected to further enhance growing US sales. The company announced like for like growth in EPD of 60 per cent in the 6 months to June 2009, and expects to announce results for the year to December 2009 substantially in excess of this growth.

Synchronica (SYNC 2.625 / £15.16m)
After writing about Synchronica’s global launch of their MessagePhones a few weeks ago, it is pleasing to see them now announce their largest contract to date. The contract with a distributor of one of Indonesia’s largest mobile operators is worth US$1.05 mn for 300,000 devices over 12 months. The distributor will bundle Synchronica’s mobile Gateway product with phones from Nokia, Sony Ericsson, Samsung, Motorola, LG as well as their own MessagePhones. The technology provides synchronisation, and instant messaging on the mobile, as well as internet access. Indonesia is an exciting territory for Synchronica with 160 million mobile users but only 10 per cent of the population has access to the internet, meaning there is significant opportunity for the take-up of the technology.
Technis International (TECP.PL 6p / £3.41m)
We recently covered PLUS quoted developer and acquirer of intellectual property in the Telecommunications, Retail and Healthcare sectors, Technis, and may well have underestimated the opportunities that this company is possibly presented with. Last week, Technis announced that it has noted recent speculation regarding its potential acquisition of Case Communications Ltd and confirmed that it is indeed in discussions regarding the acquisition of Case and that further announcements will be made as and when appropriate. Having looked further at this Company, we believe that given its spread of experience and the wealth of opportunities that are currently in the market, that there could well be a run of interesting acquisitions in the offing.
Tristel (TSTL 60.5p / £20.05m)
The company focuses on infection and contamination control announced a strong set of interim results for the half year to 31st December 2009. Partially due to the successful acquisition or integration of Medichem, Tristel announced revenue up 28 per cent to £4.03 (2008: £3.146m) which feeds through to pre-tax profit of £656,000, up 39.9 per cent from the year before (2008: £464,000). Tristel’s lead technology is the chlorine dioxide based disinfectant, which is typically used in hospitals for infection control, and is safe to use because whilst being powerful it will kill all organisms. When hospitals use Tristel products (usually replacing chlorine tablets which have such a powerful smell that they are not used as frequently as they should), it does make a difference to infection results. The company sees further opportunities for overseas expansion (overseas sales already up 20 per cent on the preview period), especially in China and Russia, and is debt free with a strong balance sheet meaning it will be in a good position to capitalise on such opportunities.
*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.

08 Mar 2010

This week: Summit far from its peak, Cashbox in a hole in the wall and Sarantel picks up the right signal
Ant PLC (ANTP 29.5p/ £7.16m)
Ant, the software company that allows TV operators to manage their content and  provides customers with the ability to self-select services on demand, announced its 2009 year end results.  Revenues were up 26% at £4.7m (2008: £3.7m), a grand performance considering the challenging economic environment.  This reduced the loss before tax to £626,000 (2008: £1.013m), down 38% and with a  strong cash position of £5.05m (2008: £5.65m).  Ant signed 14 new licences, 7 of which were from completely new customers.
The market has been driven by consumers appetite for high value applications (such as on-line games through the TV), digital TV and on demand services such as catch-up TV and pay for movies.  The technology allows consumers to access this variety of services without needing to know whether it is coming from the web or by satellite. The operators are also keen to use Ant’s platform to enable them to reduce churn and increase their revenues from their catalogue of content. With no direct competitor offering a complete ‘one-stop shop’ of services and greater demand for personalised TV, we think this little Ant is on the march.
Beacon Hill (BHR, 0.295p, £19.34m)
Beacon Hill made two announcements last week. The first relates to the provision by Fortrend Securities of up to £5 million of funding. The agreement will enable Beacon Hill to draw down funds over the next 3 years to help develop its Arthur River Project in Tasmania and facilitate the appraisal and development of other projects. Under the drawdown agreement, Beacon Hill can issue new ordinary shares at a 10 per cent discount to the prevailing market price, which means dilution is contained at reasonable levels, with the maximum drawdown a function of prevailing trading volume.  For every 4 shares Beacon Hill will grant one option exercisable at the prevailing market price for 3 years. Beacon Hill will also pay a fee and has granted options over 20.8m ordinary shares, exercisable at 0.30p per share until 2 March 2013. The second of last week’s announcements cites ‘excellent progress’ made towards satisfying the due diligence and legal requirements relating to the acquisition of the Mina’s coking coal mine in the Tete Province of Mozambique. Beacon Hill and partners will initiate a defined development plan in order to maximise the full potential of the significant coal asset to generate near-term cash flow. The company has begun discussions with potential off-take partners. The statement speaks of finalisation of a feasibility study to create a large open pit mine producing 4 million tonnes per year with completion of the acquisition expected to be completed prior to the end of June 2010. A shining beacon in the night.
Captive Audience Display Solutions PLC (CADP 1.125p / £1.96m)
Last week we wrote that PLUS quoted Captive Audience Display Solutions plc was in talks in the Middle East to close an agreement to roll out its Out-of-Home Digital Media Network (Cads). The company announced last week that it has signed an agreement with NAFT  Services Company, a fast growing petrol station retail group, to develop a programme to roll out its digital media network across Saudi Arabia with the potential to deliver advertising content to 27 million people. The company’s share price ticked up at 1.12p (27 per cent) after the announcement with the possibility of more to come as we expects further agreements in the coming months.
Cashbox (CBOX 2.75p/£4.13m)
The UK’s largest independent operator of ATM machines announced its interims to December 2009 which saw revenues of £3.37m (09H1: £3.43m), gross profits of £1.28m (09H1: £1.23m), a loss of £1.20m (09H1: loss£1.45m) before tax and net debt of £9.87m (09H1: net debt £9.27m). The group ended the period with 2,528 machines installed (2,438). The lack of progress in profitability is a concern – on this basis the group will need to add 50 per cent more machines at their current usage to reach breakeven. Until that time the group continues to burn cash particularly in paying a convertible loan note at 12 per cent. It seems the company is now in a hole in the wall with little prospect of climbing out without a dramatic change of direction.  We hope to discuss this management shortly and will report back then. In the meantime, keep your cash card firmly pocketed.
Hydrodec (HYR 12.75p / £36.33m)
Hydrodec, the recycler of waste transformer oil, has announced an agreement with Kobe Steel Group of Japan to exploit Hydrodec’s technology throughout the wider East Asian market. It also gave a trading update and said its refining plants are running well but supply constraints in the US market have limited sales in the first 2 months of the new year, so Q1 sales will match but not exceed Q4. Worryingly, availability of feedstock at acceptable prices has constrained US sales which is critical as this process uses waste oil and refines it to compete with virgin material. The group also warns that this constraint and US limited availability of trade credit terms is forcing the group to examine “a number of financing options to support the development and working capital requirements of the business”. Whilst we accept the danger of a potentially dilutive funding round is in the offing we do not believe the full significance of the Japanese opportunity is yet understood by the market. Do not waste time hanging around as this one’s about to soar.
Imaginatik (IMTK  4.5p/ £7.17m)
Imaginatik, the provider of collaborative innovation software and processes, has reported that contract slippage will prevent the group from breaking even for the year ending 31 March 2010. Turnover is expected to be marginally ahead of the £4.58m achieved in 2009. Uncertainty surrounding the time of closure of various ongoing discussions provides further uncertainty surrounding the loss for the year. Whilst this announcement is disappointing the upside is that contract slipping into 2011 may lead to an upgrade in market expectations for 2011 PBT and EPS of £0.33m and 0.20p. Not one to rush out and buy just yet but following any upgrade we’d imagine this could be interesting.
Interquest (ITQ 48.5p/ £14.83m)
Interquest, the IT recruitment specialists, released their preliminary results for the year ending 31st December 2009.  The company remains profitable and cash-generative and set up nine new brands for niche recruitment sectors over the year: in five cases acting almost as a private equity backer to experienced sales managers who want to go it alone but using Interquest finance and front office systems.  Some of these are already profitable.
Recruitment in particular has faced an extremely challenging period in the face of the tough global economic conditions and yet for Interquest revenues were down only a 8% at £97.4m (2008: £105.5m) giving gross profit of £12.4 (2008:£15.3m) a fall of 19%. The company has doubled the dividend to 2p per share for the full year (2008: 1p)
This surprisingly solid set of results continues into the new year, with Interquest seeing permanent recruitment strengthen 40 per cent compared of to the average in the first three quarters of 2009.  They are open to strategic acquisitions in 2010 and we feel that having added another 68 contractors already this year (2009: 928) 2010 should be a stock to (head) hunt down.
Just Car Clinics (JCR 48.5.5p/ £7.09m)
Just Car Clinics, the independent collision repair chain, reported prelims to 31 December 2009 that were in line with market expectations. Revenues remained flat at £42.9m (2008: £42.6m), but LFL revenues fell by 4 per cent. The group reported an 8 per cent decline in adjusted PBT to £1.2m (2008: £1.3m), 13 per cent decline in adjusted EPS of 5.6p (2008: 6.4p) and DPS up by 2 per cent to 1.63p.  Revenues from mandatory vehicle insurance held up, but the group reported lower volumes of repairs impacted by reduced road usage and a general reluctance by retail customers to incur excess payments. The company continues to add new business and has succeeded in growing the fleet and local business sectors, whilst extending its offering to include mobile light cosmetic repairs, tyre fitting and mechanical servicing at selected locations. Gross margins fell to 41.0 per cent (2008: 41.7 per cent),  negatively impacted by variability in weekly repair volumes resulting in reduced efficiency and the difficulty of passing cost increases on to customers in the prevailing economic climate. Net debt fell to £1.28m (2008: £1.82m). The group continues to seek acquisition opportunities. Overall, the company has performed well, given the tough economic climate and the current financial year has started well as the company has benefited from the recent adverse weather conditions.  The market forecasts 2010 PBT of £1.3m, EPS of 6.2p and DPS of 1.7p. The stock trades on 2010 PER of 7.9x with a yield of 3.3 per cent. which is just about right in our view.
Lighthouse Group (LGT.L 9.12p, £11.65m)
Lighthouse, the IFA business, has been appointed as the exclusive Financial Adviser to Royal Mint employees in relation to their deferred benefit pension transfer options under their new final salary scheme. The group has zero bank debt and net cash of £12.2m at the end of June 2009 which exceeds the current market capitalisation. Despite the unloved sector, we’ve seen the light.
Metrodome Group PLC (MRM 2.25p / £4.16m)
We write on this AIM listed media play for the first time. Metrodome is active in the licensing, marketing & distribution of feature films, television and video programming and last week announced its preliminary results for the year ended 31 December 2009. The company has returned to profit despite challenging trading conditions at the start of the year, with the collapse of Woolworths and its DVD distribution arm Entertainment UK, together with the loss of Zavvi, which left Metrodome in a difficult position, unsure of how the DVD retail market would shape up. The Company reported revenues of £9.1m (2008: £6.6m), up 38 per cent. Profit before tax came in at £199,000 (2008: loss of £543,000) a positive result for the first time in terms of PBT.
We are impressed at the speed at which Metrodome took the initiative and developed direct relationships with new retail customers, including former EUK customers and successfully raised new finance to strengthen its financial position. Metrodome has continued to outperform the market with a 19.2 per cent increase in DVD sales.
Metrodome now has two objectives, namely to maintain profitability and to expand the company, by focusing on its core business of film distribution, as well as investing in related activities such as co-production deals and seeking diversification in related markets through mergers and acquisitions. One comment accompanying the results that “organic growth for the current year is unlikely to reach the high levels achieved in each of the last three years” may hold the share price back and clearly Metrodome needs to look further afield, to an acquisition strategy, for growth. After a spike in the share price in early December, the share has been quite flat of late. We wait for further news on its acquisition strategy to perhaps drive the share price further. Until further news, we advise watching this one with interest.
One Media Publishing Group plc (OMPP 1.25p /£1.14m)
The PLUS quoted One Media Publishing Group, which is involved in Business to Business music and video rights, issued its final results for the year ended 31 October 2009. The company reported strong results with turnover of £794,728 a 29 per cent increase from £615,667 in 2008 and a  profit of £65,841 compared with the 2008 £89,350 loss.
Michael Infante, the company’s Chairmen, stated:  “The digital market place has its own challenges with a reliance on consumers becoming internet literate and all homes achieving a decent broadband connection. As the current retail high street becomes ever more under pressure due to the recession we are experiencing continued growth via our online digital distribution model”. We imagine that One Media will continue to explore digital content acquisitions under license or by straight purchase and expect to see further news on that front in the near future.

Sarantel (SLG 2.25p / £6.55m)
Sarantel continues to win contracts for its high performance aerial. This time a major US defence contractor has signed for a dual-frequency antenna for military satellite communications and, importantly, they are funding the project. The signals we’re picking up on our antenna are causing quite a buzz.
Summit Corporation (SUMM 5.25p / £8.73m)*
It would be crude to say that investing in Summit Corp at these share prices is a no brainer, but then trying to pick which is the most compelling valuation case for the stock is, well,….take your pick! Summit is far from the peak of its potential valuation. It is trading at close to cash and yet has multiple high value opportunities that could easily add hundreds of millions to its market cap. By far the largest opportunity is its DMD partnered programme with BioMarin. In January BioMarin Pharmaceuticals Inc. announced that it had initiated a Phase 1 clinical study in SMT C1100 or its partnered Duchenne Muscular Dystrophy New Chemical Entity (NCE). The market appears to have not fully digested the significance of this deal. The DMD trial is likely to read out phase I results in Q3 this year and move up substantially in valuation gear as it starts phase II in Q1 2011. There are $140m of potential milestones attached to this product alone. However, the importance of this product is not only highlighted by the Company and by us, but by Summit’s partner who is class leading in Orphan Drug development. At BioMarin’s recent year end results, BioMarin welcomed multiple questions on the partnered DMD product and talked about the commencement of a phase II trial in 2011 which would most likely lead to a pivotal trial. The start of phase II triggers a $3m milestone to Summit we forecast and a pivotal trial, a $10m payment, in our view. A filing in the US, UK and Japan for this DMD drug, which is spitting distance away in drug development terms, could trigger milestones of $30m to Summit. If you only bought Summit for DMD, the potential valuation uplift could be hundred fold.
Another important value driver is that Summit has identified a novel class of compounds that are effective against the infectious disease C. difficile. This has attracted a grant of £2.2m from the prestigious Wellcome Trust which will completely fund the development until 2012, at which time the Company would expect to have a compound ready to enter human clinical trials.  We could have results on this as early as the second half of this year.
Summit’s major R&D focus is on developing new medicines from its proprietary iminosugar drug discovery technology platform. This technology platform is attracting increasing levels of interest and Summit is exploring potential collaborations with a number of pharmaceutical and biotechnology companies to investigate its platform in a range of major therapy areas. The Board believes the next 12 months will be an important period in the development of this innovative technology. There are multiple licensing opportunities in the iminosugar platform. One of these is in the multi-billion dollar therapeutic area of diabetes and also infectious diseases. This includes SMT 14224, which is being developed as a new treatment for type II diabetes with data on this compound indicating that it potentially works via a new mechanism of action. Initial marketing of SMT 14224 has resulted in interest being shown from several leading pharmaceutical companies and Summit is investing a portion of the new finance into studies designed to add further value to this programme.
Summit is now focussed on developing its iminosugar platform having disposed of non-core businesses, having made significant reductions in its cash burn, and having raised £5.4m in December 2009 which provides the company with at least 2 years cash, well beyond the point where it anticipates receiving significant milestone payments from its partners, which all added together could total $180m at this stage and with many more programmes and products to potentially partner in high value areas such as cancer and inflammation and in bioterrorism.
It would appear to us that only the brave would sit on the sidelines ahead of Summit’s DMD programme entering phase II, at which point this languishing share price will only be a distant memory and those who want a piece of the action will have to pay multiples of where this Company currently trades. Clearly Summit’s directors and Executive management team think so, given last week’s share purchase announcement by Summit’s Chief Executive Officer, Dr Steven Lee, and the Company’s Chief Financial Officer, Mr Raymond Spencer, amongst others at a range of 4.67-4.7 pence per share.
Win (WNN 111p/ £11.63m)
Win announced that it is launching a range of new applications for the Vodafone 360 platform, which combines the popular social networking sites and email contracts with games, music and apps all in one place.  Win’s three new apps are: Pocket Doctor (a medical guide giving information on illnesses and ailments); Lottery (which generates ‘lucky dip’ numbers and gives information on winning numbers); and Snow & Ski (which gives information on snowfall and skiing conditions in resorts all over the world). Whilst Pocket Doctor and Lottery are free apps to the consumer, Snow & Ski will incur a charge of approximately €0.99.We agree with Graham Rivers, Win’s CEO, when he says that having three applications on the Vodafone platform is “a tremendous endorsement of our capabilities”, a real win.
Zeta Compliance Group (ZCGP 33.5p / £2.91m)
We write on this PLUS quoted company that  provides  products  and  services  to  enable  organisations   with   large estates  to  ensure that they systematically meet their Environmental, Health and Safety  obligations, for the first time.  The Company’s wholly owned subsidiary, Fineapply Limited carries out risk assessment and monitoring services in respect of water and air hygiene where Legionella and MRSA are principal concerns. Last week Zeta announced a new division launching in March, to be known as Zeta Carbon.  Building on Zeta’s leading compliance solutions, Zeta Carbon will provide clients with the ability to comply with the growing level of legislation in this area, including the Energy Performance of Buildings Directive and the Carbon Reduction Commitment.  The Division will also provide technical and strategic consultancy services to clients, with services addressing Energy/Carbon Management, including Air Conditioning Inspections, Energy Performance Certificates and a full range of Energy Management Consultancy Services.  The Division will also provide clients with Sustainability and Environmental Management services, Health and Safety, and Fire Risk Management. It would appear that this small company has a long way to go and a large market to address in the growing areas of increasing legislation in Environmental, Health and Safety arenas and should be able to make good money from it’s a to zeta consultancy offering.
*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.

01 Mar 2010

This week: Animalcare flies, Avesco Rises and Wren Extra Care is expanding.

Animalcare Group (ANCR 117.5p / £23.37m)
Supplier of pharmaceutical and other premium products and services to the veterinary industry and the manufacturer and supplier of premium quality livestock products to agricultural retailers has been moving up from the £1 per share level all this year. Last week it announced its interim results for the six months ended 31 December 2009 and demonstrated why the share price is on the move.
James Lambert, Chairman of Animalcare said “I am pleased to report strong growth in revenue and EBITDA, especially in our companion animal business. Although the market for our key livestock products is challenging we anticipate trading to improve in the second half of the year and are confident that our licensed veterinary medicines will continue to deliver revenue and profit growth in line with expectations.”
We attended a well turned out analyst meeting at which the company presented a substantial increase in revenue to £8.93m (2008 £7.76m) and EBITDA of £1.21m (2008 £0.82m). The companion animal business continued to deliver excellent revenue and profit growth with both the core business and the recently introduced licensed veterinary medicines making strong progress. Sales of Benazecare, Buprecare and Cephacare continue to grow in line with Animalcare Group’s expectations. The livestock business delivered modest revenue growth but suffered a loss due to one off costs and pressure on profit margins. The bulk of the loss related to the withdrawal from low margin activities unrelated to the ongoing business. In addition the business suffered a modest loss due to higher product costs arising from the sharp fall in the New Zealand $/GB £ exchange rate and a decline in sheep identification market volumes ahead of the implementation of new identification rules.
Adjusted basic earnings per share increased to 3.1p (2008 1.4p). Net cash flow from operating activities was £0.93m (2008 £0.94m) and at 31 December 2009 the group had net debt of £3.82m (2008 £4.99m).
The company announced a Marketing Authorisation in the UK and certain other EU markets for a further licensed veterinary medicine which will be launched in the next few months. As well as new product launches, we can expect potential acquisitions that will strengthen Animalcare’s market position and enhance earnings. We like the diversification of the three separate divisions and two distinct routes to market that Animalcare has and we also like the fact that working with various partners widens the pipeline. We also like the derisked and cost effective strategy of branded generics vs. high risk and high cost development of NCEs. Definitely one to watch and plenty more growth to come.

Arrowpoint Technologies (ARWP 16p/ £32.1m)
The  Plus Market quoted provider of pensions and retirement benefits administration software Arrowpoint Technologies  Plc has announced contract renewals from two major customers with a total potential value of up to $14 million over five years. The company has entered a $2.2m  yearly contract (with a possible extension for other 4 years) with the Pension Benefit Guaranty Corporation the Federal US pensions body and a $2m 18 month contract with Principal Financial Group, a global financial services provider. The deals give good revenue visibility over the short to medium term after an excellent 2009 in terms of revenue and growth. After the announcement the share price, which since last October IPO was pretty stable, rose by about 3 per cent.
Arsenal Holdings (AFC 920,000p/ £572.41m)
Plus quoted Arsenal Holdings plc announced the results for the six months ended 30 November 2009. The Group has continued its multiyear profitable trend announcing an excellent first half profit before tax of £35.2m (H1 2008: £24.5m);  revenues from football were £100.2 m (H1 2008, £98.4m),  and despite the week property market, £217m cash has been generated from property development which will repay in full the associated debt. Speculation continues over Arsenal’s ownership although any takeover premium is now in the price. For us it’s a game to enjoy from the terraces.

Avesco Group (AVS 42p / £10.51m)
Lots going on at Avesco, the international provider of services to the corporate presentation, entertainment and broadcast markets, following a dawn raid by Taya Investment Company of Israel which picked up 20.4  per cent of the company. The share price surged from 27p to 47p on the news that Avesco might be in play but then things calmed back down to 42p when Taya announced it has no current intention to make an offer for Avesco. We see Avesco as an asset play with tangible net assets of £37.8m against the current market capitalisation of £10.9m. However, as the group is no longer in a bid situation, this is probably time to take profits.
Captive Audience Display Solutions (GMCP 0.875p / £1.52m)
Plus quoted Captive Audience Display Solutions plc, a company which has developed an “Out-of-Home Digital Media Network” which delivers current news, entertainment and advertising to millions of viewers on petrol station forecourts throughout Ireland, has provided a trading update.  The company invested more than €2m in building, developing and upgrading its network leading to an audience of about 1.8m people per month The company reported difficult trading and announced it is cost cutting and seeking additional funding. Captive Audience is also working on developing new markets in the Middle East.
Equatorial Palm Oil (PAL 15.25p / £12.62m)*
Equatorial listed on Aim on Friday, with a market capitalisation of £14.3m, having raised £6.5m new monies with an additional £1.1m to follow after admission.  It has a land bank of approximately 169,000 hectares, 89,000 of which are on 50 year leases, and aims to be a sustainable, low-cost producer of crude palm oil in Liberia by developing its existing plantations which have proven suitability for cultivation of oil palms and the construction of a processing mill.  The three separate plantations are at different stages and are well placed with good infrastructure close to deep water ports.
Liberia is now politically stable, with significant investment from international companies, such as Arcelor Mittal.  It enjoys a US backed president, Ellen Johnson Sirleaf, and GDP is forecast to grow at 11.2% in 2010.
Demand for palm oil is increasing as a healthy alternative to hydrogenated oils such as soya and sunflower oil.  Its uses range from processed foods such as margarine and chocolate to soaps, detergents, cosmetics and pharmaceuticals: 43% of the top 100 food brands in the UK contain palm oil. Having fallen slightly from the placing price of 17.5p, we see this as a good opportunity to buy into an exciting company.
General Medical Clinics (GMCP 32p/ £5.31m)
Plus quoted General Medical Clinics PLC issued its unaudited interim results for the half year ended 30 November 2009. The company is a provider of primary medical care in the City of London and the West End specializing in the provision of general medical practice,  health  screening  services,  occupational  health programmes, physiotherapy and nurse-led functions such as travel vaccinations. General Medical Clinics reported strong growth with turnover at £3.6m (2008: £3.4m) giving a basic EPS of 0.1p (2008: 0.7p). Cash stood at £1.61m with no debt. General Medical Clinic stated that it has renewed for another three years the contract with MASTA (a provider of travel vaccines and travel health advice) and that its new medical centre in London is growing strongly. It was also announced on 10 February that the company is in discussions with Westover Medical Limited which may lead to an offer for the company at 34p cash per share leading to a share price rise of 3 per cent.
Goldplat (GDP 9.5p/ £10.6m)
Goldplat, the African precious metals recovery and mining company, has announced its interim results for the six months ended 31 December 2009.  The key points are that operating profit increased to £1.2 million from £0.8 million and that profit before tax fell slightly to £1.1 million from £1.2 million due to sharp movements in exchange rates.  Higher gold prices offset a decline in production from the recovery plants to 8,309 ounces from 12,084 ounces.  Work done to increase capacity and improve operational efficiencies will improve cash flows from Goldplat’s recovery operations and will be channelled into a project portfolio of primary production.  The company recently announced that it has entered into a deal with the option to acquire the Nyieme gold project in Burkina Faso from Sanu Exploration.  The 246 sq km project consists of high-grade quartz veins.  The existing Kilimapesa gold mining operation in Kenya is nearing commercial gold production as the mining lease application is finally expected to be completed after long delays.  After a year in transition, Goldplat should see the different parts of its business come together for a period of growth.

Herencia Resources (HER 0.6p/ £5.2m)
In a third project update following a successful fund raise Herencia has confirmed that its new drilling programme at the Paguanta zinc-lead-silver project in northern Chile has commenced and is being carried out by Major Drilling.  The specialist contractor has been engaged to undertake 3,500 meters of diamond drilling that will target potential high grade extensions to the known mineralisation which included high grade assays in the previous drilling programme.  New assay results should be available during the April – June period which will allow Herencia to update its Mineral Resource Estimate by mid-year and eventually move to a Feasibility Study phase in the third quarter of 2010.
Imaginatik (IMTK 6p / £9.55m)
Imaginatik, the provider of collaborative innovation software and processes, has announced another contract win, this time with The Windsor Quality Food Company, a UD based manufacturer and marketer of frozen ethnic foods and appetisers. The deal is a multi-year software and services contract but the value of the contract has not been disclosed. The share price has drifted of late and this could provide investors with a buying opportunity.
Lipoxen (PLX 9.25p/ £14.3m)
We reported a few weeks ago that the Serum Institute of India had agreed to expand Lipoxen’s ErepoXen trial into a fully integrated phase II FDA compliant study. Lipoxen, a bio-pharmaceutical company that develops new and improved versions of existing drugs and vaccines, has now announced that the Serum Institute has just commenced first dosing of patients with anaemia in this open label, six centre, 30 patient trial.  ErepoXen is an enhanced form of EPO, a hormone produced by the kidneys to maintain red blood cell production and prevent anaemia caused by chronic renal failure or chemotherapy.  One of the primary endpoints of the clinical trial is an improved red blood cell count and the results will be reported in Q3 this year.
Like Lipoxen’s other programmes this one is made possible by the company’s cost effective business model which is based on out-licensing its proprietary technologies to partners that have strong manufacturing and marketing capabilities.  Lipoxen’s technology platform generates a large number of opportunities.  Each one has a decent shot at returning considerable revenue streams to the company, a point that is not reflected in the current pricing of the company.
NXT (NXT 1,875p / £3.559m)
NXT announced its half year numbers along with a placing to raise £1m, which was supported  by a licensing partner, Nissha Printing, as well as institutional investors.  Whilst the numbers were down on last year’s figures that has to be viewed as part of the global economic slowdown as NXT provides high end flat panel loudspeaker technology which is a discretionary spend.  Half  year revenues were  at £1m (2008 H1: £2.1m, although this included a one-off exclusive license fee of £1.2m from Nissha Printing, so if that were stripped out, revenues are  up slightly).  NXT made a pre-tax loss of  £750,000 against £340,000 in the first half of 2008.
However, surprisingly, one of the few consumer electronic markets that grew in 2009 was for portable speakers.  NXT announced 20 such new products and is now engaged with more than 10 new brands and distributors, giving much promise for the upcoming period.
The Company expects to drive royalty income over the second half by continuing with innovative loudspeaker products as well focusing on signing licenses and consulting wins for haptic applications for touch screens.  Haptic technology provides a more realistic experience of using a keyboard on a touch screen by providing sound and vibration feedback.
We think that with a strengthened cash position from the placing,  interesting technology and proven ability to translate that into desirable products, NXT are in a good position for the rest of the year.

Plant Impact (PIM 18.5p / £5.8m)*
Plant Impact, the developer of sustainable and ecologically-sound products to combat environmental plant stress and improve crop productivity, has raised £2.1m through a placing of new shares at 15p. The funds raised will be invested in appointing new sales and marketing personnel to drive sales in the company’s current markets and accelerate the roll out of the company’s existing products into new markets. The company plans to significantly speed up its product development by increasing the number of field trials and bring its present and pipeline products to the market. It also will support Arysta LifeScience Corporation in marketing and developing BugOil in its active territories. Pete Blezard, CEO of Plant Impact said “I am delighted with the support that we have received in this equity fundraising. I firmly believe that Plant Impact can play a significant role in sustainable agriculture and these funds will help the Company to expand sales of its proven products into new and existing territories. The Board believes we now have sufficient funding to pursue our strategy.”
Summit Corporation (SUMM 4.875p/ £8.10)
UK based drug discovery company, Summit, has lost a couple of pence over the last month, although last week announced a very positive pre-close trading update ahead of its final results for the year ended 31 January 2010.
The Board is pleased with the recent progress of the company in spite of the challenging economic climate. The company is now focussed on developing its iminosugar platform having disposed of non-core businesses and having made significant reductions in its cash burn. These changes enabled the company to successfully complete a fund-raise in December 2009 and management now expect to reaching a number of key milestones from existing partnered programmes and the signing of new platform or programme based deals. In December 2009, Summit raised £5.4m which, excluding milestone payments from existing and potential future deals will provide the business with cash resources until at least December 2011.  This investment ensures the company is funded well beyond the point where it anticipates receiving significant milestone payments from its partners and will accelerate the development of Summit’s innovative iminosugar technology platform. Summit had a cash position of £6m on 31 January 2010.
In addition in December 2009, Summit was awarded a grant worth up to £2.2m from the Wellcome Trust to fund the development of the company’s C. difficile infectious disease programme. Summit has identified a novel class of compounds that are effective against C. difficile and the grant will completely fund their development until 2012 at which time the company would expect to have a compound ready to enter human clinical trials.  The company drew down the first instalment of the grant of £550,000 in January 2010. The Wellcome Trust funding endorses the scientific innovation and expertise that exists within Summit.
The company received a further boost in January 2010, whenBioMarin Pharmaceuticals Inc. announced that it had initiated a Phase 1 clinical study of SMT C1100 (also known as BMN 195).  Discovered by Summit scientists, SMT C1100 is a small molecule utrophin upregulator for the treatment of Duchenne muscular dystrophy (DMD), a fatal genetic disease for which there is currently no cure.  The programme was licensed to BioMarin in July 2008 and Summit is eligible to receive significant development and regulatory milestone payments and tiered royalties rising to a low-teen percentage over this potentially disease modifying medicine.  BioMarin has indicated that initial top-line results from this Phase I trial are expected in Q3 2010.
Summit’s major R&D focus is on developing new medicines from its proprietary iminosugar drug discovery technology platform.   This technology platform is attracting increasing levels of interest and Summit is exploring potential collaborations with a number of pharmaceutical and biotechnology companies to investigate its platform in a range of major therapy areas.  The Board believes the next 12 months will be an important period in the development of this innovative technology.
Internally, Summit is currently focusing its research activities in the multi-billion dollar therapeutic areas of diabetes and infectious diseases.  This includes SMT 14224, which is being developed as a new treatment for type II diabetes with data on this compound indicating that it potentially works via a new mechanism of action.  Initial marketing of SMT 14224 has resulted in interest being shown from several leading pharmaceutical companies and Summit is investing a portion of the new finance into studies designed to add further value to this programme.
We believe that this stock is likely to generate a healthy amount of news flow, given that it is a very well funded drug discovery company with a portfolio of programmes partnered and worth $160m. Summit also boasts a library of Iminosugars that is the most comprehensive globally.
Technis International (TECP 6.5p/ £3.70m)
PLUS Markets quoted Technis International Plc has issued its results for the year ended the 31st December 2009 posting a loss of £849,650 (2008 : £1,264,474 loss). The Company is involved in developing and acquiring intellectual property spanning the Telecommunications, Retail and Healthcare sectors. Last September’s IPO raised £480,000 which has been used for product development and the lunch of its first product: Transcribe, a software suite of modular voice to text language translation. However, the company signalled a cash crunch after failing to secure a licensing deal notwithstanding several ongoing discussions. The shares were off 20 per cent after the announcement.
Telephonetics (TPH 7.5p / £8.19m)
Teleponetics, a leading provider of end-to-end customer interaction solutions employing advanced speech recognition and call handling technology, announced its full year results  to November 2009.  Revenues rose by 5.6 per cent to £10.51m (£9.95m) with a first time contribution from the February 2009 acquisition of Datadialogs of £0.55m (reflecting a 27 per cent growth from pre-purchase levels). PBT fell to £0.41m (£1.07m) with EPS of 0.33p (0.87p) and the group ended the period with net cash of £5.1m. The group’s healthy cash balances and its ability to make further acquisitions may make the stock seem attractive but with the share price pretty much flat for the past three years management will need to show a lot more razzle dazzle for us to dial into this number.
Tower Resources (TRP 1.375 / £13.85m)
The oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, last week crashed from a market cap in the £40’s of millions to just £12.09m on news that its Avivi-1 well has reached its total depth at 764 metres without experiencing oil shows. On Monday this week, Tower put out a fuller statement. Neptune Petroleum, the wholly-owned subsidiary of Tower Resources plc, has completed operations on the Avivi-1 exploration well in Uganda Licence EA5. The well was plugged and abandoned and the rig released at 6am on 27th February. The well, which was drilled to a total depth of 764 metres, did not encounter oil, despite persistent methane gas traces, and tested water from the target reservoir interval using a wire line fluid sampler. Electric logging confirmed the absence of oil and gas. Although the well failed to encounter hydrocarbons, valuable and encouraging information was gained, which, together with the information from Iti-1, will allow a much greater understanding of the Licence. Within the next few weeks, the Tower Board will consider whether it intends to apply to continue into the Third (and final) Exploration Period of two years. When that decision has been made, a more complete account of the programme to date will be given. The brave could pick up stock at these levels, those less likely to take any risks, may await a more information,
TyraTech, Inc (TYR 10.5p/ £2.3m)
We have written on TyraTech several times during the last six months.  Although the company had a difficult year in 2009 we feel that there have been many more steps going forward than going back.  The company highlights some of the achievements in its preliminary results and we think they are worth repeating as they underscore TyraTech’s partnering model.  One of TyraTech’s key partners is Terminix which launched the SafeShield eco-friendly household pest control product into the consumer market and two other natural pest control products into the institutional and commercial markets.  The partnership with Arysta produced a crop protection product which will be launched this year; the partnership with Clarke Mosquito Control lead to the development of TyraTech’s Natural technology for the vector control market; the partnership with Chemplast resulted in a commercialisation strategy for TyraTech’s proprietary technology for the banana and pineapple market; and the partnership with Kraft for functional foods was revised with improved payment terms.  Product revenues grew to $2.9 million from $1 million while operating expenses decreased to $13.7 million from $20.4 million.
We expect to see increasing revenues from the company’s partnering model this year and with a much lower cost structure and development capital being carried by the partners it is not a stretch to see TyraTech break even this year.  The current share price does not in any way reflect this possibility nor does it put much value on the company’s unique technology.
Winning Pitch (WINP 27.5p / £1.44m)
The PLUS quoted company which provides  high growth  coaching and  business support services  to entrepreneurs  and SMEs,  last week announced  its results for the year ended 30 September 2009. Turnover came in at £3.0m, up from £1.3m in 2008 and profit was also ahead of budget at £66,000. Continued growth is anticipated for 2010 with a robust current order book and bid pipeline to support an intended strategy to scale the operations. Future growth is anticipated in the corporate sector as well as the personal growth and motivation arena  – this will be driven by the publishing of John Leach’s (Chairman and Chief Executive) second book – “The Success Factor -Master the Secret of a Winning Mindset”
The company outlined a myriad of objectives and strategies for 2010 from continuing to deliver large scale public sector contracts; providing outsourced business support and skills services for SMEs in the public sector; exploring opportunities within the FTSE250 arena; developing intellectual property and brands; embracing multi media and social media technologies to enhance the connectivity to wide and varied communities; and in due course international expansion.
Wren Extra Care Group (WREN 8p / £4.19m)
The AIM listed provider of retirement living, through a range of Extra Care and other services for the independent elderly, last week announced that detailed planning permission has been granted on a site owned by the company for thirteen two bed roomed apartments in Chipstead, Surrey. This planning consent would enable Wren to generate significant cash from a sale of the site alone at this stage. However, in order to optimise both profit and cash for the company, the directors have submitted a further application on the same site for nine five-bed roomed executive houses, which if successful would materially enhance profitability and cash generation from the site and a decision on the planning and sale of the scheme will be made within approximately two months. We have been impressed by the management team and given the new strategy and their position in the market place would hope to see this funded in the short to medium term and the news flow to pick up after funding.
*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.