Small Cap Wrap: Month: June 2010

AIM Breakfast - Archive

30 June 2010

This week: Look forward with Clarity, a round of applause for EnCore and speed ahead with Transense

Clarity Commerce Solutions (CCS 38.5p/£15.6m)
Clarity Commerce Solutions, the point-of-sale software solution provider, has provided their audited results for the year to 31 March 2010. The company were able to demonstrate strong growth of 67% in operating profit to £1.9m, whilst generating a net cash position of £1.3m. Earnings per share for the company before the tax credit stands at 3.63p (2009: 1.47p). Pleasingly, the company has secured strong contracts during the year, with Merlin Entertainments group being particularly noteworthy. The company has revised their product strategy to include its products and services under one core offering known as ClarityLive, which, together with comprehensive support package, provides a fully integrated consumer purchase experience. Post year end, the company has reacquired Cyntergy Services Ltd, the IT helpdesk and training services company, to ensure the offering is as comprehensive as can be in the market place. With the Merlin contract having been awarded late on in the year and the effects of the Cyntergy acquisition yet to reflected, we think CCS has clear potential to grow quite nicely.

EnCore Oil (EO. 47.5p/£137.9)
EnCore released further positive news regarding the recent discovery at the Catcher exploration well located in the UK Central North Sea block 28/9.  As an update to the initial report a few weeks ago about a minimum of 240 feet oil column with light oil, results from the Catcher East side-track show excellent quality oil bearing sandstones, indicating 82 feet of net hydrocarbon play over an interval of 236 feet.  Pressure data further indicate a common reservoir between Catcher East and the original well.  Some reserve estimates for EnCore’s share of Catcher have doubled from 60 to 120 million barrels.  The consortium has decided to drill yet another well to the south-west so watch this space.

ImmuPharma (IMM 72p/£58.4m)
Cephalon Inc, the development partner for Lupizor, the Company’s furthest advanced drug candidate, has begun the recruitment of patients for a phase IIb trial in the US. This trial is an additional study designed to allow the FDA and other US-based investigators to carry out further evaluations prior to the commencement of phase III trials later in the year and will form part of the overall submission to the FDA.
In addition, Cephalon has commenced the approval process in Japan with an agreement with Symbio Pharmaceuticals allowing the latter to conduct a Japanese-based phase I clinical study. This is the first step in the necessary process to enable the drug to be marketed in this large and important market.
The above is further evidence of the substantial effort and resources that Cephalon is committing to completing the development of Lupizor to enable its commercial launch. We maintain our positive stance on the shares.
Milestone Group (MSG 1.65p/£1.75m)*
AIM quoted digital solutions and technology agency announced that it has entered into a consultancy contract with UK Company Ultra Green Oil Recovery Limited (UGOR), to provide UGOR with a mobile solution required to co-ordinate its environmental initiative focused on cleanup operations in the Gulf of Mexico. UGOR has established a British-led initiative to help in the cleanup operation in the Gulf of Mexico in response to the effects of the BP Deepwater Horizon oil disaster.  UGOR, a British-based environmental R&D company has pooled its resources with its US science partner Algaeventure Systems, which has an established relationship with the US military and the US Department of Energy, to provide a rapid and scalable method of clearing-up and collecting oil from the sea surface before it reaches the coast using local fishing boats.  Milestone has been engaged to provide consultancy services in relation to the provision of a mobile solution to enable UGOR to co-ordinate its operations. In its recent results for the six months ended 31 March 2010, Milestone announced that revenue has been generated for the first time by the new digital solutions team. MSG is now firmly focused on generating revenue and we believe that this stock is well worth a look now that the turnaround is complete.
Scancell Holdings (SCLP 57.5p/£9.16m)
PLUS quoted developer of therapeutic cancer vaccines announced a research collaboration with Immatics Biotechnologies GmbH to explore the development of novel ImmunoBody vaccines for colorectal cancer. Immatics discovers and develops tumor-associated peptides for the immunotherapy of cancer. TUMAPs with the highest specificity for particular cancers are identified directly from primary human tumour tissue samples. From thousands of identified TUMAPs the most suitable ones are selected and combined to a single multi-peptide product to form a therapeutic cancer vaccine. The goal is to provoke a number of specific T-cell responses which finally result in the destruction of tumour cells presenting the TUMAPs. Scancell’s first vaccine using its patented ImmunoBody technology is SCIB1, a novel DNA vaccine being developed for the treatment of melanoma, which is currently in Phase 1 clinical trials. In the research collaboration with Immatics, colorectal cancer-specific TUMAPs will be incorporated into ImmunoBody constructs to create ImmunoBody vaccines targeted towards colorectal cancer. If the research project is successful, Immatics and Scancell will explore the further development of any product candidates. Scancell is in a strong cash position and we like the approach in the cancer vaccines space and technology platform companies in general. Definitely one to keep scanning the news on…

Scientific Digital Imaging (SDI 21.5p/£3.9m)
Synoptics Ltd, the Company’s principal subsidiary has announced additional product developments and technical capabilities of its proprietary instruments and software products.
Synbiosis, a core division of Synoptics Ltd, is the world-leading manufacturer of automated microbiological systems and digital imaging solutions focused on the needs of the scientific community.
Synbiosis has found that its ProtoCOL2 system can accurately process culture plates up to 30 times faster than can be achieved using traditional, error-prone manual techniques.
ProtoCOL2 is an automated colony counter that has been extensively tested to enable rapid accurate counts of Legionella on any Legionella detection media. It has been further enhanced to enable rapid statistical analysis of flu and bacterial vaccine potency and antibiotics susceptibility testing results. The associated software has been developed so that the resulting large quantities of data can be transferred automatically into programmes for statistical analysis – literally by a single click, rather than by manual entering.
The ProtoCOL2 system can now also use ProcUV, a new ultra violet imaging accessory capable of the illumination and instant digital imaging of fluorescent colonies and plaques for automatic counting and analysis.  ProcUV is simple to set up as its automatic exposure time settings ensure users can capture colony images at the touch of a button. The high-quality images can then be directly transferred into the ProtoCOL2 in seconds, where counts and analyses results are generated automatically, saving microbiologists countless hours of repetitive work.
These developments demonstrate the Company’s continued ability to stay at the forefront of their field.  We remain very positive on the Company.
SeaEnergy (SEA 18.5p/£12.8m)
At the Offshore Wind Conference 2010 in Liverpool, Scottish based SeaEnergy signed a Letter of Intent with Ulstein Group to co-develop new service vessels for the offshore wind industry. As the offshore wind industry moves further from the coastline, new strategies are required to make these far offshore wind farms more cost effective. Both companies have been working together over the last months to develop a design that will excel in operational characteristics. By signing the LOI both companies want to tighten their relationship and underline that this will be a first step in jointly realizing the needs of the industry. Last week, we covered SeaEnergy’s results. Despite this good news announcement, the stock has continued to fall another 3 pence in the past week. As we said last week, until all disposals have been made in order for the focus to be offshore wind, turbulent conditions may lie ahead.
Stanelco (SEO 0.12p/ £7.06m)
Last week Stanelco issued a trading update to the market and most pleasingly, both the RF Technologies and the Bioplastics divisions are experiencing sales growth ahead of market expectations.
The Company expects to see continuing opportunities in the Biome Bioplastics division, with this area really driving growth in the future.  The trials with a major American supplier to the food processing market have now been successfully completed and are currently moving to a commercial scale-up phase.
It is encouraging to see the Company making progress, and now that it is fully funded post the recent placing (raised £2.8m net) we see further growth coming through more quickly.
It is also testament to the management’s belief in the business that the Chief Executive, Paul Mines, and the Finance Director, Sue Bygrave, both waived their 2009 bonus payments.  We applaud management teams making such sacrifices, and this demonstrates the commitment of both to driving the growth in the business.
The share price is still around the level that institutional investors recently bought stock at and we think this presents a fantastic opportunity to buy into this attractive bioplastics business.
Transense Technologies (TRT 4.5p/£3.41m)*
We last wrote on Transense a few weeks ago at the time of its preliminary results for the year to 31 December 2010, along with an announcement of a share placing and open offer to existing shareholders. We then recommended purchases of shares in the open market at the current level and that existing shareholders apply for new shares in the open offer. The company yesterday announced that it received valid applications for 17,235,000 shares (with a value of £775,575) in the offer which closed yesterday. As there are only 11,111,111 shares available in the offer (with a value of £500,000) applications have been scaled back. Warrants will be issued on the basis of 1 warrant for every 1 share allotted.

Transense owns a valuable portfolio of patents relating to Surface Acoustic Wave (SAW) technology aimed at the sensor market. The technology has been given the highest possible endorsement by the McLaren Formula 1 team, which utilised Transense technology in its KERS system during the 2009 Formula 1 season. Transense engineers believe that no other technological solution exists for this particular application. An important recent agreement with SenGenuity has extended the licensing opportunities beyond sensors. Transense’s patented Reader Electronics will be used to interrogate SenGenuity’s sensors in numerous potential applications. Transense owns a 100% subsidiary, Translogik, which has recently completed development on a range of hardware and software solutions for Asset Management and Tracking, Data Collection and Fleet Management in the Truck and Off-the-Road (OTR) markets.  A recent global (ex China) distributorship deal with Qingdao Mesnac opens up a valuable revenue stream for RFID tags. The company’s technical staff is highly skilled and includes Dr Victor Kalinin, a renowned world authority on SAW technology. The management team has the requisite blend of commercial expertise to capitalise on the opportunities at the company’s disposal, a major consideration in the micro cap arena. The current market capitalisation fails to capture most of the company’s potential. An investment case can be built on Translogik’s prospects alone, but Transense ex Translogik offers a wealth of opportunity in the medium and longer term. On our numbers the shares trade on a 2011e P/E of 5. Given the prospects thereafter they currently offer an exceptional risk/reward ratio.

*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.

15 June 2010

This week: Tangent on the straight and narrow, Rockhopper bounds ahead and there are no spots on Lipoxen

Amur Minerals Corporation (AMC 5p/ £8.55m)
We write on AIM listed exploration and development company focused on Far East Russia for the first time. Yesterday Amur announced that nickel sulphide mineralisation has been exposed in a road cut located immediately to the south of the Ikenskoe deposit, which is the largest of the three drilled deposits within the Kun Manie exploration licence. The nickel and copper mineralisation is expected to continue to the east and south of the drilled area of the deposit.  During construction of the access road, the projected mineralised zone was exposed and visual inspection indicates the newly exposed outcrop contains abundant sulphides.  Results will be announced once the ore has been tested and the results have been verified by a western certified laboratory.
The deposit looks large and the more Amur explores, the more it seems to find. This would appear to be one of the biggest nickel sulphide discoveries of the past decade or so. Nickel sulphide deposits are not being found very often and to make up the shortfall lateritic nickel projects are being developed where the costs are much higher. So nickel sulphide seems to be the place to be. The Company caught the attention of the market in August 2009 with its announcement that it had $6.9bn worth of nickel in the ground. At the current price Amur seems to have plenty of upside potential.

Focus Solutions Group (FSG 42.5p/ £12.59m)
Focus Solutions Group, a leading provider of software and consultancy solutions to the financial services industry, announced its full year results to 31 March 2010 which saw revenues up to £9.85m (2009: £9.60m) with underlying PBT of £2.38m (2009: £1.88m), EPS 6.88p (2009: 6.03p) and net cash down to £2.4m (£4m) following an R&D spend of £2m on the new focus:360º product line. Apart from a number of notable contracts key events included gaining a US patent which protects the group’s entry into that market and the relationship with Mastek which will see the focus:360 º being marketed across North America, Europe and Asia Pacific regions. The group will address smaller firms with a Software as a Service (SaaS) version. Encouragingly the group restructured its balance sheet, clearing the way from the group to join the dividend list. The market is forecasting PBT this year of around £3m with 7.5p EPS – a prospective PER of 5.4p.

Lipoxen (LPX 8.625p/£14.8m)
Lipoxen made an update regarding one of its most important partners (and the third largest shareholder), Baxter.  The two companies have been working together for over three years.  The lead candidate that both sides are progressing through pre-clinical studies utilises Lipoxen’s drug delivery technology combined with Baxter’s proprietary proteins.  Lipoxen’s PolyXen technology makes for more efficient, effective delivery, prolonging the active life and improving the stability of the active protein (Baxter’s half of the partnership).  Specifically in these trials, the programme is for the treatment of haemophilia, to produce a longer lasting form of blood clotting factors.  This is a $5bn market and could result in milestone payments of up to $73m to Lipoxen as the compound progresses through clinical trials and eventually into commercialisation.
The pre-clinical tests are delivering positive results, giving a strong suggestion that Baxter will look to continue the trials into the clinic.  We have recommended this stock before and so it was pleasing to see it up over eleven per cent today on the update.  However, we remain convinced that there is still time to invest in this exciting biotechnology company, following the lead of the management team who have put considerable money in themselves through the last two fundraises in 2009 and 2010.

Milestone Group (MSG 1.45p/£1.55m)*
The AIM listed provider of digital media and technology solutions last week announced its results for the six months ended 31 March 2010. Importantly revenue has been generated for the first time by the new digital solutions team. The Board has been strengthened with the appointments of Guy van Zwanenberg as FD and Mark Hargreaves as a NED. Since the end of March, Jeff Zie has also joined the team as COO and is leading the sales initiative. MSG is now firmly focused on generating revenue and we believe that this stock is well worth a look now that the turnaround is complete.

Rockhopper Exploration (RKH 284.5p / £498.4m)
We last wrote about Rockhopper, the North Falkland Basin oil and gas exploration company, back in February of this year. Since then the company has had the fortune of an oil discovery at its Sea Lion exploration well, which is 100 per cent owned- current estimates of the discovery are that 242 million barrels of oil are recoverable from the well. Last week the company made a placing to raise £48.5m with shares priced at 280 pence, which is intended to be used to further the North Falkland basin campaign through the drilling of an exploration well on its Ernest prospect and flow testing of the Sea Lion exploration well. The company has demonstrated excellent progress since its inception in 2004, and we see this continuing well into the future. Dig deep and hold on to this one.

Sarantel Group (SLG 2.75p/£8.0m)
We congratulate Sarantel with the production orders they have received from Inmarsat whose new awesomely cool phone is to be launched later this month.  This is no iPhone rival for the metrosexual; here’s a man-phone that works from anywhere, at any temperature, is dust, splash and shock resistant with a keypad you can use with your gloves on.  Sarantel’s LBS Pro GPS antenna will make sure it works without fuzz.

Serabi Mining (SRB 1.375p/£4.5m)
The northern Brazilian gold miner has been held to be in non-compliance with two of the terms of its operating licence by the Brazilian federal environmental agency.  The breaches appear to be modest, relating to a late submission and the flora and fauna monitoring programme (or lack thereof).  Nevertheless, the penalties are severe as mining activities have been suspended and a fine of about $2 million has been assessed.  The company is appealing the judgements, but we cannot recommend any action until a resolution has been reached due to the potential body-blow ramifications of the judgements, should they hold up.

Tangent Communications (TNG 4p/£6.81m)
Tangent Communications, a provider of intelligent marketing and technology, announced its full year results to February 2010 which saw revenues increase to £18.19m (2009: £15.61m) with underlying PBT of £0.82m (2009: £0.92m) and adjusted EPS of 0.38p (2009: 0.35p) due to no tax in the year. The group has recommended a maintained 0.2p dividend and saw net funds at the period end of £1.1m having made a £1.1m spend on acquisitions. The group was disappointed with the performance of its latest acquisition and indicated that its central overhead cost, as a proportion of revenues, remains higher than the group would like suggesting the group continues to be acquisitive. The management team have impressed us in the past and we remain confident of accelerated growth as confidence in the economy returns so we’d recommend investors not veering off on a tangent any time soon.

Titan Europe (TSW 38.5p/£31.95m)
Yesterday Titan issued a positive trading update for the first four months of the financial year ending 31 December 2010. Sales for the first 4 months came in at £103m; £10m ahead of management budgets for the same period in 2009. All parts of the Group and all geographic locations are now seeing significant market strengths, including the Agricultural business, which has recovered from a slow start to the year. Despite significant increases in steel prices, margins in the Wheels business remain broadly in-line with management forecasts. In the Undercarriage business, margins which had been impacted by low-volume-inefficiencies are now improving, again in the face of increases in input material prices. The stock reacted well and was up nearly 7 per cent on the day, on the news that management expect Titan to perform ahead of its original budget throughout the year and see a potential outcome for 2010 trading to be ahead of current market expectations.
*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 June 2010

This week: Advanced Computer Software makes its numbers add up, Innovision stakes its claim to the future and IS Pharma sweetens the pill
Advanced Computer Software (ASW 37.75p/ £133.97m)

Advanced Computer Software, a leading provider of software and IT services to the primary care and commercial sectors, has announced its full year results for the year to February 2010.  The group has grown aggressively by making four acquisitions in the past year and the reported numbers reflect this programme.  Revenues were up 312 per cent to £30.2m (2009: £7.3m) and pro forma revenues (assuming the acquisitions were made on 1 March 2009) would have been £91.5m, generating pro forma EBITDA of £21.7m. Adjusted reported EBITDA was up 249 per cent to £7.2m (2009: £2.1m) and profit before tax up 281 per cent to £4.2m (2009: £1.1m). Net debt stood at £41m following a loan facility of £55m agreed with HSBC/ Royal Bank of Scotland comprising a £25m term loan and a £30m revolving facility.  The company has fire power of a further £30m-£40m for acquisitions this year and we’d expect 3-4 deals depending on size. We attended a management presentation and were impressed with the vision and determination of Vin Muria, CEO.  The acquisitions to date have been made on an average EV/EBITDA multiple of 8x and management took us through a detailed exposition of the areas of revenue and cost synergies.

ASC also announced it has secured a 5 year contract with Pfizer to provide a SaaS hosted software solutions to support the clients’ new Vascular Health Check service. The value of the contract has not been disclosed, but it highlights the group’s ability to reach new markets by redeveloping existing products.
The market forecasts a significant uplift in 2011- PBT and EPS of £17.3m and 3.2p respectively. Trading on a 2011 earnings rating of 11.3x, a discount to its peers, we recommend advancing towards this stock apace.

Angel Biotechnology Holdings (ABH 0.21p / £4.42m)

Having written about the exciting prospects for Angel Biotech over the last two weeks, it was very pleasing to see the company announce a trading update on the 3rd June.  The most significant feature by far is that Angel expects to make it’s maiden profit in H1 2010.  The losses for the first three months of the year were much reduced, with a net profit reported in April and the expectation that the profitable trend will continue.
Angel has already signed 92 per cent of the business in order to it’s 2010 budget and 40 per cent of 2011’s budgeted business, which is a position of strength for the company.
The placing in February gives Angel the funds to be able to increase manufacturing capacity in order to further develop and grow the business.
Whilst the share price has moved up with this announcement of profitability, it is still below the placing price that institutional investors were willing to pay for access to Angel’s wings.

Cellcast (CLTV 4.25p/£3.23m)

Cellcast, a provider of participatory television programming and interactive telephony technology for cross-platform digital entertainment, announced its full year results to December 2009. Revenues were up 5.1 per cent to £16.8m (£16m) despite difficult trading across the broadcast industry. With most revenue generated from UK interactive TV the group has invested in additional distribution channels on Freeview and Freesat. This investment in distribution channels was fully expensed culminating in an EBIT loss of £2.2m (-£0.6 m). The total loss (offset by a positive contribution from associate Cellcast Asia Holdings) was £1.6m (profit – £333k); LPS of 2.1p (EPS 0.4p). The group achieved significant cost savings by renegotiating bandwidth costs, savings in production and programming and reducing the overhead by c. £85k per month whilst technology innovations are improving margins and creating opportunities for new revenues streams. Cellcast Asia Holdings reported substantial turnover and earnings growth with mobile subscriber growth in India in excess of 10m per month. Margin growth and results from Freeview resulted in a positive contribution for April and May. The balance sheet cash was fairly tight at £199k given the positive working capital position but the group has some headroom in its financing facilities, invoice discounting and an additional £200k loan facility from Headstart Global.  The stock has had a good run in the past year and this looks like an opportunity to take profits.

Crimson Tide (TIDE 1.7p/£5.66m)

Crimson Tide, has partnered with Avenir Telecom, the UK’s leading telecoms distributor, for its mpro mobile data solutions. The partnership with Avenir, which provides connections to the O2, Orange and 3 Networks, will allow it to enhance its mobile offerings. Crimson Tide’s mobile data solutions will give Avenir the ability to increase revenue whilst ensuring its customers can revolutionize their business with a mobile solution. Crimson Tide is targeting twenty mobile sales professionals to exclusively sell its products through the Avenir Telecom channel, broadening the company’s sales effort numerically and geographically. The shares have bounced strongly recently but this tide is far from high.

Eco City Vehicles (ECV 5.38p/ £16.24m)

Eco City Vehicles, the specialist vehicle distributor and after-sales service centre for the London Taxi owner-driver market, has reported strong demand for its new Mercedes Vito taxis which helped drive FY09 sales up 30 per cent to £24.7m (2008: £19.0m). The group achieved a maiden operating profit of £0.1m (2008: -0.6m) and reduced pre-tax losses to £0.2m (2008: £0.7m) and EPS to -0.06p (2008: 0.23p). Tighter working capital reduced net debt to £2.4m (2008: £3.1m) and all divisions reported a growth in revenue. The Vito is gaining momentum: in excess of 700 Vitos have been sold since mid 2008, of which 398 were sold in 2009. The Vito now represents c. 24 per cent of new taxi sales in London. The loss of the LTI dealership should enhance gross margins and allow the group to focus on the Vito for which the market opportunity is large as it has now been licensed by 170 Councils, representing an addressable market exceeding 50,000 licensed taxis.  Also, Transport for London are reviewing the introduction of an age limit for all London Taxis from 2012. The group has deepened its relationship with Mercedes-Benz and is in negotiations to become a full Light Commercial Vehicle Mercedes-Benz Franchise in H2 2010. Time to hail a share in ECV.

EnCore Oil plc (EO 30p/£87.1m)

It has been a while since we wrote on EnCore, the oil and gas exploration and production company, but when we did we said that the challenge for EnCore post its Breagh asset sale was to convince the market of the value of its remaining assets which was then valued at zero with a current market cap slightly less than the net cash holding.
Despite EnCore’s diligent asset management and our heed to pay attention to their remaining assets which carry material potential with relatively low capital requirements, the market continued to ignore the upside until last week when the company announced a significant light oil discovery at the Catcher exploration well located in the UK Central North Sea block 28/9.  The share price almost doubled as news of the discovery of a minimum of 240ft oil column with light oil in excellent quality sands.
EnCore is operator and has a 15 per cent interest in the well and will now perform a Drill Stem Test in order to measure flow rates and determine further development studies including the drilling of a possible side-track for better understanding of the reservoir structure.
We recommend investors to continue paying attention to not just this drilling development, but to the company in general.  Just because there is no news for a few months doesn’t mean there’s no value there.

Equatorial Palm Oil (PAL 12.75p/£14.63m)

The Company announced its results for the year ending 31st December 2009, giving a summary of all that has been achieved since the IPO onto AIM when £6.5m was raised as well as the recent investment of £5m from the strategic partner BioPalm Energy Ltd, a subsidiary of The Siva Group, an Indian conglomerate.
The processing mill is now on its way from Malaysia and the company expects the first palm oil production to commence in Q4 2010, generating revenues from the reactivation of the initial 3,000 hectares (out of a land bank of 169,000). Additionally EPO have ordered 220,00 oil palm seeds which will be planted in nurseries at two of the plantations.
The after tax loss was reduced to £943,000 (2008:£1.41m) partly through cutting administrative costs.
We reiterate our previous positive position and think this stock offers great investment potential, especially whilst the price at these depressed levels is significantly below the price the strategic partner was willing to pay just a couple of weeks ago.

Innovision Research & Technology (INN 21p/£19.2m)

Innovision, a company whose semiconductor intellectual property provides their customers with Near-Field Communications (NFC) targeted at next generation mobile handsets and consumer electronic devices, has won another significant contract with a major global semiconductor company.  This award is just weeks after an even larger contract and relates to chips targeted at high volume markets for mobile handsets.
Revenues from this contract will be in excess of $2 million in this financial year.  This is a similar amount to what is expected from the other contract just won and has to be seen in relation to total revenues of £1.2 million in fiscal year 2009.
Adding to the company’s contract wins last year in NFC this is further evidence that the company’s connectivity technology may become dominant in next generation handsets shipped from 2011 onwards.  These will have applications for mobile payment, transport ticketing, healthcare, social networking and entertainment.
Revenue momentum is now building up and with these significant contract wins that provide ongoing license and royalty revenues we believe this is just the beginning to Innovision’s dominance in the NFC market.

IS Pharma (ISPH 71p/ £21.84m)

AIM listed international speciality pharmaceutical company last week announced its unaudited results for the year ended 31 March 2010. Revenues were up 17 per cent to £14.2m (2009: £12.2m) and EPS came in at 7.3p (2009: 9.1p.) Cash generated from operations was up 24 per cent to £3.1m (2009: £2.5m), with a cash balance of £4.2m (2009: £6.0m).
Commenting of the results, Tim Wright, CEO, said: “We are pleased to report another year of exceptional performance as we continue to deliver against our strategy of building a leading European speciality pharmaceutical company.  The roll out into Europe of Variquel and Episil, two of our key promoted products, should accelerate future growth in revenues which, together with the continued expansion of our core portfolio, enables us to look to the future with confidence.”
We write on IS Pharma for the first time; it develops, acquires and commercialises late-stage pharmaceuticals and medical devices, focusing on critical care, oncology and neurology. We understand that trading since the year end has been in line with expectations making this a sweet little pill.

Milestone Group (MSG 1.45p/£1.55m)*

AIM listed digital solutions agency last week announced the appointment of Jeff Zie to the team in the role of Chief Operating Officer. Jeff brings with him over 20 years experience in media startup and corporate environments having held senior strategy and management positions at Electronic Arts, BSkyB, Microsoft and Emap.  He is a specialist in digital media and is used to building and managing successful teams. MSG is now firmly focused on generating revenue and we believe that this stock is also well worth a look now that the turnaround is complete.

Prime People (PRP 43.5p/ £5.19m)

Prime People, the recruitment company focussing on the real estate, infrastructure and commercial property markets, has reported that stronger trading and rationalisation of management helped the group move back into profitability in H2 2010 from delivering a loss in the first half.  Prelims to 31 March 2010 reported a 36 per cent decline in net fee income to £6.67m (2009: £10.41m), PBT down 27 per cent to £0.46m (2009: £0.73m) and EPS down 35 per cent to 2.7p (2009: 4.2p). However, the reintroduction of a dividend at 3.5p per shares highlights the stronger H2 performance has continued into the current financial year and strong cash generation improved the net cash position to £2.3m (2009: £1.8m). Management state the current year has shown a “solid start” and the group is well placed for a “successful year”. Clearly, the recruitment sector is exposed to the potential of another global downturn but so far the group’s Asian operation is exceeding expectations. There are no forecasts in the market but assuming the group returns back to the profit generated in 2009, the group stands on an earnings rating of 9.9x with a yield of 8.4 per cent.  We’re primed and ready to go.

Real Good Food Group (RGD 31p/£20.15m)

The Real Food Group, a leading UK bakery, ingredient and sugar group, offering a wide range of products to grocery retailers, wholesalers and manufacturers, has announced it has made a ‘very’ good start to FY with results for the first 4 months ahead of expectations and is confident of continued strong performance in H2. There was a robust performance at its baking ingredients business, Renshaws, with strong export sales to US, progress at bakery products business Hayden’s, while Napier sugar business is in a transitional year, following the EU sugar regulation changes, but starting to gain momentum. The shares have performed well recently and at 8.5x 20011 forecast EPS against food producers’ mean P/E 7.9x RGD looks well baked.

Serabi Mining Plc (SRB 1.625p/£5.3m)

The northern Brazilian gold miner has announced that the company is no longer in preliminary discussions with a third party regarding a possible merger.  Serabi has been notified that the third party will not be making any offer to acquire Serabi’s shares.
We always thought this was a side issue and recommend investors to focus on 1) the initiatives taken by the new management to refocus the company as it is now optimising the value of its exploration assets in a structured and rational way, and 2) the current progress at Palito where the company has completed and reviewed the geophysical survey that commenced in March.  Having surveyed 14 anomalies the company has identified 9 drill targets.  The company is in negotiations with drilling contractors and is on schedule to start drilling in July.   We look forward to hearing about the drilling results late this summer.

ServicePower Technologies (SVR 5.13p/ £9.72m)

Service Power Technologies, a market leader for outsourced service and field management has won a contract with Pitney Bowes for its ServiceScheduling solution for North America and Europe. The contract will generate in excess of £2.8m over a 3 year period. For some time this stock has been unloved by the market so its recent share price jump is well deserved in our opinion but still makes the company undervalued.
Suretrack Monitoring (STMP 0.625p/£2.42m)

We write on PLUS quoted leading asset protection, cash security, crime deterrent and tracking businesses for the first time. Yesterday it announced an agreement to supply Ford UK dealers with its MT2 tracking device, to be offered as a dealer fit accessory to new and used vehicles. Suretrack expects sales to commence in the third quarter of 2010 following completion of various training programmes within each dealership. The Board conservatively estimates that it will supply 3,000 units (which equates to less than one unit per dealership per month) in the first 12 months which will generate revenues in excess of £1m. This in turn is expected to generate significant recurring revenue in future years as vehicle owners renew their monitoring subscriptions.
Will Hirons, CEO of Suretrack commented: “During the last twelve months the company has made considerable progress having won contracts with Network Rail and distribution agreements with Europe’s largest construction consultants and caravan manufacturer the Explorer Group.” Suretrack Monitoring also announced that it expects to announce its annual results for the year ended 31 January 2010 by 14 June 2010, and that it is considering a move to the AIM market in conjunction with a Placing. Clearly this deal with Ford puts Suretrack on the map and the stock finished up 25 per cent on the day.

Surface Transforms (SCE 19.75p/£4.81m)

Surface Transforms, the manufacturing company that develops carbon fibre reinforced brake discs for the transportation industry, has announced a trading update for the year to 31 May 2010. Pleasingly, the company has demonstrated an improvement across a number of key financial statement areas, with turnover expecting to reach £0.8m (£0.68m), net losses expected to be lower than prior year and cash to be marginally higher at £0.414m (£0.404m). Further, its order book stands at £0.52m, which is more than three times the level held last year.
In the light of difficult industry conditions, Surface Transforms has been able to capitalise on the growing trend of automobile manufacturers looking to invest in weight saving technologies that improve fuel efficiency and benefit automobile handling and performance characteristics.
With the industry becoming increasingly responsive to such technologies, we see good prospects for Surface Transforms in supplying such carbon ceramic components, especially given that it is one of only two manufacturers in the world which manufacture such parts. No need for brakes on this one, we think.

Technis International (TECP 3p/£2.39m)

Last week PLUS quoted Telecoms and Technology IP play made two announcements. First that it had had set up Technis Ventures Ltd to acquire businesses or interests in businesses which are not core to Technis or where the shareholding of any investment by the company is below 51 per cent. The Company plan to use Ventures to incubate and develop potential businesses. Whilst being a wholly owned subsidiary of the Company, Ventures will have its own management team identifying opportunities and cultivating investments. Ventures management team will be headed up by Sir Eric Peacock as Chairman. Sir Eric is Chairman of Baydonhill FX Plc, Stevenage Packaging Ltd, Buckley Jewellery and Cimex.
Second that it had acquired 15 per cent of the issued share capital of TradeMobile Limited through its newly formed wholly owned subsidiary Technis Ventures. TradeMobile is a leading provider of business solutions through a global mobile payment and content delivery platform. Technis CEO Jack Kaye said: “This is our first acquisition for Ventures and is in line with our strategy for Ventures to acquire interests in companies with a strong position in a niche market which will benefit from being part of a larger publicly quoted group, and where the expertise within Technis and Ventures management teams can incubate and develop the business to enable the company to take a larger investment in due course.”
All credit to the Technis management team that they are off the starting blocks on the acquisition trail, and it appears that the share price and balance sheet isn’t likely to hold them up. 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, there could well be a run of interesting acquisitions in the offing.

ValiRx (VAL 0.35p/£1.18m)*

ValiRx, the life sciences company that focuses on cancer diagnostics and therapeutics for personalized medicine, announced preliminary results for the year to December 2009. Although revenues are down slightly to just over £29k (£31k) and operating losses pushed up by 10.6 per cent to £1.36m (£1.23m) through difficult market conditions, ValiRx has clearly laid out its plan going forward, and appears to be able to convert its plans into reality as demonstrated by its post year end activities. Such steps have included the introduction of a personal Chlamydia detection kit (an additional product to its already comprehensive product portfolio) that delivers results in as little as 10 minutes, as well as a £0.5m fund raise earlier on in the year and a recently signed commercial partnership with LGC (Laboratory for Government Chemistry) for the development of diagnostic technology for gene activity.
With a growing pool of patents and such positive post year end actions, we diagnose a positive year ahead for the Company.

Verona Pharma (VRP 8.125p/£19.4m)

Professor Michael Walker, CEO of AIM listed drug discovery company Verona Pharma, last week made the following statement at the Company’s 2010 Annual General Meeting: “In the twelve months since the last AGM Verona Pharma has seen significant progress in its drug development programmes.” Over the past year, Verona has successfully completed Phase I/IIa clinical trial of RPL554 and licensing discussions are progressing. It is conducting further studies for RPL554 to add value to the licensing package and strategically prepare the drug for further clinical trials. RPL554 has the potential to be used in chronic obstructive pulmonary disease (COPD) – often referred to as smoker’s disease. COPD kills 250 people an hour worldwide and is the 5th biggest killer globally. There is currently no truly effective treatment for COPD and big pharmaceutical companies, including GlaxoSmithKline, Pfizer and AstraZeneca, are putting an increased emphasis on the COPD market.
With respect to VRP700 – regulatory documents have been finalised and are awaiting submission to the appropriate regulatory and ethical authorities. The clinical trial of Verona’s cough treatment, VRP700, has progressed, although slower than expected due to administrative delays. The VRP700 trial will assess the anti-tussive (suppressive) effect of the drug in sufferers of chronic cough as a result of lung cancer and interstitial lung disease.
Verona Pharma is dedicated to the research, discovery and development of new therapeutic drugs for the treatment of allergic rhinitis (hay fever) and other chronic respiratory diseases, such as asthma and chronic obstructive pulmonary disease (COPD), as well as other chronic inflammatory diseases. The Company currently has three potential drug treatments under development and continues to look for other possible drug development opportunities aimed at the respiratory and inflammatory diseases markets. Management is very credible and if you look at the market cap compared to the people involved and quality of the investors who have invested to date, as well as the molecules that it has in development, their various stages and the data generated to date, the company looks extremely undervalued.

William Sinclair (SNCL 108p/ £17.88m)

We have now had the pleasure of meeting with the Company’s management after the release of interim figures and our positive comment last week.
There are many positives to highlight from our conversation on the results, including the following:-
1.    The Company benefited from the movement in the movement in the £/€ exchange rate and the ability to source base peat supplies totally from its own properties rather than having to resort to the wholesale market to satisfy order commitments. Further, the poor peat harvest in Summer 2009 led to both a reduction in competition and a rise in prices – both of which strengthened the Company’s position.
2.    Achieving the milestone of profitability at the half year stage was even more worthy of acclaim when it is realised that expense deductions included increased depreciation and amortisation of c. £250k as a result of property revaluations and an increase in depreciation rate percentages. Adjusting for these, like for like operating profit would have increased from £184k to £694k (+277%).
3.    The initial receipt of £9m for cessation of harvesting at Bolton Fell should be regarded as just that. A further material payment following the negotiations with DEFRA (or a Land Tribunal assessment if no agreement with DEFRA can be reached) could be as much again. Putting this into context, the total compensation could equal the current market capitalisation of the Company.
4.    Although William Sinclair is the industry’s lowest cost operator, it is not sitting on its laurels. It continues to make progress in technology development and expects to be able to introduce new cropping & processing techniques that will produce efficiencies and improved operating margins. In addition, a successful conclusion to the search for a new super site in Middle England will improve margins still further.
5.    The difficult credit markets and the inability to match William Sinclair’s innovation in the expanding peat-free products arena, is increasing the commercial pressures in competitors. Thus with significant financial resources available, we expect the Company to make a number of acquisitions at very attractive prices to strengthen its position in the market. As Bolton Fell accounts for only c. 25% of the Group’s peat production, we would expect the loss of its future production potential to be more than replaced with only a fraction of the initial £9m DEFRA compensation already received. Additionally, we would not be surprised if – and in fact encourage – an acquisition that captures the benefits from vertical integration.
6.    The increase in the interim dividend by 50% to 1.5p and the comments above, indicates to us that a 3p final is not an unreasonable assumption. Should the Company make a sizeable and material acquisition(s) then one may temper this assumption a little – but only to 2.75p (2009: 2.5p).

The only negative comment that we would have regarding an investment in William Sinclair is that of the lack of liquidity in the shares. Perversely though, as this has deterred some, it enables patient and canny investors to build a holding gradually on rising prices in the full knowledge that the shares are significantly undervalued.
Relax, accumulate, and watch your investment grow!

*A corporate client of Hybridan LLP

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

02 June 2010

This week: Transense makes sense, Beacon Hill shines a light and William Sinclair plants the seeds for growth

AquaSource Algae Group (AAGP 1.25p/£0.73m)

AquaSource Algae Group, which sells natural food supplements and body products, announced its preliminary results for the year ended 31 December 2009. The group was able to achieve revenue of EUR3.73m (EUR 3.5m) with PBT of EUR0.351m (EUR 0.237m) and EPS of EUR0.47 (EUR 0.17). Whilst cash from operating activities fell to £0.10m (£0.19m), a capital expenditure adjustment resulted in an increase in cash of EUR 0.28m (EUR 0.054m) for the year. With, a positive year of results, together with the wider implementation of a sales and marketing initiative that has already delivered increased sales in Bulgaria and Greece, we feel that the AquaSource Algae has a rosy future ahead.

Angel Biotechnology Holdings (ABH 0.18p / £3.85m) 

Further to our comment last week on Angel, the Company has announced another contract with Materia Medical.  And this one is for £1.3m.  This is a significant value considering the small market capitalisation of Angel and further demonstrates the Company’s ability to sign deals and deliver on them, hence the ongoing relationship with Materia Medica, amongst others.
The work on the contract is due to commence imminently and complete in 2012.  We reiterate last week’s opinion that we think the share price doesn’t reflect all of the new business Angel is signing and so now is definitely the time to buy.


Beacon Hill Resources (BHR 4.5p/£11.64m)

Beacon Hill, the mining group, has commenced excavation works to extend the existing opencast pit at the Minas Moatize coal mine, Tete Province, Mozambique. Work is intended to lift production by 120,000 tonnes over the next 12 months while the refurbishment of the underground mine is expected to yield an increase from 2.5kt per month to 8kt per month. These are small steps prior to establishing a large scale open cut operation targeting c.4Mtpa and revenues in excess of $200m within 18 months though this will require significant capital investment.  Still a hill to climb but looking attractive at this price.


Equatorial Palm Oil (PAL 12.75p/£10.38m) 

The Liberian palm oil developer that recently IPO’d onto Aim has announced an investment of £5m from a major Indian conglomerate.  The 29.1 per cent stake (of the enlarged Company) taken by BioPalm Energy Ltd (part of The Siva Group, a $3bn company) was priced at 15p per share, a significant premium of over 40 per cent on the current share price.
This provides Equatorial Palm Oil with the funds to ramp up the programme of developing it’s land bank of 169,000 hectares in Liberia.  It also demonstrates the growing interest in palm oil, with global demand continuing to strengthen and the importance of new regions, such as Liberia for producing crude palm oil.  Liberia is a politically stable country and Equatorial’s plantations are close to infrastructure of deep water ports.
Further good news this week comes with the shipping of the processing mill from Malaysia and it is expected to arrive in Liberia by the end of July.  This mill will process palms from the 3,000 hectares that are initially being reactivated and will generate cash flow by Q4 2010.  This will demonstrate production ability and revenues can be reinvested into the development programme.
We think that this investment by a major player suggests now is a good time to buy some shares, especially considering that they are still offered in the market below the price the 29.1 per cent stake was purchased and the Company continues to make progress towards production.

Hydrodec (HYR 8.38p £30.32m)

Hydrodec, the oil recycling specialist, has issued an encouraging trading update with volumes recovering from the lows of Q1 and with the group recently receiving its first orders from a US based OEM. The raw material position is more in-balance, suggesting the group may see a recovery in margins with a similar improvement in Australia. The easing of raw material costs is leading the group to have confidence that it has sufficient resources for the remainder of the year and beyond. Not time to recycle this stock just yet then.

Lipoxen Plc (LPX 6.12p/ £10.53m)

Lipoxen Plc, a biotech company that develops new and improved versions of existing drugs and vaccines, announced last week that it has obtained an extension to it’s DNA Vaccine Patent for the US market with its ImuXen liposomal technology. Imuxen technology manifests itself in being able to enhance an immune system’s responses, thereby allowing a potentially reduced dosage for immunity (single dose) and reduced side effects. The US clearly represents a significant market for any biotech company, and the granting of this patent has given Lipoxen a strong ImuXen patent portfolio that ensures its products continue to be distinctive in the market place. With an increasingly well protected product range, Lipoxen appears to offer good prospects for the budding biotech investor.

Printing com (PDC 36.5p/£16.19m)

Printing.com, the chain of franchised printing shops, has released it finals to March 2010 which saw total retail sales of £26.56m (09: £26.29m) which generated revenues of £14.46m (09: £14.47m) with a lower EBITDA of £3.11m (09: £3.27m), operating profit of £1.74m (09: £1.93m), PBT of £1.70m (09: £2.06m), EPS of 2.87p (09: 3.28p) and an unchanged full year uncovered dividend of 3.15p. The results were in-line with expectations. The group ended the period with net funds of £1.29m (09: £1.81m) which was after a £0.20m increase in plant and equipment spend, a £0.25m increase in development expenditure and a £0.89m special dividend announced the year before – so underlying cash generation was healthy. Performance was down on a like-for-like basis with the group ending the period with 288 sites open, an increase of 5 stores. The UK managed to increase revenues by 1.6 per cent to £13.58m (09: £13.37m) helping to reduce the impact of recession hit Ireland which fell to £0.29m (£0.42m). The group is reporting a healthy pipeline of bolt-on franchise stores and success with its ‘Templates’ format that utilises the existing infrastructure. Although the group appears to be on a very healthy P/E ratio of 19x for the current year we do see considerable yield attractions, not least the 2.01p final which will be paid to those on the register on the 11th June, a yield on the final alone of 5.8 per cent making this one ticket worth printing.

Sarantel (SLG 2.5p/£7.27m)

Sarantel, the GPS antennae group, has provided a trading update for the first half to March 2010. Revenues were £1.4m (£1.7m); net cash £1.6m (£2.2m) with a further £0.26m tax credit to be received. Importantly GPS sales were up 8 per cent. The group has signed a Letter of Intent with Elcoteq SE, a manufacturer with sales of €1.5bn listed on the Nasdaq OMX Helsink, to outsource assembly which is expected to bring savings of c. £0.5m pa but which will cause a modest exceptional cost on restructuring of £50k this year. Full year revenues are expected to be £3.1m to £3.3m. The outlook remains buoyant with near term growth from military application and fundamentals supporting growth in wider GPS markets so we remain tuned into SLG.

Spiritel (STP 47.5p/£8.40m)

pritel, the phone company, has acquired Housing Communications Limited (HCL) for an initial consideration of £1.6m plus another £0.5m to settle director’s loans. HCL is a mobile and data reseller based in Shrewsbury, established in 1998 and has a contract with the largest procurement agency targeting Housing Associations. In the year ending September 2009 HCL had revenues of £2.9m, PBT of £0.46m with no net assets. HCL has some 100 clients with over 17,000 mobile connections which to date has been its sole target – so represents an excellent cross selling opportunity for Spiritel’s wider product offering. Acquired on a sensible rating and with clear upside potential this appears a reasonable acquisition. However with only modest profits forecast for next year before this acquisition this remains one, to quote D Harry, to keep hanging on the telephone.

Stanelco (SEO 0.13p/£4m)*
The bioplastics company announced a successful fundraise of over £3m (£2.5m placed firm with institutions with a further £540,000 placed but subject to claw back should the open offer of £1m be taken up in full). Stanelco produces bioplastics made from sustainable/renewable resources, eg. corn or potato starch and that are biodegradable. The Company then sells the plastic granules to customers who then form into the chosen end product – flexible films, solid articles and coatings.  Brands want bioplastic, even though it is more expensive because it fulfills brand goals for marketing and image and consumers place a value on the eco-friendliness.  It also increases efficiency due to the plastic biodegrading and not needing additional labour to remove after the end of intended use, products can be recycled or composted, e.g. half of all bags distributed by local councils in UK, used for recycling kitchen waste use Stanelco’s plastic, as the bag will degrade with the waste inside.
The new management team came on board in 2007, and have been focused on cutting costs and commercialising the IP.  And as well as participating in this funding round, 5 per cent of placing total they have taken a 30 per cent salary pay cut as part of cost reduction programme. Litigation for patent infringement has been hanging over Stanelco, with court cases in France and Italy launched by the main competitor in Europe, Novamont.  On 19th April 2010 the   French court ruled in Stanelco’s favour, finding non-infringement on all three patents, one was deemed invalid, one expired and one was not infringed.  This must bode well for the Italian case and validates Stanelco’s decision to defend the infringement claims.
With the additional funding from the placing, on top of the existing cash position of £2.4m the Company had in the bank as at the end of March 2010, the Company is well funded to continue to grow, by new product launches (such as heat resistant plastics and paper coatings and casings for electrical consumer goods) and collaborations with brand partners.
The Company plans to change its name to Biome Technologies, in order to distance itself from the old Stanelco and better reflect its focus. We think that at the current price, depressed due to the fundraise and open offer, these shares offer a fantastic opportunity for growth in this exciting sector.


Surgical Innovations Group (SUN 4.12p/£15.42m)

A key part of Surgical Innovation’s (SI) strategy of growing sales in its minimally invasive surgery business, is to further develop a role as original equipment manufacturer in partnerships with major medical device companies.  These companies have global sales reach and very efficient distribution power but lack the development resources and the innovative sparkle that characterises smaller and more nimble operators.  There has been a clear win-win situation for SI by working closely with several of these companies and many of the company’s recent innovations and new product developments have taken form through these partnerships.  One of these is with Teleflex, a global medical technology company with $2 billion in sales primarily from critical and surgical care products.  SI has been working with Teleflex for 10 years and the relationship has recently focused on the development of a new handle technology that improves on the ergonomics and ease of use of laparoscopic instruments used in keyhole surgery.  Last week, SI announced a five year contract to supply Teleflex with reusable articulating handles.  This is a longer period than we had expected and demonstrates the attractiveness of SI’s leading edge technology.

Tower Resources (TRP 1.32p/ £13.34m)

Tower Resources, the oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, has provided the final results for the year ended December 2009, which saw operating losses of £1.09m (£1.29m), losses before tax of £1.05m (£1.24m), and losses per share of £0.15 (£0.23). Unusually, the balance sheet showed cash and cash equivalents of £8.6m (£0.73m), representing 31 per cent (4.4 per cent) of total assets-much of this has been and will continue to be used to meet the cost of drilling and exploration across 2010. Whilst Tower has demonstrated sound reasoning behind holding such high cash reserves, utilisation has proved to be fruitless so far. Nevertheless, the Government of Uganda has renewed Tower’s EA-5 licence (which covers an area that includes the unproductive Avivi-1 well) and it is anticipated that, Tower will continue to explore the area for further signs of oil and gas. Whilst Tower continues to be optimistic about the EA-5 licence, there is the distinct possibility that the Company may not be successful. One for those with a strong stomach, we think.

Trading Emissions PLC (TRE 103p/£265.15m)

This is the first time we have commented on Trading Emissions PLC (TRE). Although the market cap is larger than our usual universe of stocks, the recent announcement on the future strategy of the Company highlighted to us a very interesting and undervalued opportunity.
TRE is a closed end investment company that specialises in emissions instruments and renewable energy companies and projects (an area of special interest for us). The unaudited NAV as at 31 December 2009 of approximately 143p/share (versus the current share price of 104p) indicates significant upside potential for the shares.
In a nutshell, the Company acquires tradable emission instruments (predominantly carbon credits) through forward purchases from clean energy or emission reduction projects. Such contracts are often signed at an early phase of project development and may be an important part of the project finance process. TEP also usually contracts before the emissions permits are approved and registered by the Clean Development Mechanism Executive Board and so has been able to enter into these contracts at substantial discounts to the price at which secondary credits trade on exchange. The resultant portfolio of emission assets is traded, hedged and ultimately realised to provide revenue and profits.
The Company also makes structured debt and equity investments in alternative energy and other greenhouse gas reduction projects, and in strategically positioned companies. These investments generate a cash revenue stream, for example from energy sales or cost savings and also produce an additional harvest of emission reduction credits.
The announced future strategy included a renegotiation of the advisory and fund management agreements with EEA Fund Management Limited, the retained investment adviser on emissions trading and manager of the quoted and unquoted funds. In addition, and more importantly, the Company announced its intention to optimise and realise the cash value of all of its assets in the period up to 31 December 2012.
Taking into account the significant discount to the spot price of the holding value in the accounts of the emission instruments and the renegotiated agreements with EEA, there is the prospect of a material improvement in the share price in the foreseeable future.


Transense Technologies (TRT 5p/£3.79m)*

Transense has released its preliminary results for the year to 31 December 2010, highlighting a more than tripling of revenues, along with an announcement of a share placing and open offer to existing shareholders. The encouraging statements from the Board reflect the significant advances achieved by the Company since June 2009 and the expectation of the Company achieving profitability in 2011.
The proposed fund raise of up to £2.54m in new shares at 4.5p (plus a 1-for-1 warrant with a 4 year life) , includes a placing amounting to £2.038m with new institutions, existing large private shareholders and significantly, material commitment from the Directors. Private investors have not been excluded from the opportunity to participate in this attractive opportunity – for which management should be commended – with any shareholder on the register as at 28 May 2010 able to apply for up to the whole of the remaining £500,000. If this Open Offer is oversubscribed, then preference will be given to smaller shareholders.
The 4.5p placement price, equal to the closing bid price the day before the announcement, reflects the excellent prospects of the Company going forward and the keen appetite from Institutions, large supporting shareholders and the Directors.
We continue to recommend purchases of shares in the open market at the current level and that existing shareholders apply for new shares in the open offer.


Webb Capital (WCAP 24.5p/£1.81m)

Webb Capital, the advisory house which is focused on providing investment advice to meet the needs of entrepreneurs, managers and investors in SME companies, have announced the preliminary results for the year ended 31 December 2009. Whilst losses before tax on ordinary activities were £233,647 (£47,624), a series of changes in the fair value of discontinued activities for the year, through the sale of its loss making Swiss subsidiary, have resulted in a retained loss for the year of just £29,115 (£665,251). Although dividends were not declared for the year, the appeal of Webb is based on the reputation of Peter Webb, a fund manager with an enviable record in small caps. One to look out for.

William Sinclair (SNCL 105p/ £17.38m)

This is our first time of writing on William Sinclair, and not before time. The Company is one of UK’s leading producers of commercial horticultural and branded garden products. It owns the leading brand in the fast growing peat-free garden and organic plant foods sector.
The trading update in April promised the positive and upbeat results for the half year to 31 March 2010, that were announced today. The accompanying statement is very encouraging, boding well the future prospects for the business. The 50% increase in the interim dividend is a welcomed rarity in the small cap arena.
With the receipt from DEFRA of £9m as an advance payment for the eventual cessation by the Company of peat harvesting and the reinstatement/regeneration of the peat bog at Bolton Moss Fell, Cumbria, the balance sheet has been strengthened materially. Shareholders can now look forward to the prospect of acquisitions to enhance the Company’s market position as well as additional sums in final settlement of Bolton Fell with Natural England.
With the above prospects and a near certain increase in the final dividend, investors should dig deep to fund purchases of this horticulturally focused group.

Zytronic (ZYT, 196p/£28.83m)

Zytronic, the touch screen group, has released its interims to March 2010 which saw revenues increase to £8.2m (09: £8m) with PBT up 1 per cent to £1.06m (09: £1.05m) and EPS to 5.4p (09: 5.2p) with an interim DPS of 2p (09: 1.2p). Net debt fell to £2.78m (09: £3.13m at the September year end). Given the general concerns on the outlook for the UK it is encouraging to see growth in overseas sales which now account for 89 per cent (09: 86 per cent) of the group total. The growth in sales to the self service and kiosk markets more than offset declines in the gaming market. New orders grew to £9.7m (09: £8.4m) without help from two major opportunities that will benefit the future, specifically the Coca Cola Freestyle drinks fountain and sales to the white goods sector which are expected to start in September. These new products are likely to drive healthy growth in 2011 accompanied by upgrades to the current forecasts which are looking too conservative to us. The current forecasts for 2010 are of £2.6m PBT with 12.6p EPS and 5.5p DPS, followed in 2011 by £2.8m PBT with 13.6p EPS and 6p DPS putting the group on a 16x P/E falling to 14.8x with a 2.7 per cent prospective yield. We agree with the approach of keeping market expectations under control although if these forecasts are not exceeded the group is looking on the expensive side.  Still, after meeting management we were impressed by their grip of the business and have confidence they’ll be able to deliver the goods.

*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.