Small Cap Wrap: 22nd July 2016

22nd July 2016

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.

A full archive of previous weeks’ Small Cap Wraps can now be viewed on www.hybridan.com.

*A corporate client of Hybridan LLP

If you would like to unsubscribe, please email enquiries@hybridan.com with “unsubscribe me”.

Disclaimer- This document, which does not constitute research, has been issued by Hybridan LLP for information purposes only- please refer to the disclaimer in full below.

7DIG Trading Update, ALSP* Loan Draw Down, AAU Placing, COG* Contract Win, CHAL New York Wheel, CBUY Contract Win, CGNR* New Gold Zones, DGS Trading Update, MSG* JV, NET Trading Update, OPTI* New Patent, SEE Trading Update, TPG Contract Win

7digital (LON:7DIG 8.00p/£9.46m)

7digital, the digital music and radio services company, issued a trading update for the half-year ended 30 June 2016. The Company has a healthy sales pipeline for the second half of 2016, demonstrated by the contract wins announced, and the Board remains confident of meeting expectations for the full year and continues to anticipate achieving profitability by the end of 2016. Total monthly recurring revenues for the first half rose by 4 percent against the comparative period last year. Improving sales momentum during the period saw the annualized exit MRR for the period rise by 10 percent and licensing revenues in June rose by 17 percent compared with 2015. However, due to termination payments from the legacy BlackBerry contract being included in the prior period and the planned reduction in low margin content revenues, overall turnover was broadly unchanged at approximately £5m. With over 50 percent of 2016 revenues expected to be denominated in foreign currencies (predominantly US$), the effect of recent currency fluctuations is expected to benefit the Company in the second half of the year. 7digital also announced that it has in the second quarter been awarded contracts with a combined value of approximately £1.1m, including set up fees and monthly recurring revenues, with growth coming both from new customer wins and from existing or prior customers to whom 7digital is providing additional services. The Company has reached an agreement with Cdiscount, a leading e-commerce retailer in France, to launch a new music service in the coming months. Cdiscount enjoys a 34.4 percent total share of e-commerce in France.

Ace Liberty and Stone (LON:ALSP 4p/£39.3m)*

Ace Liberty and Stone, the active property investment company capitalising on commercial property investment opportunities across the UK, announced that the Company has drawn down a secured loan of £3.4m against its Plymouth and Gateshead properties. This £3.4m loan, which has a five years’ repayment term, is provided by Nationwide Building Society, a new lender to the Group. The loan is secured by way of a first charge over Marsh Mills, Plymouth, and Shildon House, Gateshead, two purchases which were announced earlier this year. The loan will significantly improve the working capital flexibility for the Group. As a result of Ace’s open offer in February this year which was well supported by shareholders and raised £3.5m, and following recent purchases, the Company now has a £4m cash reserve which will enable it to continue to take advantage of attractive market opportunities.

Ariana Resources (LON:AAU 1.48p/£11.59m)

Ariana Resources, announced a placing of 29,616,666 new ordinary shares of 0.1 pence each in the Company at a price of 1.5 pence per share, in order to raise gross proceeds of approximately £0.45m before expenses. The Placing has been undertaken within the Company’s existing share authorities, and has been supported by both new and existing shareholders. The net proceeds of the Placing will be used to extend the current drilling programme and for developing new projects.  The Placing is conditional only on admission to AIM. In addition, the Company advises that three directors of the Company, namely Mr. Michael de Villiers, Dr. Kerim Sener and Mr. William Payne, intend to subscribe for a total of 2,050,000 shares on the same terms for a further sum of £30,750 following the announcement of the Placing.

Cambridge Cognition (LON:COG 33.80p/£6.84m)*

The neuroscience company Cambridge Cognition Holdings, which develops and markets near patient technologies for cognitive assessment, announced that it has secured its largest contract to date for the CANTAB Connect Research® product, which is marketed for use in research projects by academic and small biotechnology research groups. Worth an estimated £0.5m, the Contract is the Company’s first with an international biobank and the highest recorded sale of its research software. Biobanks amass large amounts of data and biological samples and catalogue them according to genetic, biological, environmental and other traits. These data and samples are then made available for researchers to support medical research in many fields. There are over 300 biobanks globally and the addition of neurological health data generated using Cambridge Cognition products will help to progress research into prevalent health issues, now and in the future. The Contract allows for unlimited assessments to be conducted using the Company’s proprietary touchscreen cognitive tests based on over 30 years of peer-reviewed science. The software will generate data that will be used for medical research to assess mental health in a general population over the next five years.

Challenger Acquisitions (LON:CHAL 21.35p/£3.65m)

Challenger Acquisitions, a leader in the Giant Observation Wheel industry, announced that it has received $1m from New York Wheel Investor LLC (NYWI). These funds, raised by Challenger in January 2016, were held in escrow by NYWI until final funding arrangements for completion of the New York Wheel Project were in place.  Challenger has been informed by NYWI that it has now received sufficient funding commitments from its sponsoring investors and therefore does not require these funds. Challenger now has a firm investment of $3m in the equity of NYWI, representing an interest of approximately 2 percent in the $590m NYW Project.  With funding formally secured to ensure completion of the NYW Project, the project continues to advance towards its opening.  Approximately $275m has been spent on the NYW Project to date, with major developments.

cloudBuy (LON:CBUY 4.75p/£6.41m)

cloudBuy, the provider of cloud-based e-commerce marketplaces and B2B buyer and supplier solutions, announced that it has signed a contract with University of Exeter for the supply of a new online procurement system. This will provide an intuitive way for the University’s staff to buy goods and services against contract agreements with a wide range of suppliers. cloudBuy is partnering with EU-Supply to provide a full solution including e-marketplace and e-tendering capabilities. The contract is for an 8 year period and will contribute revenue in the current financial year. Revenue is a mix of implementation and SaaS licence support and hosting. The project will deliver an accelerated phased implementation, providing benefits at each stage, leading to a Source to Pay solution fully integrated with the University’s finance system.

Conroy Gold and Natural Resources (LON:CGNR 34.00p/£3.66m)*

Conroy Gold and Natural Resources, the gold exploration and development Company focused on Ireland and Finland, announced that four new gold zones have been intersected in a drilling programme on its Glenish gold target in Ireland. The drilling results, together with previous channel sampling in the area which had proved 1.3 metres grading 9.4 g/t gold, demonstrated the presence of the four new gold zones in a 150 metre wide structural corridor in the western part of the Glenish gold target. The new drilling results included intersections of 2.25 metres grading 2.65 g/t gold, at a depth of 18 metres; 2.0 metres grading 1.59 g/t gold at a depth of 27.75 metres; 2.75 metres grading 1.43 g/t gold at a depth of 36 metres and 3 metres grading 1.76 g/t gold at a depth of 64.25 metres. The gold mineralisation in bedrock in the drilling area was traced down dip for over 70 metres and remains open in all directions. The Glenish gold target is a large, 147 hectare, gold-in-soil anomaly located 7.5km southwest of the Company’s Clay Lake-Clontibret gold target where the Company is targeting a potential of five million ounces of gold.

Digital Globe Services (LON:DGS 49.00p/£14.52m)

Digital Globe Services, a leading provider of digital marketing solutions for large, consumer-facing organisations, provided an update on trading for the year ended 30 June 2016. Trading in the second half of the year was robust and as a result, the Group expects to deliver revenue for the year of approximately $48.0m (FY15: $40.3m), marginally ahead of market expectations. The growth was driven by client wins in new verticals and increased volumes in the core business from the existing client base. Gross Margins experienced compression in the second half of the year due primarily to increased marketing spend. This was in part due to their entry into new industry verticals such as energy and utilities where they won new customers. EBITDA is expected to be below market expectations at approximately $3.1m, due to the lower gross margin on core business, new business, and direct labour costs associated with the acquisition of an on-shore call centre to support new verticals that require on-shore fulfilment centres. Management expects gross margin to recover to historic levels as new business matures. During the period under review, the Company has written down certain accrued revenues outstanding for over twelve months. This will represent a one-off non-cash expense of around $4m in aggregate. Management believes that a portion of this may be collectable but has written off the full amount.   The Company ended the year with a cash balance of approximately $0.6m with $1.5m drawn down under its $5m credit facility.

Milestone (LON:MSG 0.690p/£4.49m)*

Milestone Group, the provider of digital media and technology solutions announced that it has signed a JV with Axis Stars Limited to work with the Passion Project and utilise the suite of technology solutions available through the Nexstar JV. Former international footballer, Louis Saha has agreed to increase his company’s relationship with Milestone Group by signing a JV between his Axis Stars company and Milestone Group. The JV will be a 50/50 revenue share whereby Axis Stars will utilise its fast growing database of international sport stars to raise awareness of Milestone’s Passion Project initiatives while gaining access to Nexstar’s portfolio of finance, media streaming and publication technologies. Through the JV, Axis Stars will co-host events with Milestone, match its database of international sport stars to social causes to raise awareness of the Passion Project and help build brand value of both companies. Athletes, celebrities, musicians and actors are well known and trusted brands in their own right and the ignition point to the Passion Project as they bring relevant audiences in scale. Nexstar will also benefit from these agreements as it can offer innovative technology solutions including financial and publishing to its partners and their global audience.

Netcall (LON:NET 53.00p/£76.38m)

Netcall, a customer engagement software provider, announced that final results for the 12 months ended 30 June 2016 are expected to be in line with market expectations. The year has been characterised by double-digit growth in order inflow, with an increased share of the sales mix coming from SaaS-based contracts. The growing proportion of SaaS-based contracts increases the revenue visibility of the Group, by adding to the recurring revenue base in future periods. The Group has a robust cash position, maintaining its debt free balance sheet and being strongly cash generative at the operational level. At 30 June 2016 the net cash balance was £14.1m (31 Dec 2015: £15.2m), following payment of the first enhanced dividend and ordinary dividend, comprising £3.01m in total, in line with the Board’s dividend strategy.

OptiBiotix Health (LON:OPTI 75.00p/£58.64m)*

OptiBiotix Health, a life sciences business developing compounds to tackle obesity, high cholesterol, diabetes and skin care, announced a new patent filing. The filing protects the combination of OptiBiotix’s Lactobacillus plantarum strain along with other ingredients identified by scientific key opinion leaders which act synergistically to reduce cardiovascular risk factors. The patent filing follows on from the announcement on the 7 April 2016 relating to human studies which demonstrated 0.1g of a capsulated product has commercial potential as a safe, easy to use, low cost cholesterol reducing supplement.  The filing of this patent extends OptiBiotix’s protection across a broader range of market opportunities and increases the number of partnering opportunities. Current products for cardiovascular disease tend to focus on single risk factors, largely LDL (bad) cholesterol. However, there is a growing evidence base that suggests cardiovascular risk is a sum of a number of factors including triglycerides and blood pressure. The novelty in the new patent filing is that when used in combination with OptiBiotix’s cholesterol reducing strain the combination has the potential to: reduce multiple cardiovascular risk factors in a single presentation, enhance the overall effect on LDL reduction based on synergies in mechanism of action and reduce statin dosage mitigating possible side effects and improving patient compliance.

Seeing Machines (LON:SEE 3.73p/£39.90m)

Seeing Machines, the company with a focus on operator monitoring and intervention sensing technologies and services, confirmed that it expects to report pre and post tax trading for the full year to 30 June 2016 in line with market expectations, with revenue for the year of AUD33.6m. This revenue figure is 77 percent higher than the previous financial year’s total revenue of AUD18.9m.  These revenue figures exclude the research and development tax incentive received from the Australian government which is reported in ‘Other income’.  This incentive, which is received as a cash refund based on eligible R&D expenditure, totalled AUD2.4m for FY16 (FY15 AUD2.2m). The revenue was earned from the sale of goods and services and license fees.  As previously reported, included in the license fees, was an amount of AUD21.8m from Caterpillar Inc. due on signing a global product development, licensing and distribution agreement. Caterpillar takes over all costs and commercial responsibilities for the manufacturing, marketing, sales, field support and remote monitoring of the DSS rugged off-road product suite. Caterpillar continues to commercially engage Seeing Machines in supporting the engineering of their next generation DSS technology. The Caterpillar agreement also provides Seeing Machines with a royalty stream for both hardware sales and all DSS supporting services. Royalties for the quarter ending 30 June were $0.15m lower than the previous quarter due to longer than expected sales cycles with certain customers. However, Caterpillar’s forecasting confirms that the number of technology trials and the overall volume of sales opportunities continues to increase.

TP Group (LON:TPG 5.05p/£22.44m)

TP Group, the specialist technology, engineering and managed solutions group, announced that it has been awarded a contract valued at c.£1.0m from an existing long term customer based in South East Asia for the supply of a submarine carbon dioxide removal system. The work will be undertaken by TPG’s wholly owned subsidiary TPG Maritime at the Group’s manufacturing and engineering base in Portsmouth over the next 18 months.  This contact potentially forms part of a broader replacement programme.