Small Cap Wrap: Month: February 2010

AIM Breakfast - Archive

15 Feb 2010

This week: SpiriTel is expanding, Transense is on message and  Seeing Machines soars.

Angel Biotechnology Holdings (ABH 0.28p / £4.17m)*
We made reference to several announcements in last week’s Small Cap Wrap that biopharmaceutical contract manufacturer made and last week, it also announced the signing of a contract with Progenteq Limited, a Fusion IP spin-out company from Cardiff University.  Progenteq is developing a novel cell therapy for the treatment of acute knee injuries.  Under the contract, Angel will provide consultancy and development services for Progenteq’s novel cartilage replacement therapy. We also note that Angel is closely linked to ReNeuron, one of its clients, who last week also had good news that it had received final regulatory approval to commence a landmark stroke clinical trial in the UK, which given that Angel manufactures product for this trial, is good news all round.

Angel Biotechnology Holdings is a biomanufacturing company offering process development services, GMP manufacturing for advanced biologics and regulatory support including preparation of dossiers for regulatory submissions. Angel specializes in the provision of advanced biologics including autologous and allogeneic cell therapy products including stem cells and cellular vaccines, specific purified natural and recombinant proteins and bacteriophage. We understand that this is the most licensed facility in the UK, and that the Company has a good spread of clients, with no particular one that dominates, amongst them ReNeuron, the UK’s leader in stem cell research and Materia Medica, Russia’s 6th largest Pharma Company, with whom it has contracted work of £4m in manufacturing over three separate contracts and has recently signed an umbrella frame agreement and the first contract under that in non-manufacturing for £110,000. We expect further announcements under this agreement and with other clients now that Angel has the capacity to take on the work. Expect several more pieces of news before Easter about contract wins.

Clean Air Power (CAP 23.5p / £13.25m)

Clean Air Power, which develops and commercialises Dual-Fuel technologies for heavy vehicles, has entered into a concept development agreement program for the North American market with Navistar, Inc, an American producer of diesel engines, brand commercial and military trucks, buses, brand RVs, motor homes and step vans.

The intention is to use Clean Air Power’s unique technology to develop an innovative natural gas/diesel engine able to meet the North American customers weight and performance requirements and to achieve the US Environmental Protection Agency (EPA) 2010 emissions standards, which will bring significant reductions in NOx, particulate matter and CO2 emissions as well as generating fuel cost savings for the operators.

Clean Air Power will spend approximately $1.5m on developing the concept and it will apply, along with Navistar Inc, for US grant funding to fund the production.

With continued economic and environmental concerns, the rise of the oil price and the wide availability of Natural/Bio gas we see further growth in CAP.

Energybuild (EBG 15.5p/ 38.53m)

The Welsh coal producer announced it’s interim results for the 6 months ending 31st December 2009.  Energybuild’s coal is sold to the local Aberthaw power station and wholesale and retail coal markets.

Numbers were disappointing with gross profit of £224,000 (2008: £1.7m profit) leading to a net loss of £99,000 (2008: £841,000 profit).  However Energybuild has a strong cash position thanks to a recent fundraise in December when£14.5m was raised for the next phase of the development programme leaving a cash balance of £8.3m with no debt at the period end.  As further validation, Western Coal Corp, a significant shareholder also came into the placing and increased their stake to 54.7 per cent of the Energybuild Group.

On the more positive side, the new opencast site at Nant y Mynydd finally moved into production in the middle of December 2009 after a 10 month delay, and is on schedule to produce105,000 tonnes per annum by 2011.

We believe Energybuild now has the resources in place to hit their target of production of 750,000 tonnes of high quality anthracite by 2013 and the recent dip in the share price could be a opportunity.

Eco City Vehicles (ECV 6.5p / £19.63m)
Eco City has launched an all electric prototype of the London-licensed Mercedes Vito taxi (Vito), the zero-emissions, lithium-ion battery vehicle, co-developed and  distributed exclusively by the Group. Controlled trials to confirm eVito’s suitability for road usage as a London licensed taxi will be carried out later this year. The electric taxi is powered by Zytek’s 70kW electric powertrain and is expected to exceed a total range of 120 miles in a typical mixed drive cycle on a single charge.  If the Mayor of London’s proposed new clean air standards for London taxis are introduced for the London Olympics demand could surge… but then we’ve been here before with ideas for environmentally friendly transport that never quite seem to leave the taxi rank. Hope the meter’s not running.

Faroe Petroleum (FPM 131.50p / £134.60m)

The independent oil and gas company focusing principally on exploration, appraisal and undeveloped field opportunities in the Atlantic margin, the North Sea and Norway, last week announced that drilling has commenced on the Fogelberg prospect (Faroe 15 per cent), located in the Norwegian Sea. Partners in the well are Centrica Resources Norge AS (operator 28 per cent), Petro-Canada Norge AS, (30 per cent) E.ON Ruhrgas Norge AS (15 per cent) and North Energy AS (12 per cent). The drilling operation, to be undertaken by the operator Centrica using the West Alpha semi-submersible drilling rig, is expected to take approximately 80 days.

Faroe was awarded this licence in 2007, as one of its first Norway licences, and one of several licences identified and won on the basis of Faroe’s own original technical work. Fogelberg is the first of two wells scheduled for the Norwegian Sea this year. The second is the Wintershall operated Maria appraisal well (Faroe 30 per cent) which is expected to commence in the second quarter. This Company’s share price has almost doubled over the past twelve months and it now looks forward to five high impact wells in 2010,Fogelberg being the first. We expect the news to continue to flow going forwards, it has been a continuous flow since we started covering this stock, probably our top oil pick.

Frontier IP Group (FIPP 0.95p / £4.72m)

PLUS quoted Frontier IP, which specialises in the commercialisation of university intellectual property, announced that portfolio company, Rapid Quality Systems Limited (“RQS”), a spin-out the University of Dundee, has launched its first software product, CodeRocket. CodeRocket is a software tool which simplifies and supports the design of software systems.  Developed at the Space Technology Centre at the University of Dundee, the software product represents a market-leading innovation, providing software developers with the facility to speed up software development, enhance productivity and significantly improve design documentation. Frontier IP received its equity stake in RQS as a result of its partnership agreement with the University of Dundee and the equity stake is its third with the University of Dundee, with which it has a 10-year partnership contract. We particularly like Frontier’s model of providing commercialisation support in return for equity in spin-out companies and expect more newsflow in the coming months to support the upwards trending share price.

LMS Capital (LMS 51.5p/£139.05m)
LMS Capital plc announced that Glenn Payne is to be appointed Chief Executive and that Robert Rayne, the current Chief Executive will succeed Jonathan Agnew as Chairman. Payne is currently a Director of First Reserve Corporation, a leading investment firm specialising in the energy industry and previously was the Director of Strategy for Suez Energy, a major global electricity and gas provider. He also worked at McKinsey & Co. as an Engagement Manager serving electric power and natural gas clients. Before joining McKinsey, he was at the Atlantic Richfield Company (ARCO, now BP), where he served as a Director of Business Development. LMS trades at a discount of about 41 per cent to the last reported NAV and so we’re hoping that concerns over succession can now be laid to rest and the discount narrowed to something more sensible.

Lotus Resources (LOTP 2.5p / £1.61m)
The Plus Markets quoted mining company with assets in Mongolia announced that it has completed a £600,000 fundraising; £100,000 through the issue of 4,694,835 ordinary shares at 2.13p per share with a further £500,000 raised via a convertible secured loan note.

The funds will be used to continue the expansion of the company which after the last acquisition in December 2009 is actively looking to add further licences and to acquire producing assets. Lotus Resources is expected to be profitable in 2010 which would be a considerable achievement and a valuation enhancing milestone.

Milestone Group (MSG 1.7p / £1.74m)*
AIM listed provider of digital media solutions and technology, last week announced that it has been appointed by Music Monk to design and develop a new innovative iPhone Application aimed at live music and event goers around the world. Music Monk is a global club and music events/venues directory which offers promotional services and information for music events/venues in real time. The Music Monk team is a highly experienced group of entertainment industry professionals with a particular focus within the club and promotion industry. Music Monk is focused on providing a solution to delivering key functionality to every part of the music entertainment sector and in order to help them achieve a scalable creative platform, Milestone will also be developing a Web application and advising on other aspects of digital marketing and online/mobile services for Music Monk.

The Company has a clear strategy of actively growing a portfolio of controlling and non-controlling stakes in digital technology, content or service companies. MSG is now firmly focused on generating revenue to help support the business expansion and we believe that this stock is also well worth a look now that the turnaround is complete, that there are three focused business units and that we expect to see perhaps further deals for interesting technology going forwards.

Motive Television (MTV 0.7p / £3.26m)*
Trading was restored in media Company Motive TV last week and at the same time it announced that it has raised £400,000, with institutional and retail investors, at 0.2p per share. The net cash proceeds will be used by the Company to continue the marketing and development of its digital terrestrial technology business previously announced in July 2009. Michael Pilsworth, Executive Chairman of the Company, has subscribed £8,000 and in addition, the Company announces that certain Directors have agreed to capitalise deferred salary payments amounting to a total of £18,000 by subscribing for new shares at the Subscription Price. On top of this cash influx, we also understand Motive is selling Brown Eyed Boy Ltd, one of its TV production companies. This clearly leaves the Company well capitalised, and it is a positive signal that Directors are participating and also converting debt owed to them into stock.

This cash enables Motive to continue the step change from being a TV content production company to move to being a Digital Terrestrial Television (DTT) Company with its Adecq deal, a Spanish media company, for whom it will distribute its BesTV DTT technology. This technology allows DTT broadcasters to transmit programmes using existing signals to a DTT set-top box, enhancing their content offering and also offering video-on-demand, and catch-up TV. Motive has global rights, ex Spain and Italy to this product. We think it likely that Motive will focus at the outset on the Central and Eastern European markets and on the US, which is a good thing as there is already competition focused on the Western European markets for instance.

This is great news for Motive TV and good to see it up and running, clearly the market agrees with the share price up more than three times the subscription price.

Patsystems (PTS 23p / £42.16m)
AIM listed Patsystems, which provides tailored software solutions to enhance derivatives trading performance and trade processing, has announced very strong 2009 results.

Patsystems, despite the economic downturn and the loss of a major client (Lehman Brothers), demonstrated a strong performance during 2009 delivering a solid profit increase (net profit of £3.36m, £0.62m 2008), excellent cash generation (the cash balance ended at £8.9m, 2008: £5.9m) and sales growth. Thanks to these excellent results it has proposed a dividend increase of 16 per cent from the 2008 0.36p per share to 0.42p per share.

After the 2009 results announcement the share price, which has been quite steady in the last year, increased by about 5 per cent and it is possible it will continuing this trend. The Company’s adjusted diluted EPS rose by 4.7 per cent.

For this cash generative software company 2010  started strongly with new opportunities coming in Indonesia, Malaysia, Brazil and Korea.

Sarantel Group (SLG 2.125p/£6.55m)
Sarantel, the company that makes high-performance, miniature antennas for portable wireless devices, has announced its preliminary results for the year ended 30 September 2009.  It confirmed earlier reports that revenues grew by more than 50 per cent despite challenging economic conditions as a result of the company’s strategy of focusing on the high-margin niche markets.  Sarantel has won and continues to win a number of design opportunities and the company’s GPS solutions are being deployed in a much broader range of applications.

As gross margins improved to 43 per cent  and operating costs were reduced by 14 per cent, EBITDA was reduced to a loss of £1.9 million compared to a loss of £2.8 million in the previous year.  The company states that it has good visibility of many opportunities both in the mass-market GPS and the high-value markets.  We share the company’s positive outlook and remain confident that their strategy will deliver continued progress.

Seeing Machines (SEE 2p / £6.24m)
The AIM listed developer of advanced computer-based imaging software systems announced last week that it has concluded a Master Purchasing Agreement with Freeport McMoRan Copper and Gold Inc.  The MPA is a corporate level agreement establishing the master terms and conditions for the supply of the DSS product suite to Freeport’s group of operating companies. Freeport is a global mining company with copper, gold and molybdenum operations across multiple continents. This first resource industry deal follows the successful completion of a short DSS pilot at one of Freeport’s copper mines in the USA. Nick Cerneaz, CEO of Seeing Machines commented: “The intended deployment of DSS will be undertaken on a mine by mine basis and it is anticipated that the first new installations will be completed within this financial year…With a number of DSS pilots currently underway with other mining/resource companies, we are enthusiastic about the future success of the DSS.”

The market reacted well to the great news, up over 20% on the day it was announced. Looking at the screens, we anticipate further buying interest and this should move the price up accordingly. During the last financial year, the company restructured and we believe could potentially have a number of good announcements to come in terms of client wins.

Sigma Capital Group (SGM 14.25p/£6.67m)
Sigma, the specialist asset management and advisory group, announced that two of its portfolio companies have been identified as amongst six of the most promising technology companies in the marine energy sector by the Carbon Trust.   Aquamarine Power and Pelamis Wave Power have been selected by the Carbon Trust, which was set up by the UK Government as an independent, not-for-profit company to lead the low carbon technology drive, to receive a combined total of GBP9.9m from the Marine Renewables Proving Fund, a £22m fund set up by the UK Government Department of Energy and Climate Change and managed by the Carbon Trust. Marine energy has been identified as an important growth industry in the UK and the MRPF has been set up in order to assist the most promising technologies. Aquamarine Power, which has developed an innovative hydro-electric wave energy converter, will receive £5.1m and Pelamis Wave Power, which has developed the first commercial scale machine to convert wave energy into electricity, will receive £4.8m to support the ongoing commercialisation and early deployment of their technologies. Wave to go, Sigma.

SpiriTel (STP  62.5p / £11.06m)
Spiritel has announced a further acquisition, acquiring London base Mobotel Management, which provides converged mobility services to corporate customers in the legal and financial services sectors. £1.15m is payable in cash on completion with up to a £1.0m performance related earn-out if vigorous growth targets are achieved over the coming two years. Based on the current performance, no earn-out would be payable.   The vendor of Mobotel will also receive a payment of £1.0m from Mobotel’s cash deposits at completion. In the year ended 31 December 2009, Mobotel had net assets of c. £1.0m including a cash balance of c. £1.25m. For the year ended 31 March 2009, Mobotel reported revenues of £2.1m and PBT of £0.3m. The deal looks attractive as the group is paying a mere 3.8x historic PBT for the acquisition, assuming no earn-out, and excluding significant synergies we expect it to generate. Management believe the acquisition is immediately earnings enhancing. Whilst sometimes it’s not the destination (which we can see) it’s the travelling – this particular journey continues to leave the market unmoved. Why so we ask?

Synchronica  (SYNC 2.875p / 16.60m)
Last week Synchronica had the global launch of their MessagePhones.  These phones have been developed specifically for Emerging markets.  They offer push email, calendar and contact synchronisation, instant messaging, web access and are designed to become the main internet device for those who don’t have regular access to a PC, as well as MP3 and built in FM radio and camera on a large colour LCD screen.  These phones offer similar functionality to the Smartphones we are all familiar with and yet they are offered at around a retail price of $99, a fraction of the cost of a Smartphone.

MessagePhones, with their comprehensive and affordable mobile messaging and internet, are aimed at entrepreneurs and the growing middle classes across Africa, Latin America, Eastern Europe and South-East Asia.

Operators in the local area can white label the MessagePhone, and by offering all these additional services to the basic voice service, can create stronger brand loyalty and reducing churn, something which is a real problem for operators in Africa.

Having seen the actual phones for the first time, we were impressed with the capabilities of it and think this could be a great time to invest in Synchronica, before a significant uptick in the share price.

Transense Technologies (TRT 8.5p / £6.25m)

AIM listed technology transfer company last week announced that its subsidiary, Translogik RFID Limited, has signed an exclusive global distribution agreement (excluding China) with Qingdao Mesnac Co. Ltd. for its range of RFID (Radio Frequency Identification) products, including its RFID tag.  The tag has been developed to be embedded within the tyre during the manufacturing process, where it will last the lifetime of the tyre, or alternatively in a patch which attaches to the tyre wall, as an aftermarket solution.

Graham Storey, CEO of Transense said, “The potential tyre RFID market is currently estimated to be in the region of 1.2 billion units per annum. We have the first commercially available, independent (non-OEM) RFID tyre tag available to OEM’s, fleets and service providers. The tag has undergone a rigorous and extensive testing process during the past 18 months, in both truck and car tyres, and has proven to be exceptionally robust, meeting all quality expectations. This agreement adds another complementary technology to our existing product portfolio, allowing us to meet the developing demands of our existing customers and the wider automotive asset management market.”

Graham goes on to explain the economic benefit of Transense’s tags: “There are several compelling reasons for a tyre manufacturer or fleet owner to fit an RFID tag into their tyres; recent price increases mean that tyres now represent their second highest maintenance cost behind fuel, as a consequence managing tyre assets is enormously important in maintaining profitability. RFID allows for accurate, real-time management of tyre assets and when combined with the Translogik range of fleet inspection tools, provides our customers with a total end-to-end tyre management solution to monitor tyre pressure, tyre temperature, tread depth, and now with the use of RFID, full tyre tracking to prevent counterfeiting and tyre theft, a significant problem for truck and bus fleets, and car rental companies worldwide”.

Translogik RFID Limited is a provider of innovative RFID (Radio Frequency Identification) based technology solutions for Data Capture and Asset Management to the Commercial vehicle and Industrial markets. It is a wholly owned subsidiary of Transense Technologies PLC. It is the first time we write on Transense, which develops Surface Acoustic Wave (SAW), wireless, batteryless, sensor systems in partnership with its licensees and partners, Honeywell, Melexis, Michelin, Sengenuity, Stack, Tai-Saw, Texas Instruments, SCHOTT, McLaren Electronic Systems and Carbon Motors. Current applications include Tyre Pressure Monitoring Systems (TPMS) and torque systems for Electrical Power Assisted Steering (EPAS) and driveline management. Transense is in a tough market dealing with the automotive industry, but we expect that with the number of partnerships in place, that Transense should be a stock with an increasing amount of news flow in 2010 as it moves towards 2011 profitability.

Worship Street Investments Limited (WSIP 2p / £1.42m)
PLUS quoted Investment Company Worship Street last week announced three investments. One in the PLUS quoted company, Mechan Controls Plc. Based in Skelmersdale, Lancashire, Mechan Controls PLC is a designer and manufacturer of electronic non-contact safety switches for use in a wide range of industrial sectors. The company has access to a £100 million per annum global market and under the current management team, has an unbroken record of revenue growth since 2001 and has been consistently profitable. The company started paying a dividend in 2003 and this too has steadily grown. Worship Street acquired 25,000 shares at 130p representing 1.25 per cent of the issued share capital of Mechan.

The second and third investments last week were in Conduco Plc and English Wines Group. WSI has acquired 237,000 shares in Conduco Plc at a price of 8.5p per share, representing 1.89 per cent of the total issued share capital of Conduco Plc. Conduco plc is a software development company based in Manchester, and its background is in developing password management and location software for the UK National Health Service. Today, Conduco operates within both public and private sectors, developing leading edge solutions focused in Realtime Locating Systems, Password Management and Corporate Communications. Following this acquisition, WSI now holds 1,000,000 shares in Conduco representing 8 per cent of the issued share capital.

WSI has also acquired 82,500 shares in English Wines Group Plc at a price of 14.5p per share, representing 0.19 per cent of the total issued share capital of English Wines. Worship Street also holds GBP100,000 worth of convertible Loan Notes, paying an 8 per cent coupon, in English Wines Group Plc as part of the placing announced by English Wines on 5th June 2009.

We write on Worship Street Investments for the first time. The Company’s strategy is to make investments in securities including the acquisition of debt or equity, in PLUS quoted companies. The Company may also make investments in companies that the Board feels represent good value by taking equity positions in the secondary market. The objective of the Company will be to deliver long-term capital returns by investing in what the Directors believe to be undervalued companies. The Company will aim to spread risk by investing in a range of such investments. The Company’s investment strategy is intended to be a generalist one with no specific sector, national or regional bias.

*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 Feb 2010

This week: Cellcast calls the shots, Angel Biotech flies and Synchronica is on message.

Angel Biotechnology Holdings (ABH 0.28p / £4.17m)*
AIM listed biopharmaceutical contract manufacturer last week announced that it raised £1.425m at 0.25p per share to provide working capital and to fund capital expenditure at the Company’s facility in Edinburgh to meet increasing demand for the Company’s products and services. Paul Harper, Chairman of Angel, has agreed to take 20,000,000 shares at 0.25 pence per share in payment of amounts owing to him by the Company. This fund raise should take Angel into profitability.

At the same time as the placing, the Company announced that the Technology Strategy Board’s Press release entitled “Regenerative Medicine Research and Development to receive £4.5m funding injection” names Angel as a collaborator with Pfizer Regenerative Medicine as one of the consortia sharing the £2.8m which is the first phase of this investment. Gordon Sherriff, Angel’s Chief Operating Officer said: “Angel is extremely pleased to be involved in 3 of the 30 feasibility studies funded by the TSB.  The TSB’s significant investment of £2.8m reflects the government’s commitment to developing growth in the area of regenerative medicine and continues to place Angel at the forefront of development and manufacturing for novel cell-based therapies.”

Last week, Angel also announced that the announcement made by ReNeuron Group plc stating that ReNeuron has received written confirmation from the Gene Therapy Advisory Committee that it was confident of receiving an unconditional favourable opinion from GTAC in respect of the ReN001 Phase I clinical trial very shortly, enabling the trial to commence thereafter, is an important milestone in the development of stem cell based therapeutics. As previously notified, Angel has been named as ReNeuron’s manufacturing partner for nominated clinical trials.

Angel Biotechnology Holdings is a biomanufacturing company offering process development services, GMP manufacturing for advanced biologics and regulatory support including preparation of dossiers for regulatory submissions. Angel specializes in the provision of advanced biologics including autologous and allogeneic cell therapy products including stem cells and cellular vaccines, specific purified natural and recombinant proteins and bacteriophage. We understand that this is the most licensed facility in the UK, and that the Company has a good spread of clients, with no particular one that dominates, amongst them ReNeuron, the UK’s leader in stem cell research and Materia Medica, Russia’s 6th largest Pharma Company, with whom it has contracted work of £4m in manufacturing over three separate contracts and has recently signed an umbrella frame agreement and the first contract under that in non-manufacturing for £110,000. We expect further announcements under this agreement and with other clients now that Angel has the capacity to take on the work. This Angel should be flying high going forwards.

BGlobal (BGBL 52.5p / £41.31m)
A trading update for the smart meter provider included an announcement of a contract win with British Gas Business for smart meters which could generate some £12m revenues in 2010 and deliver recurring revenues of £1m thereafter. The contract formalises the supplies that were previously covered in a framework agreement announced in July 2006. The company also announced an end-to-end contract with Dual Energy Direct, a new entrant into the UK electricity market, and that it has established relationships with five national providers of field services. On the trading front, the adverse weather in January did cause installations to slip below target but that the company is broadly trading in-line with market expectations in terms of revenues. However, the bottom line has been impacted by increased transport costs needed to meet higher demand and investment ahead of the British Gas contract so that profits will fall below expectations for the year ending March 2010. The stock remains a darling of the market and we can see why.

BrainJuicer Group (BJU 147p / £19.01m)
We wrote on this fast growing, international online market researcher, two weeks ago. Last week, it announced the expansion of its management team, appointing Alex Batchelor as Chief Operating Officer. Alex was most recently CMO at TomTom and is the current Chairman of the Marketing Society. Having worked for firms like Unilever, Saatchi & Saatchi, Interbrand, Orange and the Royal Mail, we can only imagine he will have an incredibly positive impact on BrainJuicer. The Company’s recent trading update was very positive and made impressive reading. In 2009 the Company’s clients included 11 of the world’s top 20 buyers of market research, up from 9 in 2008. Overall the Group achieved approximately 26 per cent revenue growth and the operating profit was up by more than 25 per cent. We reiterate that Brainjuicer’s business model, despite market research being a tough area over the past 12 months, would appear to be a no-brainer.

Cellcast (CLTV 6.75p / £5.10m)
Cellcast Asia, in which Cellcast holds 37.5 per cent has posted strong results for the second half. Cellcast Asia reported $6.41m revenues, up 400 per cent over the same period the previous year, with profits of just over $2m being driven by opportunities it is seeing within the Indian mobile market. The company  expects continued growth in 2010, on the back of increasing Indian cellular subscriber numbers, growth of numbers on the national DTH platform and greater penetration of the regional markets as it addresses other local languages.  Perhaps a little early to call but the momentum is growing and this could be one of the year’s winners.

First Artist Corporation (FAN 19p / £5.7m)
First Artist announced the disposal of the independent financial advisory firm Optimal Wealth Management to Conforto Financial Management for a total cash consideration of £1.5m. The net proceeds of sale will be used for debt reduction. A total consideration of £3m was paid for Optimal when it achieved its maximum earn out in 2007 resulting in a loss on disposal of around £1.5m but CEO Jon Smith’s imperative to reduce debt seems right particularly as Optimal was a peripheral business to the core, media, events and entertainment and sports agency sectors. In the year ended 31 August 2009 Optimal produced an EBIT of £285,000 on turnover of £1.8m, with net assets of £145,000. At 5.2x EBIT the disposal seems a fair deal for both sides. First Artist reported a strong summer, with good transfer activity. It was reported in the press that there are more disposals in the pipeline leaving, we suspect, the core theatrical business.  Assuming this is also valued on a 5x EBIT multiple we can envisage a group with an enterprise value of £25m and an equity value of about £12m.  At double the current market cap Jon Smith is some turn-around artist.

Good Energy Group (GEGP 58p /£4.53m)
We recently commented that this PLUS quoted new energy Company was focused on improving its financial performance and that new turbines due to come on line suggested the Company seemed to have the wind in its sails. Last week it announced that the Finance Director, Jon Fairchild, is to leave the Company on 30 April 2010. The shares seem undisturbed by this news. We can expect a further announcement soon, presumably on his replacement. Good Energy is unique in the supplier industry by buying and selling 100 per cent renewable electricity. Good Energy supports a pioneering community of more than 1,000 independent renewable generators that use wind, small-scale hydro, solar power and sustainable biomass to generate heat and power.

In an official report from the National Consumer Council, Good Energy was rated the greenest energy supplier in the UK. Good Energy has also been named Best Buy for green electricity by Ethical Consumer magazine and has won numerous awards including, most recently: West of England Business of the Year 2009; Sunday Times Green Company 2009; Observer Ethical Award for best online retail initiative 2009; and Juliet Davenport won PLUS markets CEO of the Year. This PLUS quoted new energy Company certainly seems to be picking up all the awards and we imagine, given its positioning in the market place, will continue to steal the limelight.

Lipoxen PLC (PLX 8.25p/£11.5m)
Lipoxen, a biotech company that develops new and improved versions of existing drugs and vaccines, announced in a trading update that partner Serum Institute of India has agreed to accelerate ErepoXen (improved version of EPO) towards marketability by expanding the trial into a fully integrated Phase II FDA compliant trial.  This has caused a delay in licensing revenues and Lipoxen did not meet its revenue expectations for 2009 as a result.  However, the new extended trial is about to commence and the Serum Institute will fund the additional costs.
During the first half of 2010 we expect to see a number of promising announcements from Lipoxen regarding the progress of their pipeline.  For instance, we anticipate to soon getting updates about the HIV and Malaria vaccine programmes as well as Lipoxen’s partnered siRNA delivery technology.  Further, Baxter will be in a position to announce a lead product candidate from the Factor VIII project and possibly news about a broadening of the collaboration.  Later on, a report on the study of SuliXen in Type I diabetes is expected from the Barbara Davis Institute, as is an announcement from FDS Pharma regarding the initiation of the Phase II insulin trial.
In the meantime, progress is underway both on the influenza vaccine and on the six candidates being developed by Pharmsynthez using Lipoxen’s ImuXen technology.
This broad programme development is made possible by the company’s cost effective business model that 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 in addition to those mentioned above.  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.

Mediwatch (MDW 8.25p / £11.18m)

AIM listed urology and diagnostics medtech group has moved up a few pence since we last wrote on it in August 2009. Last week, it announced its full year results for the year ending 31 October 2009. Mediwatch announced record revenues, which increased by 11 per cent to £10.4m (2008: £9.3m) and a profit from continuing operations for the year, which increased by 5 per cent to £425,000 (2008: £403,000). Cash flow from operations was £866,000 (2008: £658,000) and the Company also post the year end in November 2009 raised £332,000 to finance feasibility studies for four major opportunities and to provide working capital. The PSAwatch system was successfully launched into Asia, Mexico, the UK and other European countries and the Company enjoyed an increase in sales following the successful launch of the Portascan and bladder scanner system. In the year to 31 October 2009, Mediwatch announced a joint sales and marketing agreement for the PSAwatch with Inverness Medical Innovations and continued to invest strongly in its R&D programme across all product categories.
Omer Karim, Mediwatch Chairman said: “The Group is well placed for 2010 with its range of new products and services to capitalise on the international opportunities and challenges of worldwide reduction in healthcare spending” This year, Mediwatch plans to make investments to extend its worldwide reach and is looking to develop additional complimentary products enhancing the “one-stop-shop” strategy it brings to the market. With a focus on prostate cancer, about which there is an increased awareness, this stock has a long way to go. Mediwatch is certainly one to watch and as we have made reference to before, there is always the possibility of a US medtech giant wading in at a nice premium.

Pulse Group PLC (PGRP.PL 2p / £1,83m)
Pulse Group, the Asia-Pacific based Plus Markets listed provider of “RPO” (research process outsourced) services to market research and media companies, has announced interim results for the six month period ended 30 November 2009.

In a difficult trading environment the company reported a drop in revenues from £545,000 in 2008 to £262,000 in 2009 although gross margins increased from 32 per cent to over 75 per cent as a result of several new large multi year projects.  Since the period end the group has continued to win additional multi year projects which  bode well for current trading and revenue visibility.  However we are concerned about working capital as current cash is only £30,000 and short term borrowings have increased from £7,000 to £67,000.  This looks a business that is well placed in its market, is gaining traction with clients that just needs a little extra adrenalin pumping round to get the pulse racing.

Rockhopper Exploration (RKH 63.25p / £109.57m)

The North Falkland Basin oil and gas exploration company has risen £10m in value since we wrote on it at the end of 2009. Last week, it announced that it has been formally assigned two slots with the Ocean Guardian drilling rig to drill Sea Lion and Ernest, during its forthcoming drilling campaign in the Falklands. The Ocean Guardian is due to arrive in the Falklands in February 2010. The first well to be drilled by the rig, due to spud in mid February 2010, will be Liz (Rockhopper: 7.5 per cent interest), located on the western margin of the North Falkland Basin and operated by Desire (92.5 per cent interest). The second well to be drilled by the Ocean Guardian upon its release from Liz will be Sea Lion (Rockhopper: 100 per cent owned and operated). The prospect is located on the eastern basin margin of the North Falkland Basin and is in close proximity to the Shell well 14/10-1, which recently recovered oil. Rockhopper will then be assigned either the third or fourth slot to drill the Ernest well. Rockhopper’s drilling campaign is starting on time and in line with what has been previously announced and we look forward to further positive news from this one in 2010.

Rotala (ROL 50.5p / £16.64m)

The Competition Commission has announced the time-table for its investigation into Local Bus Services –  which will take 18 months and result in a report no later than January 2012. We’ve thought for a while that Rotala is ideally placed benefit from any selling down of routes by the larger operators that competition concerns may trigger so we remain bullish on Rotala. Its strong balance sheet, cash flow and M&A expertise make Rotala undervalued.

Synchronica (SYNC 2.75p / £15.88M)

The company that provides mobile email, instant messaging and data ‘synchronisation’ announced in their trading update last Monday that in the second half of 2009 they won new contracts with eight mobile operators, giving them a total of thirteen operators signed up throughout the whole of 2009.  All of these contracts are in the company’s target market of developing countries.

They also said last week that under an agreement it signed last July, one its partners has received an order for 20,000 MessagePhones, the low cost mobile.  Synchronica will receive 3 per cent of the net sales revenue from this deal, as well as the associated licence, professional services, support and hosting revenues.  This is the second purchase order from this particular partner, and MessagePhones haven’t even officially launched as yet.  With the launch on 10th February 2010, we look forward to exciting developments from Synchronica.

The MessagePhone is particularly good at email and supports use on social networking sites, areas that are predicted to continue to grow strongly. With the share price at recent lows, this could be the time to pick up some stock.

TyraTech, Inc (TYR 10.5p/£2.88m)

TyraTech’s successful partnership with Terminix, the world’s largest professional pest control business, is being expanded and extended.  TyraTech’s unique eco-technology for safe and effective control of pests, parasites and insects forms the basis for the partnership’s products including the first one, SafeShield, which Terminix is now placing increasing orders for.

The agreement now calls for new co-branded product lines to be developed for the US consumer, professional pest control, commercial and government markets.  While TyraTech had a difficult year in 2009 a lot of groundwork has been done that acts as a foundation for future growth.  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.

*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 Feb 2010

This week: Ark Therapeutics rebuilds, Earthport wobbles and Gulfsands Petroleum soars.

Ark Therapeutics Group (AKT 14.75p / £30.27m)
Last week, biotech company Ark, which had bad news in mid-December about its Cerepro programme being delayed, announced that it has implemented a series of restructuring measures to extend its cash runway. The Company has begun consultations with employee representatives on headcount reductions in manufacturing, R&D and support staff, as well as reducing investment in non-core early stage research programmes. In addition, after first pilot trial results show a change in its trial design is required, Ark has decided to put the development of Vitor on hold.

The current review has focused on the need to continue the development of the Company’s key strategic assets Cerepro and Trinam- principally, the gene-based medicine business with its fully developed adenoviral platform, the recognized biologics manufacturing capability and licensed facility in Kuopio, IP and stroke patents – and its rapidly growing wound care business.

The Company’s operational focus will be on completing Cerepro and Trinam programmes and ensuring the key pre-clinical programmes in refractory angina (EG011), peripheral vascular disease (EG016) and fetal growth retardation (EG013) progress in Phase I/IIa development. The measures currently being implemented should mean that the Company’s current cash will fund its operations into the second half of 2011.

On the same day as this cost cutting news was announced, Ark separately announced some good news that the first patient has been enrolled and treated in the Phase I/IIa trial of adenoviral short-form Vascular Endothelial Growth Factor-D (“VEGF-D”) in patients with refractory angina. Dr David Eckland, R&D Director of Ark, commented:  “Today’s news of the product being successfully and uneventfully administered by NOGA catheter, directly to the ischemic heart muscle where increased blood flow is needed, is a major step forward both technically and in advanced biomedicine.”
The company has over the past three months fallen from the mid 40 pence to mid teens per share. We like this Company, and it still has plenty to focus on, but we believe it may continue to languish at these levels for a while yet. The brave wouldn’t be seen as foolish however in assessing the number of assets it has and the dedicated management team and scientific advisors that are on board the Ark as sufficient to take advantage of these low levels.

Bright Futures Group (BFGP 0.3p / £0.832m)
PLUS-quoted provider of contract catering and outsourced managed services within the corporate business and schools sectors, last week issued a trading update on its activities for the three months ended 31 December 2009. During the period, the Group traded profitably, in line with the Board’s expectations. The integration of Jill Bartlett & Company Limited, which was acquired on 28 September 2009, has been completed and this business is also performing to expectations according to the Company. Since acquisition, JBC has won a prestigious new contract operating in the City of London, which is already contributing to trading results. Restaurants at Work, the Group’s principal operating business, also performed well throughout the period as the operating changes that were made earlier in the year had a positive effect

The New Year, however, started disappointingly as BFG was adversely affected by the poor weather conditions over the first two weeks. As a result, the Group lost a significant amount of sales which will be difficult to make up. The Board is continuing to review its cost base to offset the reduction, but it is unlikely that the Group will recoup all of the lost profit.

Bright Futures Group plc is the holding company for the Restaurants at Work contract catering business. RAW provides a broad range of catering services from a fully serviced corporate restaurant to the provision of cold takeaway snacks to corporate clients in the UK, primarily in the South East of England. The Board continues to believe that the Group is in a stronger position than it was last year and that it is well placed to take advantage of any upturn in the economic environment.

Corero (CORO 45p/ £0.683m)
Corero, the provider of software solutions to the banking and securities and education markets, reported that trading for the year ended 31 December 2009, is in line with market expectations of PBT of £0.1m and EPS of 4.74p. Operating profit is expected to be in excess of £0.3m. The Business Systems division has maintained its market position by winning contracts with 25 City Academies and the Financial Markets division generated substantial revenues from the existing Blue Curve and Radica CAPS clients. Net cash stood at £0.685m exceeding the current market capitalization. The market forecasts 2010 EPS of 14.22p, which puts it on a P/E ratio 2.3x. The low rating combined with the net cash position exceeding the current market capitalization yields the rather surprising conclusion that could be an interesting play.

Earthport (EPO 13.5p/ £12.17m)
Despite reassurances that a franchise fee was imminent last month, the group has now indicated that the £3.25m non-refundable first year franchise fee from Zink Financial is still to be received. The failure puts pressure on the company financially and so it has had to place up to 7m new shares at 12.5p raising £875,000. Six months cash in our view.  Brace, brace, brace…

Faroe Petroleum (FPM 133.25p / £141.67m)
The independent oil and gas company focusing principally on exploration,  appraisal  and  undeveloped  field  opportunities  in the Atlantic margin,  the  North  Sea  and  Norway,  last week announced that it had been awarded  a new  prospective licence  under the  2009 Norwegian APA Round and has been prequalified as an operator for the Norwegian Continental Shelf. Significant hydrocarbon potential has been identified within this Norwegian Sea licence, which is located adjacent to the Company’s existing PL477 Cooper licence. Faroe has prequalified as an operator on the Norwegian Continental Shelf, which will allow the Company to pursue operated opportunities and retain higher equity levels in assets acquired through both upcoming licensing rounds and acquisitions.

This Company’s share price has almost doubled over the past twelve months and it now looks forward to five high impact wells in 2010, the first of which is expected to be the Fogelberg well in Norway this month. The prequalification as operator should open new opportunities for the company in Norway in the coming years. We expect the news to continue to flow going forwards, it has been a continuous flow since we started covering this stock, probably our top oil pick.

Fusion IP (FIP 34p / £18.4m)
Fusion IP announced a new start up in conjunction with Cardiff University. Asalus is a medical devices spin-out developing 3 innovative devices to improve the safety and efficiency of minimally invasive laparoscopic surgery. Over 2m laparoscopic operations per year are now performed in the USA and the market for devices and instruments was estimated at $12bn in 2005 and growing. Patents have been filed on all three devices; an electrosurgical smoke and steam clearance device; an innovative access port; a multifunctional device for the traumatic manipulation of tissues and organs. This looks an interesting investment but our wider concerns over the viability of this group’s business model remain.

Galleon Holdings (GON 11p / £18.10m)
One that we write on for the first time and which has caught our eye is the AIM listed entertainment media company that develops and produces multiplatform entertainment properties with a focus on emerging markets. Last week it announced a good set of preliminary results for the year ended 30 September 2009.

Group revenue increased to £27.1m, a rise of 123 per cent and profit before tax increased to £1,377,000, a rise of 60 per cent. Galleon has continued to grow its media business, and thus the business overall, despite the impact of the global economic downturn on the media and promotions sectors. A key factor of this growth has been that 80 per cent of the Group’s media revenues come from China, a region which has bucked the trend and seen its media sector grow in the last financial year despite the global economic environment.

Galleon’s Multiplatform Entertainment Property model means that it derives revenue from a diverse range of activities that include the “new media sector”, and are not wholly reliant on traditional media revenues such as sponsorship and advertising (an area significantly affected by the economic downturn). Galleon’s Multiplatform Entertainment Properties offer powerful entertainment based communication directly to the consumer through channels that allow ongoing communication. The current reference for this is “Branded Entertainment”.

Galleon has seen further growth in the online and digital games markets both inside and outside of China. These sub sectors of the media market are becoming increasingly important, with significant revenue prospects to those who can offer entertainment directly to consumers.

Galleon has now established a strong media platform in China and built a team with the understanding of both Chinese and Western media markets. This team has the commercial and creative skills to bring these two media markets together for the first time through two models. The first model consists of developing and launching MEPs in China and then selling the format and licensing rights into the rest of the world. The second model works by taking Western entertainment, localising it for the Chinese market, and then distributing it directly through Galleon’s own channels or via third parties such as Super Soccer Star or Super Fashion Star.

The outlook for 2010 continues to be encouraging with some exciting developments including the launch of new properties, new business channels and higher margin product offerings designed to improve overall profitability, and we hope that the share price can react positively on the back of upcoming news as it has been languishing somewhat since the summer of last year. We spoke briefly to Stephen Green at the end of 2009 and he was bullish and excited about Galleon’s outlook. Fingers crossed for this one this year!

Gulfsands Petroleum (GPX 271.5p / £318.64m)

The oil and gas production, exploration and development company with activities in Syria, Iraq, and the U.S.A., last week gave an update on the Company’s operations at Block 26, Syria where Gulfsands holds a 50 per cent interest and acts as operator. Gulfsands   has   now received confirmation from Syria’s General Petroleum Corporation that Gulfsands Petroleum Syria Limited has been granted permission to develop the Yousefieh Oil Field accumulation in Block 26 North East Syria. A production licence of 25 years duration has been granted, with the possibility of an extension if required, for a further 10 years.

The Yousefieh Field was assessed at the end of 2008 as containing gross proved plus probable reserves of 11 million barrels of oil.  First oil from Yousefieh is anticipated early in April 2010. Production will commence from 2 wells, Yousefieh-1 and Yousefieh-3, at an expected initial combined rate of up to 1000 barrels of oil per day. It is anticipated that production from the Yousefieh Field will reach a rate of approximately 6000 barrels of oil per day by 2012.

This Company’s share price has had a fantastic run over the past year, almost doubling, and has had a great start to 2010. We have been impressed by the management behind this Company and think that it has a long way to go still.

Ipso Ventures (IPS 58.5p / £7.71m)
The demand led technology commercialization business, last week announced its interim results for the six months to 31 October 2009. IPSO creates commercial value from technology and its business model is entirely demand driven. It works closely with its industrial collaborators to identify the demand for new, innovative technologies and then, through its strong relationships with research institutions, sources technologies which could meet those needs. Much of this technology requires considerable further work by IPSO before it can be sold to industry as a developed product.  IPSO creates businesses and provides expertise, strategic direction, human and seed capital, as well as corporate finance advice. IPSO is currently seeking equity funding for the Company to provide additional working capital and investment funds, although we imagine many, hopefully not all, will want to see this exciting demand led model proven first.

Its net loss for the six months was £575,000 after interest. Revenue was increased significantly during the period through complementary revenue generating initiatives, involving university development programmes, headhunting and corporate finance activities. IPSO expects revenue to continue growing throughout the remainder of this financial year. The Company made further investments totalling £202,000 in the period. These were spread across its core sectors of activity – Energy & Environmental, Healthcare and Process & Software.

IPSO’s first batch of investments is now approaching exits which will generate cash for IPSO. The Company has sensibly reduced the overhead costs so as to give a realistic time period to achieve that exit. Cash and short term investments at 29 January 2010 totalled £277,000, based upon the current cash burn rate and in the absence of a successful exit; this will provide sufficient working capital for the Group’s requirements for approximately six months of operation.

IPSol Energy Limited, its latest investment, was created to provide business and technical solutions to the solar photovoltaic market with an initial focus on testing services. First revenue was achieved within a month of the business being established, as previously highlighted in a recent Small Cap Wrap, and is evidence of the focus on commercialization of IPSO. Of note also in several of its investments in the period: Cambridge Meditech Limited has had discussions with a US based supplier of wound and skin care products, which could lead to a commercial licence in due course. Therakind Limited, its paediatric healthcare business, reported that its first product had secured regulatory approval for its paediatric investigational plan and commenced clinical trials, which should lead to marketing approval in due course. Polyfect Solutions Limited is engaged in discussions with international manufacturers who are potential customers for its technology and expects the first relationship with regard to one particular application will be formalized through an agreement in the near future. Axilica Limited has continued further refinement of its behavioural synthesis tool software and secured its first licence agreement with a significant defence business in September 2009.

The Board’s long term strategy is to create a self-sustaining business, with the capacity to pay dividends and create capital growth for shareholders. We met with management recently and were impressed. If IPSO can get funding in, this will be one to watch as it heads towards its first exit.

Lisungwe (LIS 0.25p / £0.775m)
PLUS listed resources Company which holds extensive mineral exploration licence areas in Malawi last week also gave a trading update.

Since the formation of Lisungwe plc in 2005, programmes have been directed mainly towards the discovery of Gold, Nickel and Uranium. The present focus is towards the Malingunde Hill Pyrite deposit designed to provide a crucial, cost effective supply of sulphuric acid for Nickel extraction at Lisungwe’s Chimimbe Hill Nickel deposit with a proven JORC resource. The Pyrite is also designed to be a profit centre in its own right to supply the sulphuric acid and agricultural fertilizer markets of east Africa.

Disappointingly Lisungwe continues to face severe challenges in attracting further investment  interest, therefore has  been unable  to advance  the completion  of a  JORC resource  statement and continues to survive on a limited ‘care and maintenance’ basis. The announcement expresses the Board’s disappointment in the London markets at understanding the potential in its asset.

Nighthawk (HAWK 31.5p/ £101.36m)
The US oil and gas focused company, with 370,000 acres in Colorado, provided investors with an update on their winter drilling programme at their Jolly Ranch project.  Nighthawk have a 50% interest, with the remaining 50% held by the operator, Running Foxes Petroleum.  They have four projects , with three in production or at development stage.

They have drilled five new vertical wells and one horizontal section, bringing the deep wells total to fifteen over the Jolly Ranch estate, two of these will be utilised as water disposal wells.  Excitingly these 15 wells cross more than 150 oil bearing horizons.

Nighthawk’s 50% interest was independently analysed in July by Schlumberger Data & Consulting Services.  They found that the most likely oil (P50) in the 246,000 acres evaluated was 1.462 billion barrels gross and believe there is reasonable certainty of continuity of the source rock and reservoirs.

David Bramhill the MD is encouraged by these drilling results and says he “anticipates regular newsflow” about the project over the next few months.  We would see the recent fall back in the share price as a great opportunity to pick up stock in this well managed company.

Sceptre Leisure (SCEL  57p / £31.11m)
Sceptre Leisure, the supplier of amusement machines, reported interims to 31 October 2009. An 18 per cent improvement in revenues to £21.2m (H108: £17.9), driven by growth in machine numbers, combined with enhancements in gross margins to 29 per cent (H108: 25per cent) led to a three times increase in PBT to £0.9m (H108: £0.2m) and EPS up to 1.2p (H108: 0.3p). Strong cash generation and £5.5m of new shareholder money has reduced net debt to £16.7m so that debt now stands at a modest 1.5x EBITDA. The group has won high quality contracts over the period, to replace sites lost through closures at the bottom end of the market. Machine asset utilisation remained above 95 per cent and the average weekly machine rental grew by 1per cent to £39.15. A recent acquisition coupled with the better quality contracts provides the group with a strong platform to grow the business. Earnings are typically weighted towards the second half and this year is no different. The group is comfortable with current 2010 market estimates of PBT of £3.5m and EPS of 4.6p. The stock trades on a 2010 P/E ratio of 12.0x and  9.2x in 2011 which seems fair. The upside, we suspect, will come from stretching the balance sheet a little more to fit around one or two attractively priced acquisitions.

Serabi Mining Plc (SRB 1.625p/£5.33m)
Serabi has issued a progress update on Palito, its gold mining operation in northern Brazil.  Following the company’s fund raise of £2.4 million late last year, the focus is on increasing gold resources to 1.5 million ounces from the current level of 630,000 ounces.  Serabi is currently conducting a variety of geophysical and geochemical analyses as a follow-up to an extensive airborne survey that resulted in a prioritised target list of 18 areas of potential gold mineralization.  First pass ground geophysics is focused on a list of ten targets closest to the existing mine site with a follow-on drilling programme to commence in the summer.   The company hopes to be able to identify two or three Palito “look-a-likes” that can be developed concurrently so that they would be feeding into a central processing plant.  The “new” Serabi is managing its exploration assets in a considered and rational way and we look forward to hear about the results of the analyses in late Q2.

ServicePower Technologies (SVR 5.88p / £11.62m)
Following the close of its 2009 financial period, ServicePower, which is involved in the outsourcing and hosting of dispatch, claims and warranty processing, sale and implementation of scheduling software and sale of GPS and mobility products, last week reported that it expects to finish the year with revenues in excess of management’s previous expectations. Additionally, it expects to report a net cash balance of approximately £3.5m at the year end.

The recent restructuring programme will result in a one off exceptional charge of approximately £0.9m in the Company’s forthcoming 2009 annual results.  Additionally, the Company expects to report a foreign exchange loss of approximately £1.2m, and as a result of a change in revenue mix during the financial year due to two existing client contracts operating on a margin below the traditional growth margin, there will be a £0.6m shortfall against management’s previous expectations.

ServicePower share price has almost doubled over the past month thanks to the shake up and implementation of a new strategy by Mark Duffin and his team.

SpiriTel (STP 59.5p / £10.62m)
Spiritel, the SME business telephony provider, reported interims to 31 October 2009, which were significantly below last year’s levels. Sales fell by 28 per cent to £7.9m (H109: £11.1m) and the group fell into losses at an adjusted operating loss of £0.53m (H109: profit of £0.25m). A substantial increase in net finance costs led the group to adjusted pre-tax losses of £4.5m (H109: £1.6m). The Business division performed strongly, delivering organic revenue growth of 18 per cent and 22 per cent in underlying EBITDA but this was offset by a weak performance from the Technology division, which saw a 67 per cent decline in revenues and a 91 per cent fall in underlying EBITDA. The group’s strategy is to focus on the Business division which was bolstered by recent acquisitions. Following the acquisitions, the current annualised run rate of underlying EBITDA for the Business Division is over £3.5m, significantly higher than H1 2010’s £0.93m. Management is confident they will meet market expectations of pre-tax losses of £0.4m and EPS of -0.9p. With company still intent on boosting its performance through acquisitions there may still be some upside here but the share price has risen by 20 per cent since we covered Spirtel last November 2009 and so expect it to pause for breach for the moment.

Tower Resources (TRP 4.25p / £43.06m)
The oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, last week provided an update of current operations.

In Uganda, Tower’s wholly owned subsidiary, Neptune Petroleum (Uganda) Limited completed the preparation of the Avivi-1 well site and drilling camp in Uganda Exploration Area 5 and is awaiting the release of the land rig owned by Oil & Gas Exploration Company Cracow Limited which is currently contracted to Tullow Oil plc and is expected to be released by Tullow on 31 January and will be moved to the Avivi-1 site for anticipated spudding on 12 February.

In Namibia, the 1,600 square kilometre 3-D seismic programme across the Delta structure in Licence 0010, where Tower has a 15 per cent carried working interest, is now expected to begin in the third week of March 2010. It is still anticipated that processing and interpretation will be complete by the end of 2010.

The share price has gone from 2.2p to the 4.2p level over the past three months, although it saw 6.6p in May 2009. With upcoming news expected as things progress in Uganda and Namibia, fingers crossed that those 6.6p levels can be achieved again.

Wren Extra Care Group (WREN 8.625p / £4.39m)

The AIM listed provider of retirement living, through a range of Extra Care and other services for the independent elderly, last week announced its full year results for the year ended 31 July 2009. Wren has continued to sell most of the remaining stock of the retirement scheme at Warlingham 1 such that at this time, three of those units are under contract and the Company remains confident that the remaining four will be sold in the early part of 2010.

Wren reported a loss before tax for the year of £1.1m (2008: £1.1m) on a turnover of £90,740 (2008: £84,000). Not surprisingly, there is to be no dividend in respect of 2009, and the directors paid a final dividend of £52,420 in the year for 2008. Goodwill has remained at £3.1m and net assets have increased by £281,169 to £8.2m.

The company adopted a dual strategy to address the difficult economic environment: taking buyer’s homes in a part exchange for units sold, together with the cost cutting measures outlined in the announcement of the company results to 31 January 2009. As a result the Group has weathered the current difficult trading conditions and is well set for any upturn.

Wren has now completed repositioning the company to focus on the Extra Care element of the retirement housing market and the change of the Company name to Wren Extra Care Group Plc reflects this new focus. Wren believes its Extra Care Schemes will provide second generation retirement housing. This move will position Wren between traditional retirement homes and full residential care and nursing homes and will offer residents the best of both models, with independent living, but also the opportunity to receive care based on individual needs.

Wren has already received planning consent for three significant projects at Warlingham, Crowborough and Wallington, Surrey and is now ready to start building Extra Care Schemes on these sites as soon as the required finance is in place. Not surprisingly given the attractiveness of the Company’s new focus, it is in discussion with a number of potentially interested parties in this respect and is confident that these projects will be progressed as 2010 unfolds.

The Group’s Bank, Royal Bank of Scotland Plc has confirmed that it intends to continue its banking and financing relationship with Wren Extra Care Group and at the time of writing sees no reason why existing loans cannot be renegotiated and extended, with sufficient facilities made available to support the company.

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.