Hybridan Small Cap Wrap featuring Animalcare, Avesco and Wren Extra Care

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

Animalcare Group (LON:ANCR 117.5p / £23.37m)

Supplier of pharmaceutical and other premium products and services to the veterinary industry and the manufacturer and supplier of premium quality livestock products to agricultural retailers has been moving up from the £1 per share level all this year. Last week it announced its interim results for the six months ended 31 December 2009 and demonstrated why the share price is on the move.

James Lambert, Chairman of Animalcare said “I am pleased to report strong growth in revenue and EBITDA, especially in our companion animal business. Although the market for our key livestock products is challenging we anticipate trading to improve in the second half of the year and are confident that our licensed veterinary medicines will continue to deliver revenue and profit growth in line with expectations.”

We attended a well turned out analyst meeting at which the company presented a substantial increase in revenue to £8.93m (2008 £7.76m) and EBITDA of £1.21m (2008 £0.82m). The companion animal business continued to deliver excellent revenue and profit growth with both the core business and the recently introduced licensed veterinary medicines making strong progress. Sales of Benazecare, Buprecare and Cephacare continue to grow in line with Animalcare Group’s expectations. The livestock business delivered modest revenue growth but suffered a loss due to one off costs and pressure on profit margins. The bulk of the loss related to the withdrawal from low margin activities unrelated to the ongoing business. In addition the business suffered a modest loss due to higher product costs arising from the sharp fall in the New Zealand $/GB £ exchange rate and a decline in sheep identification market volumes ahead of the implementation of new identification rules.

Adjusted basic earnings per share increased to 3.1p (2008 1.4p). Net cash flow from operating activities was £0.93m (2008 £0.94m) and at 31 December 2009 the group had net debt of £3.82m (2008 £4.99m).

The company announced a Marketing Authorisation in the UK and certain other EU markets for a further licensed veterinary medicine which will be launched in the next few months. As well as new product launches, we can expect potential acquisitions that will strengthen Animalcare’s market position and enhance earnings. We like the diversification of the three separate divisions and two distinct routes to market that Animalcare has and we also like the fact that working with various partners widens the pipeline. We also like the derisked and cost effective strategy of branded generics vs. high risk and high cost development of NCEs. Definitely one to watch and plenty more growth to come.

Arrowpoint Technologies (OFEX:ARWP 16p/ £32.1m)

The  Plus Market quoted provider of pensions and retirement benefits administration software Arrowpoint Technologies  Plc has announced contract renewals from two major customers with a total potential value of up to $14 million over five years. The company has entered a $2.2m  yearly contract (with a possible extension for other 4 years) with the Pension Benefit Guaranty Corporation the Federal US pensions body and a $2m 18 month contract with Principal Financial Group, a global financial services provider. The deals give good revenue visibility over the short to medium term after an excellent 2009 in terms of revenue and growth. After the announcement the share price, which since last October IPO was pretty stable, rose by about 3 per cent.

Arsenal Holdings (OFEX:AFC 920,000p/ £572.41m)

Plus quoted Arsenal Holdings plc announced the results for the six months ended 30 November 2009. The Group has continued its multiyear profitable trend announcing an excellent first half profit before tax of £35.2m (H1 2008: £24.5m);  revenues from football were £100.2 m (H1 2008, £98.4m),  and despite the week property market, £217m cash has been generated from property development which will repay in full the associated debt. Speculation continues over Arsenal’s ownership although any takeover premium is now in the price. For us it’s a game to enjoy from the terraces.

Avesco Group Plc (LON:AVS 42p / £10.51m)

Lots going on at Avesco, the international provider of services to the corporate presentation, entertainment and broadcast markets, following a dawn raid by Taya Investment Company of Israel which picked up 20.4  per cent of the company. The share price surged from 27p to 47p on the news that Avesco might be in play but then things calmed back down to 42p when Taya announced it has no current intention to make an offer for Avesco. We see Avesco as an asset play with tangible net assets of £37.8m against the current market capitalisation of £10.9m. However, as the group is no longer in a bid situation, this is probably time to take profits.

Captive Audience Display Solutions (OFEX:GMCP 0.875p / £1.52m)

Plus quoted Captive Audience Display Solutions plc, a company which has developed an “Out-of-Home Digital Media Network” which delivers current news, entertainment and advertising to millions of viewers on petrol station forecourts throughout Ireland, has provided a trading update.  The company invested more than €2m in building, developing and upgrading its network leading to an audience of about 1.8m people per month The company reported difficult trading and announced it is cost cutting and seeking additional funding. Captive Audience is also working on developing new markets in the Middle East.

Equatorial Palm Oil (LON:PAL 15.25p / £12.62m)*

Equatorial listed on Aim on Friday, with a market capitalisation of £14.3m, having raised £6.5m new monies with an additional £1.1m to follow after admission.  It has a land bank of approximately 169,000 hectares, 89,000 of which are on 50 year leases, and aims to be a sustainable, low-cost producer of crude palm oil in Liberia by developing its existing plantations which have proven suitability for cultivation of oil palms and the construction of a processing mill.  The three separate plantations are at different stages and are well placed with good infrastructure close to deep water ports.

Liberia is now politically stable, with significant investment from international companies, such as Arcelor Mittal.  It enjoys a US backed president, Ellen Johnson Sirleaf, and GDP is forecast to grow at 11.2% in 2010.

Demand for palm oil is increasing as a healthy alternative to hydrogenated oils such as soya and sunflower oil.  Its uses range from processed foods such as margarine and chocolate to soaps, detergents, cosmetics and pharmaceuticals: 43% of the top 100 food brands in the UK contain palm oil. Having fallen slightly from the placing price of 17.5p, we see this as a good opportunity to buy into an exciting company.

General Medical Clinics (OFEX:GMCP 32p/ £5.31m)

Plus quoted General Medical Clinics PLC issued its unaudited interim results for the half year ended 30 November 2009. The company is a provider of primary medical care in the City of London and the West End specializing in the provision of general medical practice,  health  screening  services,  occupational  health programmes, physiotherapy and nurse-led functions such as travel vaccinations. General Medical Clinics reported strong growth with turnover at £3.6m (2008: £3.4m) giving a basic EPS of 0.1p (2008: 0.7p). Cash stood at £1.61m with no debt. General Medical Clinic stated that it has renewed for another three years the contract with MASTA (a provider of travel vaccines and travel health advice) and that its new medical centre in London is growing strongly. It was also announced on 10 February that the company is in discussions with Westover Medical Limited which may lead to an offer for the company at 34p cash per share leading to a share price rise of 3 per cent.

Goldplat Plc (LON:GDP 9.5p/ £10.6m)

Goldplat, the African precious metals recovery and mining company, has announced its interim results for the six months ended 31 December 2009.  The key points are that operating profit increased to £1.2 million from £0.8 million and that profit before tax fell slightly to £1.1 million from £1.2 million due to sharp movements in exchange rates.  Higher gold prices offset a decline in production from the recovery plants to 8,309 ounces from 12,084 ounces.  Work done to increase capacity and improve operational efficiencies will improve cash flows from Goldplat’s recovery operations and will be channelled into a project portfolio of primary production.  The company recently announced that it has entered into a deal with the option to acquire the Nyieme gold project in Burkina Faso from Sanu Exploration.  The 246 sq km project consists of high-grade quartz veins.  The existing Kilimapesa gold mining operation in Kenya is nearing commercial gold production as the mining lease application is finally expected to be completed after long delays.  After a year in transition, Goldplat should see the different parts of its business come together for a period of growth.

Herencia Resources (LON:HER 0.6p/ £5.2m)

In a third project update following a successful fund raise Herencia has confirmed that its new drilling programme at the Paguanta zinc-lead-silver project in northern Chile has commenced and is being carried out by Major Drilling.  The specialist contractor has been engaged to undertake 3,500 meters of diamond drilling that will target potential high grade extensions to the known mineralisation which included high grade assays in the previous drilling programme.  New assay results should be available during the April – June period which will allow Herencia to update its Mineral Resource Estimate by mid-year and eventually move to a Feasibility Study phase in the third quarter of 2010.

Imaginatik Plc (LON:IMTK 6p / £9.55m)

Imaginatik, the provider of collaborative innovation software and processes, has announced another contract win, this time with The Windsor Quality Food Company, a UD based manufacturer and marketer of frozen ethnic foods and appetisers. The deal is a multi-year software and services contract but the value of the contract has not been disclosed. The share price has drifted of late and this could provide investors with a buying opportunity.

Lipoxen (LON:LPX 9.25p/ £14.3m)

We reported a few weeks ago that the Serum Institute of India had agreed to expand Lipoxen’s ErepoXen trial into a fully integrated phase II FDA compliant study. Lipoxen, a bio-pharmaceutical company that develops new and improved versions of existing drugs and vaccines, has now announced that the Serum Institute has just commenced first dosing of patients with anaemia in this open label, six centre, 30 patient trial.  ErepoXen is an enhanced form of EPO, a hormone produced by the kidneys to maintain red blood cell production and prevent anaemia caused by chronic renal failure or chemotherapy.  One of the primary endpoints of the clinical trial is an improved red blood cell count and the results will be reported in Q3 this year.

Like Lipoxen’s other programmes this one is made possible by the company’s cost effective business model which is based on out-licensing its proprietary technologies to partners that have strong manufacturing and marketing capabilities.  Lipoxen’s technology platform generates a large number of opportunities.  Each one has a decent shot at returning considerable revenue streams to the company, a point that is not reflected in the current pricing of the company.

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Nxt (LON:NTX 1,875p / £3.559m)

NXT announced its half year numbers along with a placing to raise £1m, which was supported  by a licensing partner, Nissha Printing, as well as institutional investors.  Whilst the numbers were down on last year’s figures that has to be viewed as part of the global economic slowdown as NXT provides high end flat panel loudspeaker technology which is a discretionary spend.  Half  year revenues were  at £1m (2008 H1: £2.1m, although this included a one-off exclusive license fee of £1.2m from Nissha Printing, so if that were stripped out, revenues are  up slightly).  NXT made a pre-tax loss of  £750,000 against £340,000 in the first half of 2008.

However, surprisingly, one of the few consumer electronic markets that grew in 2009 was for portable speakers.  NXT announced 20 such new products and is now engaged with more than 10 new brands and distributors, giving much promise for the upcoming period.

The Company expects to drive royalty income over the second half by continuing with innovative loudspeaker products as well focusing on signing licenses and consulting wins for haptic applications for touch screens.  Haptic technology provides a more realistic experience of using a keyboard on a touch screen by providing sound and vibration feedback.

We think that with a strengthened cash position from the placing,  interesting technology and proven ability to translate that into desirable products, NXT are in a good position for the rest of the year.

Plant Impact Plc (LON:PIM 18.5p / £5.8m)*

Plant Impact, the developer of sustainable and ecologically-sound products to combat environmental plant stress and improve crop productivity, has raised £2.1m through a placing of new shares at 15p. The funds raised will be invested in appointing new sales and marketing personnel to drive sales in the company's current markets and accelerate the roll out of the company's existing products into new markets. The company plans to significantly speed up its product development by increasing the number of field trials and bring its present and pipeline products to the market. It also will support Arysta LifeScience Corporation in marketing and developing BugOil in its active territories. Pete Blezard, CEO of Plant Impact said "I am delighted with the support that we have received in this equity fundraising. I firmly believe that Plant Impact can play a significant role in sustainable agriculture and these funds will help the Company to expand sales of its proven products into new and existing territories. The Board believes we now have sufficient funding to pursue our strategy."

Summit Corp Plc (LON:SUMM 4.875p/ £8.10)

UK based drug discovery company, Summit, has lost a couple of pence over the last month, although last week announced a very positive pre-close trading update ahead of its final results for the year ended 31 January 2010. 

The Board is pleased with the recent progress of the company in spite of the challenging economic climate. The company is now focussed on developing its iminosugar platform having disposed of non-core businesses and having made significant reductions in its cash burn. These changes enabled the company to successfully complete a fund-raise in December 2009 and management now expect to reaching a number of key milestones from existing partnered programmes and the signing of new platform or programme based deals. In December 2009, Summit raised £5.4m which, excluding milestone payments from existing and potential future deals will provide the business with cash resources until at least December 2011.  This investment ensures the company is funded well beyond the point where it anticipates receiving significant milestone payments from its partners and will accelerate the development of Summit's innovative iminosugar technology platform. Summit had a cash position of £6m on 31 January 2010.

In addition in December 2009, Summit was awarded a grant worth up to £2.2m from the Wellcome Trust to fund the development of the company's C. difficile infectious disease programme. Summit has identified a novel class of compounds that are effective against C. difficile and the grant will completely fund their development until 2012 at which time the company would expect to have a compound ready to enter human clinical trials.  The company drew down the first instalment of the grant of £550,000 in January 2010. The Wellcome Trust funding endorses the scientific innovation and expertise that exists within Summit.

The company received a further boost in January 2010, whenBioMarin Pharmaceuticals Inc. announced that it had initiated a Phase 1 clinical study of SMT C1100 (also known as BMN 195).  Discovered by Summit scientists, SMT C1100 is a small molecule utrophin upregulator for the treatment of Duchenne muscular dystrophy (DMD), a fatal genetic disease for which there is currently no cure.  The programme was licensed to BioMarin in July 2008 and Summit is eligible to receive significant development and regulatory milestone payments and tiered royalties rising to a low-teen percentage over this potentially disease modifying medicine.  BioMarin has indicated that initial top-line results from this Phase I trial are expected in Q3 2010.

Summit's major R&D focus is on developing new medicines from its proprietary iminosugar drug discovery technology platform.   This technology platform is attracting increasing levels of interest and Summit is exploring potential collaborations with a number of pharmaceutical and biotechnology companies to investigate its platform in a range of major therapy areas.  The Board believes the next 12 months will be an important period in the development of this innovative technology.

Internally, Summit is currently focusing its research activities in the multi-billion dollar therapeutic areas of diabetes and infectious diseases.  This includes SMT 14224, which is being developed as a new treatment for type II diabetes with data on this compound indicating that it potentially works via a new mechanism of action.  Initial marketing of SMT 14224 has resulted in interest being shown from several leading pharmaceutical companies and Summit is investing a portion of the new finance into studies designed to add further value to this programme.

We believe that this stock is likely to generate a healthy amount of news flow, given that it is a very well funded drug discovery company with a portfolio of programmes partnered and worth $160m. Summit also boasts a library of Iminosugars that is the most comprehensive globally.

Technis International (OFEX:TECP 6.5p/ £3.70m)

PLUS Markets quoted Technis International Plc has issued its results for the year ended the 31st December 2009 posting a loss of £849,650 (2008 : £1,264,474 loss). The Company is involved in developing and acquiring intellectual property spanning the Telecommunications, Retail and Healthcare sectors. Last September’s IPO raised £480,000 which has been used for product development and the lunch of its first product: Transcribe, a software suite of modular voice to text language translation. However, the company signalled a cash crunch after failing to secure a licensing deal notwithstanding several ongoing discussions. The shares were off 20 per cent after the announcement.

Telephonetics Plc (TPH 7.5p / £8.19m)

Teleponetics, a leading provider of end-to-end customer interaction solutions employing advanced speech recognition and call handling technology, announced its full year results  to November 2009.  Revenues rose by 5.6 per cent to £10.51m (£9.95m) with a first time contribution from the February 2009 acquisition of Datadialogs of £0.55m (reflecting a 27 per cent growth from pre-purchase levels). PBT fell to £0.41m (£1.07m) with EPS of 0.33p (0.87p) and the group ended the period with net cash of £5.1m. The group’s healthy cash balances and its ability to make further acquisitions may make the stock seem attractive but with the share price pretty much flat for the past three years management will need to show a lot more razzle dazzle for us to dial into this number.

Tower Resources (TRP 1.375 / £13.85m)

The oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, last week crashed from a market cap in the £40’s of millions to just £12.09m on news that its Avivi-1 well has reached its total depth at 764 metres without experiencing oil shows. On Monday this week, Tower put out a fuller statement. Neptune Petroleum, the wholly-owned subsidiary of Tower Resources plc, has completed operations on the Avivi-1 exploration well in Uganda Licence EA5. The well was plugged and abandoned and the rig released at 6am on 27th February. The well, which was drilled to a total depth of 764 metres, did not encounter oil, despite persistent methane gas traces, and tested water from the target reservoir interval using a wire line fluid sampler. Electric logging confirmed the absence of oil and gas. Although the well failed to encounter hydrocarbons, valuable and encouraging information was gained, which, together with the information from Iti-1, will allow a much greater understanding of the Licence. Within the next few weeks, the Tower Board will consider whether it intends to apply to continue into the Third (and final) Exploration Period of two years. When that decision has been made, a more complete account of the programme to date will be given. The brave could pick up stock at these levels, those less likely to take any risks, may await a more information,

Tyratech Inc (TYR 10.5p/ £2.3m)

We have written on TyraTech several times during the last six months.  Although the company had a difficult year in 2009 we feel that there have been many more steps going forward than going back.  The company highlights some of the achievements in its preliminary results and we think they are worth repeating as they underscore TyraTech’s partnering model.  One of TyraTech’s key partners is Terminix which launched the SafeShield eco-friendly household pest control product into the consumer market and two other natural pest control products into the institutional and commercial markets.  The partnership with Arysta produced a crop protection product which will be launched this year; the partnership with Clarke Mosquito Control lead to the development of TyraTech’s Natural technology for the vector control market; the partnership with Chemplast resulted in a commercialisation strategy for TyraTech’s proprietary technology for the banana and pineapple market; and the partnership with Kraft for functional foods was revised with improved payment terms.  Product revenues grew to $2.9 million from $1 million while operating expenses decreased to $13.7 million from $20.4 million.

We expect to see increasing revenues from the company’s partnering model this year and with a much lower cost structure and development capital being carried by the partners it is not a stretch to see TyraTech break even this year.  The current share price does not in any way reflect this possibility nor does it put much value on the company’s unique technology.

Winning Pitch (OFEX:WINP 27.5p / £1.44m)

The PLUS quoted company which provides  high growth  coaching and  business support services  to entrepreneurs  and SMEs,  last week announced  its results for the year ended 30 September 2009. Turnover came in at £3.0m, up from £1.3m in 2008 and profit was also ahead of budget at £66,000. Continued growth is anticipated for 2010 with a robust current order book and bid pipeline to support an intended strategy to scale the operations. Future growth is anticipated in the corporate sector as well as the personal growth and motivation arena  - this will be driven by the publishing of John Leach's (Chairman and Chief Executive) second book - "The Success Factor -Master the Secret of a Winning Mindset"

The company outlined a myriad of objectives and strategies for 2010 from continuing to deliver large scale public sector contracts; providing outsourced business support and skills services for SMEs in the public sector; exploring opportunities within the FTSE250 arena; developing intellectual property and brands; embracing multi media and social media technologies to enhance the connectivity to wide and varied communities; and in due course international expansion.

£WREN (WREN 8p / £4.19m)

The AIM listed provider of retirement living, through a range of Extra Care and other services for the independent elderly, last week announced that detailed planning permission has been granted on a site owned by the company for thirteen two bed roomed apartments in Chipstead, Surrey. This planning consent would enable Wren to generate significant cash from a sale of the site alone at this stage. However, in order to optimise both profit and cash for the company, the directors have submitted a further application on the same site for nine five-bed roomed executive houses, which if successful would materially enhance profitability and cash generation from the site and a decision on the planning and sale of the scheme will be made within approximately two months. We have been impressed by the management team and given the new strategy and their position in the market place would hope to see this funded in the short to medium term and the news flow to pick up after funding.

* A corporate client of Hybridan LLP.