Hybridan Small Cap Wrap featuring Cluff, Plant Impact and Imaginatik

This week: Cluff sets the gold standard, Plant Impact makes an impact, and more good news from Imaginatik

Cluff Gold (CLF 65.5p / £76.72)

The West African focused gold mining group announced the appointment of Mr Peter Gardner last week as CFO and at the same time announced its results for the six months ended 30 June 2009. The Company is on course to achieving its forecast annualised production rate of 100,000 ounces of gold by the end of the current financial year. The Company had cash at 30 June of US$7.6m. Algy Cluff, Chairman and Chief Executive, commented that operations at the Kalsaka Gold Mine reached standards set for successful commissioning with gold production of 26,772 ounces, and production for the full year is expected to be in the order of 60,000 ounces of gold. A resource update is expected to be published in October 2009 for the Baomahun gold deposit in Sierra Leone and a revised scoping study will follow later in the first quarter of next year. Algy Cluff has done it many times before, and we fully expect him to work his magic with Cluff Gold.

Cubus Lux (CBX 14.5 pence / £2.75m)*

The Croatia-focused leisure resort operator and developer announced its results for the year ended 31 March 2009. Trading at its operating companies, its marina and casino businesses, meet expectations and there has been ongoing progress at Olive Island, with the land secured during the period and the Board believes it is close to finalising construction finance for this flagship project as the credit markets remain difficult. A major new tender was won for a golf, wellness and beach resort at Valdanos, Montenegro and Cubus Lux is in the final stages of an Istrian resort tender. Cubus Lux had a loss for the full year of £2.1m, although this could reverse with currency fluctuations, and included in the loss was an exchange loss of £1.9m. The management is confident it can secure the finance and given the Executive Chairman‟s background in banking we believe this claim is credible.

Education Development (EDD 124.5p/£71.72m)

Education Development, a leading provider of educational qualifications and assessment services, gave a positive update on trading for its financial year to the end of September. Strong growth is being experienced as the company benefits from increased government spending on UK vocational qualifications and this is likely persist even on a change of government. The company‟s overseas business also appears to be trading well. It‟s an education.

EnCore Oil plc (EO. 14.75p/£45.34m)

Last month we commented on EnCore‟s asset strategy and capital structure post the sale of the Breagh gas discovery interest. The challenge for EnCore is to convince the market of the value of its remaining assets which is now valued at zero with a current market cap slightly less than the net cash holding. At the AGM the shareholders authorised a share buy back programme of up to 100 million shares and this has now commenced. More recently the company announced that it is in negotiations to sell its onshore assets along with its interest in the Ceres gas field to Egdon Resources in exchange for equity. EnCore hopes that this arrangement will enable the market to better recognise the value of these assets when represented as a substantial stake in Egdon compared to owning them outright. This may well be the case as long as the market is able to correctly value Egdon. Nevertheless, there should be an increased valuation transparency and possibly a better focus on EnCore‟s key assets. These include the Cladhan light oil discovery where an appraisal well will be drilled in the second quarter of 2010, the Catcher prospect where a test well may be drilled in the spring or summer, as well as the Gas Storage business. These assets carry material potential and have relatively low requirements for capital in the present stage. We remain puzzled that the market is undervaluing the company‟s assets and even more so management‟s proven record and ability in creating value with a consistent asset management strategy.

Freshwater (FWUK 38p / £5.87m)

Regional PR specialists Freshwater have taken some tough decisions, with, for example, staff numbers reduced from 123 to 98 between September 2008 and May 2009. But a trading update for the year to 31 August 2009 shows the benefits of these actions, with management announcing significantly higher profits in the second half of the 2009 financial year and stating that Freshwater was „trading robustly‟ in the final quarter. The group did, however, say it expected profit before tax to be below market expectations, but the board reassuringly stated it has „confidence for its future trading and profitability‟. Well, that sounds like good PR.

Gasol plc (GAS 2.62p / £28.45m)

The oil and gas stock that has a strategic alliance with Afren, announced its preliminary results for the period ended 31 March 2009 last week. During the period, it completed the acquisition of African LNG Holdings Ltd and after the period, Gasol obtained the rights to develop and monetise the Group's first gas asset- the Zafiro gas project in Equatorial Guinea- following a joint venture agreement with SONAGAS. Gasol made good progress in negotiations to access gas reserves in South East Nigeria, and also signed a co-operation with Electricite de France to assess the feasibility of developing, aggregating and monetising gas assets in the Gulf of Guinea for domestic and export purposes. Gasol continues to pursue sources of further funding required for both the short and the longer term. Its strategy is to identify and develop commercially attractive opportunities in the gas sector, with initial focus on liquefied natural gas, sourced from Africa's Gulf of Guinea region.

Hasgrove (HGV 81.5p / £19.42m)

The digital marketing and Europe-focused public affairs group has not had an easy six months to 30 June. In particular, the group suffered the loss of more than £2m of retainer and project income from existing clients. Even so, Hasgrove was helped by a rise in new business, such that revenue declined by a relatively untroubling 3 per cent, to £15.9m, representing a fall of 6 per cent on a like-for-like basis. Adjusted EPS, however, dropped by a more dramatic 38 per cent, to 4.8p, as the group faced competitive pricing pressure, reorganisation costs and extensive pre-sales activity. Even so, there is a robust pipeline of association management work (where Hasgrove represents, for example, the public affairs interests of some medical associations) at public affairs subsidiary Interel, with clients attracted by its pan-European coverage. The group is also benefiting from relatively high- level involvement in clients‟ strategic planning; this suggests Hasgrove can become embedded into client operations – a key defensive attribute even if the sales cycle here is rather slow. And the rise in credibility of digital marketing provides a positive backdrop for the group‟s Amaze subsidiary.

Imaginatik (IMTK 10p / £15.92m)

In last week‟s Small Cap Wrap we reported on Imaginatik‟s new product launch and new contract win. And the positive newsflow has continued into this week‟s Wrap, with the collaborative software provider announcing a two-year contract with a US-based global technology leader. This $6.3bn revenue behemoth seeks to use Imaginatik's software and services to further advance its collaborative innovation programme across its 35,000 employees and 2m customers. Imaginatik‟s share price rose by 11 per cent on the news.

Judges Scientific (JDG 160.5p/£6.48m)

When we last wrote on Judges in July we described it as one of the market‟s hidden gems . Well, we won‟t take all (only most) of the credit for uncovering it but the share price has since moved from 92p to 167p following an exceptional set of half year results to June. The company reported record sales of £4.5m (up 18 per cent) and record pre-tax profits of £870,000 up 14.6 per cent. As a consequence earnings per share were up 23 per cent to 15.5p (first half 2008:12.6p) and the interim dividend increased to 1.3p (first half 2008: 1.2p) which is covered a very conservatively 12 times covered by earnings. The company supplies scientific testing equipment and operates in markets which appear fairly resilient to recession with end customers often being government organizations. This, together with the increased regulatory requirements for the testing of manufactured products for fire resistance and such like leads us to conclude that the prospects for continued growth look good. The company has grown today date by astutely made acquisitions and with its supportive bank (yes, decent businesses are still be supported) and a cash balance of £2.5m we would expect to see further earnings enhancing acquisitions over time. Clearly written in the book of life on this day of Judgment.

Lipoxen PLC (LPX 15.75p/£24.29m)

The Technology Strategy Board has appointed Lipoxen, a biotech company that develops new and improved versions of existing drugs and vaccines, as lead partner in a consortium for the organisation‟s controlled-release nanoparticle research programme. Lipoxen‟s own participating influenza vaccine project will benefit from additional analytical support and the company aims to accelerate the programme as much as possible. Lipoxen replaces Cambridge Biostability (CBL) who went into liquidation a few months ago. Joining the company from CBL as Director of project Management is Dr David Moss, an academic with exceptional vaccine development knowledge and substantial commercial experience. Lipoxen‟s vaccine technology platform includes preclinical vaccines against HIV and malaria whilst the liposome delivery technology platform includes a long acting insulin and a long acting EPO, both of which are in clinical development about to enter Phase II trials. Last but not least, Lipoxen has a gene silencing platform technology which promises an effective delivery system. With exciting technologies, a cost effective business model and tier-one partnerships, Lipoxen has multiple chances of becoming a substantial company in the near future.

Motivcom (MCM 67p / £19.52m)

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Purveyors of B2E communications services (that‟s „business-to-employee‟ services to you and me) Motivcom saw an 8 per cent decline in gross profit, to £11.2m, in the six months to 30 June 2009. But careful cost management meant the drop in adjusted pre-tax profits was also limited to 8 per cent, while a favourable tax charge led to a relatively modest 2 per cent decline in EPS. Furthermore, finance director Susan Hocken told Hybridan that some contracts with long-term customers came in the second half rather than the first half, so the group remains on track to meet full-year targets. And it‟s not hard to see why. Motivcom has a blue-chip client base, a proven track record (with many clients onboard for 10-15 years) and it provides services (including motivating employees and organising employee events) that companies often prefer to outsource. And many of these services are vital to corporate well-being, even during a recession. Small wonder, then, that Ms Hocken said she was „confident‟ of meeting expectations for the full year. Indeed, at Motivcom it seems you can get the staff these days.

NetPlay TV (NPT 29p / £56.58m)

It‟s all coming together for NetPlay TV, which provides interactive gaming programmes across a range of converging media (mobile, internet and television). First, Ofcom changed teleshopping rules in May to allow gaming to appear on terrestrial television channels between midnight and 6am, reclassifying transactional gaming as teleshopping. Then the group secured broadcast deals with Channel Five and Virgin Media Television. These deals are transformational for NetPlay, which plans to roll out its programme offerings elsewhere in Europe. The group remains in the investment phase, and so is not making a profit. But revenue from non-premium rate telephony business (the group has now exited premium rate telephony) in the six months to 30 June 2009 rose by a robust 49 per cent to £8.5m. And, looking to the future, NetPlay should benefit from first-mover advantage (as there is no other interactive gaming programme specialist) and from the increasing take-up of interactive gaming both in the UK and abroad. This, then, has been a watershed six months for NetPlay – fitting for a group that televises after the watershed.

NextGen Group PLC (NGG 0.08p / £3.23m)

Provider of biomarker testing services announced its interim results for the six months ended 30 June 2009 last week too. During the period NextGen divested of non-core businesses, closed its UK facility and moved all operations to the US, usually a dangerous move for any life sciences company and substantially reduced its cost base. Sales in the period were $1.6m, although some of this is from its discontinued operations, versus $2.1m for the period ended 30th June 2008, a decrease of 21%. During the period, the Company did a placing via new shares with warrants to an existing shareholder and a convertible loan (with warrants on conversion), again, we imagine to the same shareholder, for £270,000. We are not a fan of this company; management would appear to be the main shareholder still and as reported in its results statement “because of the nature and stage of the Group's business and the services it seeks to provide, the timing of cash inflows continues to be unpredictable. This, together with the Group's plans for growth, may necessitate alternative funding levels and the directors constantly review the need for such additional funds.”

Plant Impact PLC (PIM 23.75p / £7.47m) *

We often write on this small yet perfectly formed Company as simply put, it often has news. Plant Impact, which develops and markets ecologically friendly crop nutrition and crop protection products, last week announced it has triggered the first regulatory milestone payment from its BugOil licensing agreement with Arysta LifeScience. This is following the submission of two applications to the US Environmental Protection Agency for the registration of BugOil, the Company's benign insect control product, which is based on natural plant extracts. Plant Impact expects first sales of BugOil in the USA in 2011.

ServicePower (SVR 5.25p / £9.95m)

The Company that makes workforce management software last week announced its interim results for the period ended 30 June 2009. Revenues increased by 18% to £9.4m (H1 2008: £8.0m) and the Company reported a loss before tax of £2.0m (H1 2008: £0.3m) reflecting one-off restructuring costs and foreign exchange losses. The cash balance at 30 June 2009 was £3.5m. The period saw new contract wins including Marsh Consumer Connexions, E.ON, ARINC Managed Services, and new partnerships were established with Guidewire Software and InfoQuest amongst others.

ServicePower Asia Pacific was launched post the period end to meet the growing market demand in Australia and New Zealand. Mark Duffin and his team have done a cracking job of turning this company around and interesting to see that it is currently in a bid situation. ServicePower received an offer for the company, which its board considered too low, at the start of August. News of the offer sent ServicePower shares up 1.25 pence in early August or 20%, although the shares have drifted off since then. On the same day as the results announcement, Mrs. Sally Ann Gillings was appointed as Finance Director. Sally is currently ServicePower Company Secretary and has held the role of Group Financial Controller at ServicePower for the past five years. We like this company and the current management team and remain intrigued to see what happens in the bid situation.

Sigma Capital Group (SGM 15.75p/£7.37m)

Sigma, the specialist asset management and advisory group, has reported its half year numbers showing a pre-tax profit of £1.6m which is some £200,000 above the “in excess of £1.4m” expected by the market. This was because of a larger than expected gain of £3.6m on the sale of its university IP commercialization subsidiary to PLUS quoted Frontier Group and a 20% reduction in overheads. These benefits were offset by a £1.8m write down of the investment in its seventh limited partnership. As a consequence market expectations for the full year pre-tax profit have been raised to £2.3m although in the absence of any new property partnerships this we the second half is likely to show a small loss. The current share price is some way below current net asset value which includes 8p of Frontier goodwill and 9.6p of cash. Whilst short term earnings are dependent on a recovery in the commercial property market the group‟s property and venture capital portfolios have significant long term potential so there‟s no stigma to like Sigma.

Silence Therapeutics (SLN 24.75p/£33.42m)

We last spoke about Silence in June after the biotech company known for its RNAi development, a gene silencing technology, had started clinical trials of a solid tumour drug. Trading in the company‟s shares is now suspended after it announced it was in merger talks with a private US company. A deal is likely to be structured as a reverse takeover and will need to be approved by shareholders. We are waiting in anticipation of the admission document for further information about deal terms and what the other company will bring to the table. The share price has been languishing for more than a year as investors have had a wait and see attitude in anticipation of another licensing deal. Maybe a corporate deal instead will just do the trick in creating some upside momentum again.

Spiritel (STP 0.8p / £4.73m)

SpiriTel, a leading telecommunications business, reported an improving set of results for the year to April with revenue up 18 per cent to £19.7 million (2008: £16.7m) and a pre tax loss of £1.7m (2008: £4.0 million), after non-cash finance costs of £0.8m (2008: £3.1m) but an operating profit 61% ahead of prior year at £1.5m (2008: £0.9m). The group supplies a full range of traditional and emerging Internet Protocol (IP) based products and services to over 2,300 SME and corporate clients throughout the UK and Ireland. The group reported that it has strengthened is its balance sheet by securing a new 5 year debt and overdraft facility of £4.5m agreed with Clydesdale Bank and the conversion of up to £6.9m of debt into shares at a conversion price of 0.6p per share. The company indicated that although the trading environment remained tough it was now benefitting from higher levels of earnings visibility, due to the emphasis on contracted and recurring revenues from SMEs and larger corporate customers. This, combined with a wide range of business-critical products and services, means SpiriTel looks well placed to weather the ongoing economic storm. That‟s the spirit, chaps.

Surgical Innovations Group plc (SUN 1.42p/£5.33m)

Surgical Innovations (SI) is not a household name, but if you are one of the many people who have had abdominal keyhole surgery, you may have been in closer contact with the company than you realise. SI makes laparoscopic tools and instruments used by surgeons in minimally invasive surgery. This is a large market dominated by some of the world‟s largest medical device companies where SI plays the role of David against Goliath. Like David, SI has to be flexible and innovative, and until recently the fight has been difficult and Goliath has been able to stall David‟s advances, especially in the US. However, SI has been sticking to its strategy of innovative design and this is slowly bringing results as the company gains inroads into niche areas with the recently launched LogiFlex product for obesity surgery and the LogiCut scissors produced for a number of OEMs.

In an environment that is increasingly focused on cost savings, particularly in the bloated health care systems in the US and Europe, SI‟s products offer significant advantages and appeal. Basic to SI‟s offering is the concept of a “resposable” technology which combines both single use consumables and reusable components. This gives users a higher benefit with an optimal performance at a lower cost compared to the competitors‟ products that are either completely disposable or fully reusable.

To underpin the growth strategy the company has made significant capital investments over the last few years. Most importantly was the decision to move manufacturing in-house. This is now paying off in improved margins and product quality, the removal of bottlenecks for sales growth, better customer support and responsiveness and an enhanced environment that encourages further innovation and product improvement.

The return on these investments is starting to be realised as evidenced in the interim results announced this week. For the six months to 30 June, revenue increased by 14 per cent, operating profit by 185 per cent and earnings per share by 67 per cent. Meanwhile, the share price has underperformed the market and we think investors are unduly underestimating the current value and growth potential of the company. Some scepticism may be deserved regarding the company‟s potential to crack the US market, but we think it is just a matter of time before that happens.

* Corporate Clients of Hybridan LLP