Hybridan Smallcap Wrap featuring Pinewood Shepperton, Highams and GEM

This week: Pinewood Shepperton continues to diversify, Highams is on a high, and a GEM of a biofuels company

Avanti Communications (AVN 445.5p/£204.28m)

Satellite broadband operator Avanti has announced three contract wins, including a contract to prepare for larger scale deployment of satellite backhaul for rural mobile broadband access (part of the government‟s Digital Britain project) and a contract with a consortium to help standardise satellite broadband services for the European Space Agency. All this sees Avanti continuing to put building blocks in place for potentially stratospheric growth, as long as its satellite is successfully launched in the second quarter of 2010. If that happens, Avanti should blast off big time.

Alumasc (ALU 102.5p/£37.04m)

Alumasc has a portfolio of market leading engineering and building businesses. Over 85 per cent of group revenue is from sustainable products, which help to reduce energy and water use. For example, it holds the number one positions in green roofs (roofs planted with grasses, providing insulation and a reduction in water run-off whilst being low maintenance), solar shading and control (an aluminium frame of fins or levers around the outside of a building, this moves throughout the day to provide shade from the sun to reduce the need for air conditioning) and wall insulation for social housing refurbishment. Demand for these products is driven partly by the stringent building regulations as well as the general awareness of climate change and the desire to be more in tune with the environment and reduce unnecessary energy usage. Although Alumasc has been impacted by the recession and the reduction in commercial building construction this has been somewhat mitigated by the keenness for sustainable building products. Alumasc are presented with great opportunities with high profile upcoming infrastructure projects such as the Olympics, Thames Gateway and Crossrail, as well as export potential to the US and the Middle East in particular.

Anglesey Mining plc (AYM 16.00p/£24.46m)

Anglesey has reported that its TSX-listed and 50 per cent owned Labrador Iron Mines has doubled the NI 43-101 compliant resource estimate for the James, Redmond 2B and Redmond 5 deposits in Western Labrador. These deposits comprise the first stage of targeted production from this iron ore project where previous resource estimates where made prior to 1982. The increase means that the expected life of the Phase One project can be extended by almost two years.

Fusion IP (FIP 33.5p/£14.12m) and IP Group (IPO 55.75p / £141.41m)

Intellectual property commercialisation company IP Group is investing £3m for a 19.8 per cent stake in struggling AIM-listed Fusion IP, a company which owns 100 per cent of the rights to intellectual property generated by the universities of Sheffield and Cardiff. IP Group has also been granted the option to buy one-fifth of Fusion‟s interest in any spin-off company created from Cardiff University and the University of Sheffield, at a pre- determined valuation of £500,000 and if it does so it will be obliged to invest a minimum of 20 per cent of the initial seed capital provided to each company. “The strategic investment in Fusion ... consolidates our market leading position in the UK intellectual property commercialisation sector and we look forward to working closely with Fusion's management team and portfolio,” said Alan Aubrey, chief executive of IP Group.

IP Group said the second half of the year has seen a positive performance with the value of the company‟s portfolio rising from £97.1m at the end of June to £98.8m, as at 6 November. The increase was largely due the increase in value of the 14 companies in the group's portfolio which are quoted on either AIM or PLUS Markets; these recorded a net fair value gain of £1.4m (3.9 per cent) during the period to 6 November 2009. Fusion posted a full year loss, excluding subsidiary spin-out costs and amortisation, reduced to £1.1m (2008: GBP1.6m) and a group loss, after write downs, of £5.0m (2008: GBP5.0m).

Our take on this is that the option arrangement with IP Group is a value shifting mechanic in IP Group‟s favour and only accepted by Fusion because its available cash resources (as opposed to cash supposedly ring fenced for investment) were insufficient to meet its obligations. Funding wasn‟t available from the market and so it had no choice but to fall into IP Group‟s clutches. Not surprisingly, Fusion‟s share price is at an all time low and we can‟t help but believe the market‟s called this one right. A cost base of over £1.5m seems hard to justify in times when exits of investee companies are so uncertain and fee income is only £400,000. The concept of exploiting university IP is sound. A low running cost base and good recurring revenues equally so. If only they could be fused – and Fusion hasn‟t.

GEM Biofuels (GBF 13p/£4.11m)

GEM Biofuels uses jatropha grown in Madagascar to produce biodiesel feedstock. It is not a refinery and it does not make the actual biodiesel. Instead, it grows, harvests, crushes and then sells the oil produced from seeds onto a biodiesel manufacturer. GEM leases the land from the local community but, unlike competitors, it owns the jatropha trees. There is no need to irrigate the plantation and GEM doesn‟t use arable land, so there is no “food versus fuel” contention. There simply aren‟t enough nutrients in the soil to grow food crops. Jatropha trees generally begin producing after 2 or 3 years and reach maturity after 5 years whilst remaining productive for upwards of 30 years and are able to withstand periods of drought. GEM has 55,700 hectares of jatropha trees planted out, with this number rising to 200,000 by 2012, with a total of 492,500 hectares secured. Legislation is driving demand for biodiesel and thus the need for feedstock. In the UK all diesel must contain 5 per cent biodiesel in the mix by 2010, in France 10 per cent.    The group has an agreement in place to sell 55 per cent to Singapore on a 10 year contract, the remaining 45 per cent will be sold into Europe at prevailing spot prices. The combination of cheap land, keen local workforce (harvesting is highly manual work) and perennial crops keeps costs low, whilst the sustainability issues favour alternatives to mineral oil push demand leading to exciting times ahead for GEM Biofuels.

Highams Systems Services Group plc (HSS 2.375p / £1.64m)

Last week, the AIM-quoted recruitment consultancy and a leading niche provider of business, technology and professional services to the insurance and financial services sectors announced its interim results for the six months ended 30 September 2009. At a well attended analyst presentation, the Company was able to trumpet a return to profit of £40,000 (2008: loss £261,000), largely due to a firm control over costs, improved market conditions and a focus on sales. The chairman of Highams, commented: “We expect further progress during the following six months and look forward to our future growth.”

The share price reacted very well on the day of its interims and has been going in the right direction for the past three months. The realignment of the business model has paid off and the market recognised this on the day of the interims last week. Permanent recruitment has shown signs of recovery, which is interesting as a general comment on the economy. We believe that Highgams has got it right in focusing on sales, and with eight out of sixteen staff in sales, further sales people are currently being recruited. The CEO Mark de Lacy said that his business was very much one like a trading floor with an open exchange of information between researchers and sales consultants on CVs and roles which appeared to go down well with those present at the meeting. Highams wants to become a £50m turnover business, with 300 contractors on the books; currently at £3.77m revenue and 70 contractors, there is a long way to go and we expect to see the odd acquisition along the way. However at current levels this stock has an undemanding valuation and we suggest it is well worth a look.

HML Holdings (HMLH 15.25p/£4.81m)

HML, the property management group, has reported that in the half year to September revenues nudged up slightly to £4.4m (£4.3m) although earnings were down to £55,000 (£83,000). Still, it‟s good to see a property company surviving and making money even in this market, although, to be fair, HML is really a property services business rather than a developer or landlord. It currently manages 26,000 private residential properties and whilst small in market cap terms, the management team is experienced in building service businesses. Robert Plumb, CEO, was previously involved in the property services sector, having built and consolidated Hercules prior to its sale to Erinaceous in 2004. Profit contributions are derived from insurance services, surveying (transaction based), lettings and treasury, all related to the core management business and it‟s these revenue lines that have proved resilient. Revenue is recurring and HML enjoys good retention rates for its residential management service. On a price to sales ratio the shares are still conservatively rated although on our preferred measure of price/earnings the group still needs to grow into its current valuation. Next year‟s p/e ratio is 18x which does seem a little toppy but we are talking of earnings growing from a very small number here. Increased interest rates, new mandates secured on the back of efficient administration, possible acquisitions and residential transactional volumes should help in the medium term. This is no ten-bagger but a low risk, predictable stock that should have a place in every portfolio. Ultimately, however, we suspect Plumb‟s end game is another exit a la Hercules at which point a 30p take out price might not seem that rich.

Imaginatik (IMTK 8.25p/£13.14m)

The group that builds software enabling individuals within and beyond corporations to collaborate on corporate ideas development has secured a multi-year service and software contract win. Due to commercial sensitivity, Imaginatik could not give details of the deal, which is with a global financial services group. But chief executive Mark Turrell issued some positive noises, saying: “We are experiencing a renewed interest in innovation, particularly within the financial services industry.” You might even call Imaginatik a bankable commodity.

Latchways (LTC 665p/£74.01m)

Latchways designs and manufactures equipment to protect people working at height, such as on rooftops, cranes, ladders and telecom masts. They also have an installation and servicing business. These business lines are in some part a reflection of the construction industry and the tricky economic climate, and Latchways has seen cautiousness from their customers in the first 6 months of the year due to less construction starts. However they recently announced a pre-tax profit of £3.6m, and expect to meet analysts‟ estimates for the full year. It has strong cash flows, at 132 per cent of operating profit and net cash of £6.2m. It also has great potential for growth in the US and the Middle East through marketing and any „good fit‟ acquisitions as well as having already seen great progress in France for its Guardrail product, where there is continued opportunity and they are optimistic for this to expand. Additionally, it hopes to break into new markets: oil and gas (it has its SRL products placed with 12 drilling contractors, these are in the field for a trial periods of six months which Latchways will look to convert into orders); wind power (it has a solution for the engineers to get from the boat to the turbine safely during installation); and the UK military, where the Wingrip product is installed on RAF bases. There are cross selling opportunities and retrofit markets to be exploited, especially with the utility companies, most of whom use Latchways already. The Company also has ongoing design work for the 2012 Olympics, which could really raise their profile (and their share price)!

Milestone Group (MSG 2.05p / £1.85m)*

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AIM listed provider of digital media solutions and technology last week announced its final results for the year ended 30 September 2009. Milestone‟s share price has been ticking up little by little lately as Deborah White, the CEO, has continued to turn the business around and produce positive news flow. In the past year, Deborah has reduced the Group‟s losses by over 50 per cent and balance sheet liabilities by a further 20 per cent. She has closed the loss making Oxford Broadcasting and sold all of the analogue licences. As part of the turnaround, we have announced recently in our Small Cap Wrap the new appointments of Per Bonato – Business Development Director, Dr Marios Gerogiokas - Director of Wireless Services and Cooper Handley - Creative Director and head of the in house web development team. The Company rebranding has been completed and post period end, MSG did two deals to complement its web design division, one with JumpStart Wireless and one with Ve Interactive. JumpStart‟s innovative technology is a cost-effective solution to transform any mobile device into a reporting tool for employees working remotely from company premises. Under the agreement, Milestone is entitled to a sales commission of 15 per cent of gross revenues. Ve Interactive Ltd is in the space of online shopping cart abandonment solutions, which are specialised, web-based solutions for e-vendors to improve sales conversion from abandoned shopping carts. Again, under the agreement, Milestone is entitled to a sales commission of 15 per cent of gross revenues created by Milestone from Ve Capture. Ms White commented: “This is an exciting time for us as we move towards generating revenues with the three new areas of the business. We look forward to building a positive future for our shareholders.” 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 almost complete.

Motive Television (MTV 0.575p/£1.88m)

When the private sector is in the doldrums, it makes sense to focus on the public sector. And this is something Motive Television has done quite adeptly. Indeed, it has announced another order for the BBC, this time for its subsidiary Scarlet Television to produce Delia‟s Classic Christmas, a one-hour special for BBC2. Motive‟s strategy today is to focus on the distribution of television set-top boxes. But continued success on the programme-making front could provide funding to develop its new strategy, or raise the value of its programme- making subsidiaries, should they ever be sold. We read with interest, then, chief executive Mick Pilsworth‟s statement that a number of further BBC commissions are expected to be announced shortly.

Pilat Media (PGB 27p/£15.99m)

Pilat Media, which supplies business management software to the media industry, has signed a new contract with Brazil‟s largest television programming company, Globosat, for the licensing and maintenance of its Integrated Broadcast Management System (IBMS). Management estimates the contract will provide an additional £1m in sales in the next financial year, with further subsequent revenues after the system goes live. This is Pilat‟s first significant deal in South America and management hopes to continue to expand in the region.

Pinewood Shepperton (PWS 133.75p/£60.06m)

Pinewood Shepperton is no one-trick-pony. World renowned for its film studios, the group has successfully diversified into services for the television industry. It also has expertise in management of media property, with considerable commercial property assets of its own, including media parks that serve as hubs for the creative industries. And this diversification continues with the announcement of a contract with Canal+ Image UK, part of French media conglomerate Vivendi, to provide an archival service including the managed storage, preservation and restoration of audio and picture assets. This preservation and restoration service is a new revenue stream for the group and so further widens its skill set. Pinewood, then, continues to branch out.

Sarantel Group PLC (SLG 2.50p/£4.75m)

Following a positive trading statement, Sarantel announced a placing of £2.3 million. This will provide the company with working capital for further development and marketing of its high-performance filtering antennas for portable wireless devices. Throughout the year Sarantel has reported a number of design wins and production orders that has resulted in a 55 increase in revenues for the year ended 30th September. Despite challenging economic conditions, sales of the company‟s consumer GPS solutions have remained stable as they are being deployed in much broader range of applications. Most significant, however, is Sarantel‟s strategy of focusing on the high-margin niche markets which has turned out to be very successful. We are registering signals of breakeven in the near future with our antennas.

Serabi Mining Plc (SRB 2.025p/£2.84m)

We wrote some months ago that Serabi, which is sitting on an extensive exploration portfolio and a small gold mining operation in northern Brazil, was in need of more capital to execute on its strategy of developing further mines in the region and that without access to capital the company would be unable to fully utilise these assets and further prove the potential of the many exciting opportunities within its extensive land position. Well, a few months later and the company‟s coffers have been replenished with £2.4 million from a placing. The company can now go ahead and conduct a variety of geophysical and geochemical analyses as a follow-up to the extensive airborne survey that resulted in a prioritised target list of 18 areas of potential gold mineralization. Further studies could yield a list of 7-10 targets being advanced to drill-ready status over the next year. The company hopes to be able to identify two or three Palito “look-a-likes” (the existing mine) that can be developed concurrently so that they would be feeding into a central processing plant. We are pleased to see that Serabi is able to advance its many opportunities in a considered and rational way and look forward to hear about the results of the analyses in late Q1 2010.

Solomon Gold PLC (SOLG 7.125p/£7.46m)

Solomon, an exploration company with a number of highly prospective licences in a region that is known for giant copper/gold porphyry systems, has announced a placing of $3 million (£1.7 million). All the directors participated in the placing and the proceeds will be used for ongoing work at the company‟s project areas outside the Newmont joint venture project, as well as for advancement of a diversification strategy.

SpiriTel (STP 48p / £3.01m)

SpiriTel, the business communications service provider that we reported on last week, has hardly paused for breath, as it announced last week the acquisition of ADK Communications for an initial £1 million in line with its acquisition strategy as a consolidator of the highly fragmented telecoms reseller sector. ADK, based in Hertfordshire, is a provider of voice and data services to almost 300 SME customers. The acquisition increases SpiriTel's customer base to approximately 2,800 businesses. ADK is SpiriTel's eighth acquisition in three years and follows last week's announcement of a substantial fundraising and the acquisition of Edge Solutions. The company is expecting the ADK deal to be immediately earnings enhancing and, as with SpiriTel's previous acquisitions, will be swiftly integrated into SpiriTel's Business Division which it hopes will provide additional operational synergies. Still, however, the share price remains in the doldrums. We say to the company: improve your own communications and put some spirit in your share price.

Surgical Innovations Group PLC (SUN 1.675p/£6.64m)

All the directors of Surgical Innovations, a maker of laparoscopic tools and instruments used by surgeons in minimally invasive surgery, have together purchased a total of 6.2 million shares in the market over the last two weeks. We commented a month ago on how the share price has underperformed the market and that investors in our opinion were unduly underestimating the current value and growth potential of the company, as its significant capital investments are now starting to bear fruit. Obviously, the directors are optimistic as well.

Synchronica (SYNC 3.5p/£20.65m)

The mobile technology specialist‟s news deluge has continued with the announcement of a first order for its low-cost devices ahead of expectations. This order is from an unnamed Central African mobile operator (which recently took out a 100,000 user licence with Synchronica) and devices are set to start shipping before the end of the year. Revenues from the order are, however, expected to be modest. Significantly, though, the group has seen strong interest for this product and management says it “continues to be optimistic” about the sales and profit potential from work with its collaboration partners.

Ultimate Finance (UFG 14.75p / £2.95m)

This small but perfectly formed finance company has had a great run recently, and is up almost three times this year. This looks likely to continue at its chairman reported at last week‟s AGM that "The first four months of the financial year have seen trading in accordance with expectations, notwithstanding the difficult economic background. With demand continuing for our services, and a reliable flow of funding to serve demand, the Board remains confident in the future development of the Company." With the UK banks continuing to suffer from capital rationing we see great opportunities for alternative finance providers to SMEs, such as this one, to really provide the ultimate in finance.

* A corporate client of Hybridan LLP