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Hybridan's Small Cap Wrap - 13-08-09
Hybridan
13.08.09 18:01
This article is an edited extract from a non-independent research note issued by Hybridan; please click here for an explanation.
This article is focused on firms with a smaller market capitalisation, please click here for a description of the risks of investing in "small cap" stocks.
This week: a care group that's taken care of, an oil company oiling up for action and a plant nutrient business that's taken root.
Claimar Care Group (CCGP) [32p/£16 million]
This week one of the UK's leading providers of domiciliary care to individuals living in their own homes was bid for by Housing 21 for 39p per share, payable in cash. This is three times the share price before the announcement. At 39p per share, Housing 21, the national provider of older people's services, is paying £39 million including net debt, which is 0.7x sales or 8.8x EBIT. It is one of the largest companies specialising in retirement services in the UK and has charitable status.
As a larger group, greater efficiencies can be achieved and operating costs in an environment of challenging public expenditure reduced. It would appear that Claimar has found the right home since it began looking with its strategic review that was announced in April this year. On the surface this doesn't look to be a bad deal for Claimar shareholders.
Crimson Tide (TIDE) [1.5p/£4.7 million]
More good news this week from another of the market's tiddlers, this time from Ireland based Crimson Tide. The company, which supplies mobile data solutions for business, reported in its half year results its first positive operational cash flow since its flotation in 2006. The company has a neat business model whereby customers initially contract for typically three years for mobile solutions, paying a monthly subscription. This model avoids the significant up-front costs normally incurred implementing mobile solutions. Crimson Tide receives increasing monthly contracted revenues as more subscribers are added, contracts are upgraded and/or terms extended.
Hightex (HTIG) [6.9p/£10.2 million]
Hightex, the German manufacturer of hi-tech membranes used in modern architecture such as the new sliding roof above the centre court at Wimbledon, announced another contract win this week. This time it is with its joint venture partner to supply the complete roof system for the new National Stadium in Warsaw. This stadium is being built to host the UEFA 2012 European Football Championship, which will take place in Poland and the Ukraine. We understand the contract is worth approximately EUR13 million to Hightex of which 80% of these revenues will fall in 2010 with the balance coming in 2011. This goes a long way to provide visibility of its 2010 revenues and must be welcome for a business which has suffered from lumpy and unpredictable revenues in the past. We suspect there may be further contract wins to come.
Imaginatik (IMTK) [7p/£9.3 million]
We covered Imaginatik two weeks ago and this week it has raised £1.6 million in an institutional placing at 6p. For the uninitiated the company builds software to help companies generate strategic business concepts. With a blue chip client base included Siemans and BAE Systems and strong recurring revenues we can see why the placing was over-subscribed resulting in a placing discount of only 4%. Mark Turrell, the ever energetic CEO, said the placing leaves the company "well positioned to pursue our growth strategy".
Motive TV (MTV) [0.57p/£2 million]
Motive released its interims this week but given the rapid evolution of the company into a set top box technology business the numbers are of are of historic interest only. Trading at the legacy television production units remained difficult with the warning that Motive may be unable to continue supporting some of its weaker subsidiaries. Revenues in the first half to 30 June were down to £1.86 million compared to £2.71 million in the comparable period last year resulting in a loss of £440,000 (£515,000 last year).
However, the big story is Motive's move into digital terrestrial technology (DTT) to broadcasters worldwide. In the UK, this DTT set-top box will operate as an enhancement to the Freeview box, offering catch-up television and video-on-demand (including popular movies) in addition to the full range of DTT channels. This it will do without an internet connection and without purchasers having to pay for broadband, cable or satellite subscriptions, making this an extremely easy option for consumers. Tune in soon for the next instalment.
Oilex Ltd (OEX) [12.85p/£17.5 million]
Oil and gas producer Oilex has risen more than 40% since we last wrote on them a month ago, this is not surprising since they have now successfully completed the farm out for JPDA (Joint Petroleum Development Area) off shore East Timor; a highly attractive offshore oil exploration opportunity with potentially significant oil resources. On 3 August, Oilex entered into an agreement with Japan Energy E&P JPDA Pty Ltd, a subsidiary of Japan Energy Corporation, to farm down 15% of its 25% interest in the offshore production sharing contract in JPDA. Oilex retains a 10% interest in this highly prospective offshore block, but now has been refunded for its past costs and has the funding for its first two wells.
On the 10 August, an important approval was received from the JPDA Designated Authority for an extension of one year to the first term of the production sharing contract, which previously ended on 15 January 2010 and will now end on 15 January 2011. The extension of the term will allow adequate time to complete drilling programs to evaluate this highly prospective block. Oilex is likely to commence drilling in Q3 or Q4 of 2009. We like Oilex for a number of reasons; it continues to restructure its assets and operations to reduce costs, is continuing to produce, and is seeking opportunities that may provide early production with positive cash flows that are close to infrastructure and markets. We still believe that this oil and gas stock is one to keep an eye on.
Plant Impact (PIM) [26p/£8.2 million]
Developer of plant stress management technologies, Plant Impact announced today that it had been invited to join the UK's Parliamentary and Scientific Committee to strengthen its agricultural sector experience. Industry members on the committee include Pfizer, Monsanto, Merck Sharp and Dome, AstraZeneca (AZN) and BASF. Plant Impact is the only SME on the committee with technology focused on crop production in the agricultural sector. The Committee's principle remit is to provide an interface between Parliamentarians and the UK's scientific communities, ensuring that the former are aware of new developments in science relevant to policy and that the latter are informed of policy and legislation.
Crop productivity has been in the news in the UK this week when the Environment Secretary Hilary Benn launched an assessment of the threats to the security of what we eat. It is great for Plant Impact, which is developing recognised technologies geared to improving agricultural output, that it has been invited to be a part of this Committee. We believe that Plant Impact has some potentially disruptive technologies which could contribute to easing emerging agricultural sustainability issues and which have access to the large and growing fertiliser & agro-chemical markets - worth an estimated $111 billion in 2008. The share price ticked up a few% this morning and we believe it has a long way to go.
Snacktime (SNAK) [104p/£7.8 million]
This is not a stock that may be on many investors menu but it is the UK's largest national operators of snack and chilled drink vending machines. However, it's clearly a hit with its customers as it announced this week that annual profits have risen by 64%. Profit before tax for the year ended 31 March climbed to £201,933 from £122,851 the year before. "The business continues to see very good opportunities in the coming year, and we remain optimistic that Snacktime's excellent growth record can be continued," said CEO Blair Jenkins.
The group has thousands of sites located throughout the UK, which are serviced by its five main depots located in Cumbernauld (near Glasgow), Manchester, Alcester, Wokingham, and Belfast. Each main depot is responsible through a team of area managers, merchandisers and engineers for installing, maintaining and restocking all of the group's vending machines. With an 11% rise in the share price this is turning into a tasty little morsel.
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 £50 million although we may occasionally cover larger companies. Our review is not intended to constitute research and is not to be taken as investment advice.
A non-independent research note:
(a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and
(b) is not subject to any prohibition on dealing ahead of the dissemination of investment research (although Hybridan does impose restrictions on personal account dealing in the run up to publishing research as set out in their Conflicts of Interest Policy).
The individuals who prepared this document may be involved in providing other financial services to the company or companies referenced in this document or to other companies who might be said to be competitors of the company or companies referenced in this document. As a result, both Hybridan LLP and the individual partners and/or employees who prepared this document may have responsibilities that conflict with the interests of the persons who receive this document.
It was not originally intended to be distributed to Retail Customers, and is included here for information and discussion purposes only. It does not form a recommendation to invest or otherwise. It is intended as a weekly review of some of the most interesting small cap stories of the past week. The content will usually review companies whose market capitalisations are less than £50 million although we may occasionally cover larger companies.
Our review is not intended to constitute research and is not to be taken as investment advice.