African Eagle, Innovision and Sunkar: Hybridan Small Cap Wrap

African Eagle takes a flight of fancy, Innovision paints a picture for the future and Sunkar provides food for thought.

African Eagle Resources (LON:AFE) (AFE 5p/£14.84m)

African Eagle put out a positive announcement last week, more than doubling the contained metal at its nickel laterite site in Tanzania from 345,000 to 845,000 tonnes of nickel equivalent.

Additionally the results show that the composition of the deposit is low in iron (10% against a norm of circa 50%) and magnesium , meaning that the acid consumption that will need to be used in the leaching process will also be low.

Nickel demand is growing more than any other metal, even copper, primarily for its use in the production of stainless steel, which accounts for two thirds of all nickel produced. The demand for stainless steel and thus nickel is driven by the emerging economies of China and India. African Eagle benefits from its favourable location in Tanzania, with a rail road track within 80km and the availability of power, water and labour all close to the Dutwa site.

We think that with the scoping study demonstrates a sound investment case, and with the abundance of upcoming news flow (such as drilling results from the company’s other sites, updates to the inferred and indicated resource base when a fully digitalised model is used, sale of non-core assets in Uranium and Copper) now really is the time to invest in this exciting company.

Datong Plc (LON:DTE) (DTE 40.5p/£5.6m)

DATONG is a leading international supplier of advanced location based intelligence gathering equipment to military, security and law enforcement agencies. The core strategy of the Group is to deliver organic growth through continued investment in leading edge product and service solutions.

Following a tough 18- 24 months, the company has returned to profitability. The recently announced interim results to 31 March 2010, and more importantly the CEO’s positive comments on the state of the order book and trading environment, indicates that investors should expect further positive news flow over the rest of the year.

The order book (£7.75m orders received in the period vs. £4.75 for last year) is experiencing record new order intake levels and is a reflection of the company’s move into new geographic regions & markets and a loosening of the purse strings by the Obama administration. The trend in order growth has continued into the current accounting period.

In addition, the test marketing of new products to valued customers has gone well and the planned releases over the next 12 months will consolidate their position in the market and key relationships. The company’s goal is to drive new product revenue to 30% of the top line by this time next year.

The company has begun a determined drive to double the proportion of recurring revenue within its top line to 15% in the near term. This will initially come from providing a service offering in support of their product portfolio. Thus as overall sales are projected to increase, recurring revenue must be expected to grow at a faster rate.

A couple of areas of concern for investors would be margins and seasonality. Gross profit margins for the past 4 reported quarters were respectively 87%, 45%, 71% and 39% for the period just reported. Sales for these quarters were £1,505k, £5,009k, £2,810k and £7,410k. As stated, the Company is targeting recurring revenue streams – which should help both margins and reduce the volatility in half yearly revenues. Evidence of an improvement in these two indicators should give investors the confidence to back this company.

Innovision Research & Technology (LON:INN) (INN, 34p/£31.13m)

We hope you paid attention to what we wrote about Innovision two weeks ago because that ended up being the last call. Broadcom International has made a recommended cash offer for the company at a price of 35p per share which is 67 percent more than the price at the time of our scribble. Broadcom was obviously a major customer and it didn’t take them long to figure out that, one, it would be cheaper in the long-run to buy the company now rather than purchasing products from them, and two, Innovision’s technology will likely become the dominant technology for Near-Field Communications so for strategic reasons it was a timely move. We congratulate David Wollen and team on moving the company to this next level.

Lipoxen (LON:LPX) (LPX 9p/£15.95m)

Lipoxen has strengthened its intellectual property surrounding the PolyXen technology which constitutes a core part of the company’s efforts in improving drugs and vaccines. Lipoxen has been granted a patent on its monofunctional PSA PolyXen technology allowing the company to construct a longer-life conjugated therapeutic protein that binds naturally and is biodegradable, non-immunogenic and non-toxic. The patent protection is important to Lipoxen and its collaboration partners Baxter, Genentech, Amgen and Genzyme who are working on new products using this specific delivery mechanism.

Scancell Holdings (SCLP 57.5p/£9.16m)

PLUS quoted developer of therapeutic cancer vaccines last week announced the enrolment and treatment of the first patient in its multicentre Phase I clinical trial of SCIB1, its DNA ImmunoBody vaccine being developed for the treatment of melanoma. The trial will evaluate the safety and tolerability of SCIB1 in patients with late stage melanoma. The trial, which is commencing on schedule, will be in nine, Stage IV or inoperable Stage III patients and is being conducted in three UK centres. All patients in the clinical trial will be treated with Scancell's SCIB1 ImmunoBody vaccine. ImmunoBody vaccines generate the high-avidity T-cells that kill cancer cells, which may overcome the current limitations of most cancer vaccines. Advanced melanoma currently has a very poor prognosis with late stage (stage IV) disease having a median survival of approximately six months. According to the WHO, 132,000 melanoma skin cancers occur globally each year and the incidence is increasing, especially in the United States, Europe and Australia. Scancell’s share has gone up 20 per cent over the past month. Scancell is in a strong cash position and we like the approach in the cancer vaccines space and technology platform companies in general. Definitely one to keep scanning the news on…

SeaEnergy (LON:SEA) (SEA 21.25p/14.69m)

SeaEnergy, the AIM listed offshore wind company, last week issued its latest audited results for the year to 31 December 2010, which saw a loss for the year of £6.5m (2008: loss of £3.4m), with a loss per share of 11.8p (2008: loss of 8.5p per share). Interestingly, this is after taking into consideration an amount of £2.2m received from an arbitration settlement with the State Oil Company of Azerbaijan. An impairment of investments in associates to the tune of £1.4m also significantly contributes. The company has a strong cash position at year end- £2.8m (2008: £1.1m), with much of the improvement having been achieved through the issuance of shares over the period. The company has faced difficult market conditions, and its post year-end intentions appear to be reflecting those challenges with an intended restructuring programme that will result in the company focusing on its marine services business whilst disposing of all or part of its 80% stake in SeaEnergy Renewables Limited (SERL). This represents a bold move, and whilst there are a number of interested parties waiting in the wings to invest in SERL (which is further improved by the possibility of an increase in SERL’s interest in the Inch Cape offshore wind farm project), it appears that turbulent conditions may lie ahead.

Serabi Mining (LON:SRB) (SRB 2.08p/£6.8m)

Serabi Mining, the northern Brazilian gold miner which has been held to be in non-compliance with its operating licence and is facing a $2 million penalty, has done a timely deal with Eldorado Gold who will invest £3.6 million in exchange for a 26.8 percent ownership of Serabi. The price paid per share is 3p which is a large premium to the share price even before the uncertainty regarding the penalty surfaced. Serabi is clearly of strategic interest to Eldorado who has other interests in the region. As part of the deal, Eldorado gets to nominate a director to the board.

Summit Corp Plc (LON:SUMM) (SUMM 4.75p/£7.9m)

Summit Plc, the UK based drug discovery company, held an AGM last week. We have written on Summit quite extensively over the last year, and the statement made by the CEO at the AGM serves to reinforce our prior comments. Highlights include the emphasis that the company places on partner-funded programmes, which have the potential to generate future income in excess of $160m from success-based milestone payments, as well as the expected reporting of results of ongoing studies involving the use of Seglin based technologies in the areas of infectious and metabolic disease. It expects BioMarin (the Pharma company, with which it is partnering on a programme of using BMN-195 for the treatment of Duchenne Muscular Dystrophy) to shortly announce the results of its Phase 1 clinical trials, whilst the infectious disease programme that targets C.difficile is expected to generate results in the second half of 2010. A positive update, and one to observe keenly.

Sunkar Resources (LON:SKR) (SKR 22p/£35.17m)

AIM listed phosphate fertilizer manufacturer last week announced that it has received the consent of the Government of the Republic of Kazakhstan to change the Company's work programme commitments under its Subsoil Use Contract to develop the Chilisai phosphate deposit. In conjunction with these changes, the financial commitment of US$115m associated cumulative development expenditure has now been extended from 2014 to 2020. This is good news for Sunkar to have local government endorsement for the Company to develop a world scale, low cost integrated phosphate fertilizer manufacturing facility. Sunkar, through its wholly owned subsidiary Temir Service LLP, is committed to developing a 10 million tonne per annum mine. Although the formal revision of the terms of the SUC is still in process, the Directors have received legal advice that the formal revision process of the SUC is now procedural. The share spiked up a few pence on the news to nearly 25 pence on the day of the news.

Valirx Plc (LON:VAL) (VAL 0.38p/£1.26m)

The cancer diagnostic biotech company announced that it has successfully completed the first year of its two year Eurostars grant programme, which has a total budget of €1.2m. ValiRx is the leading partner of the three international companies comprising the consortium.

The Eurostars grant is to fund the development of the GeneICE platform, whereby, in simplistic terms, rebellious genes are shut down before they go on to cause problems, such as cancer. All of the milestones have been met so far, and in fact some elements of the pre-clinical study have been brought forward. Upon completion of the two year grant it is expected that ValiRx will have a complete data pack upon which it will be able to negotiate a partnering deal to take the platform further through clinical trials.

We have written on ValiRx recently and remain keen on the stock. It seems an anomaly that the price remains static considering the recent good news and we think this is a key opportunity to buy before the rest of the market realises the well diversified potential of the Company.

Sinclair(william)hldgs (LON:SNCL) (SNCL 116p/£19.2m) 

William Sinclair has launched Sincro-BoostPlus, a unique, ground breaking growing media that is made entirely from renewable sources. The product has similar qualities to, and performs as well as peat and has the potential to enable the horticultural industry to meet the government's 2020 peat free target.

William Sinclair's specialist topsoil subsidiary, Freeland Horticulture, has spent several million pounds developing this technology that resolves all the problems of using green compost for peat replacement. Freeland is able to apply the technology to a by-product from civic amenity green waste that is currently very difficult to use and frequently becomes a problem material that requires specialist disposal.

With this development, SNCL can legitimately knock on the doors of the SRI funds – and the Company’s overall sales growth potential and the high yield on the shares should prove attractive. Expect the share price to show signs of growth.

Zeta (ZCGP 37.5p £3.29m)

Zeta last week announced that that its subsidiary Fineapply Limited has been re-engaged by one of the largest global Facilities Management companies to provide water risk assessments to one of the major high street banks which has a portfolio of approximately 1800 branches. The initial renewal contract value is £50,000, with a likely further month on month engagement, until the end of the year, to complete around 900 branches with a total contract value of £283,000. Zeta Compliance Group provides products and services to enable organisations with large estates to ensure that they systematically meet their Environmental, Health and Safety obligations. It carries out risk assessment and monitoring services in respect of water and air hygiene where Legionella and MRSA are principal concerns.

We are impressed by Zeta’s list of blue chip clients, namely high street chains, banks, universities, hospitals, and facilities management companies. All businesses have to comply with Health and Safety Laws, and there are a multitude of statutory regulations in the water, fire and gas space, to name but a few. We expect to see a number of acquisitions driving this stock, as well as solid organic growth, as its client list grows and contracted revenues increase, and as the Law surrounding this area, business productivity issues and brand protection drive clients to Zeta.

*A corporate client of Hybridan LLP