Hybridan Small Cap Wrap - Angel Biotech, Filtronic, First Derivatives, Innovision, Mediazest, Seeing Machines and more

Angel Biotechnology Hldgs (LON:ABH) (0.22p / £4.7m)
Angel Biotechnology, the high level contract manufacturer of biologics, announced a significant new contract win with Materia Medica, the sixth largest Russian pharmaceutical company, with whom they already have existing contracted business.  This contract for £1.5m again validates the high value of Angel’s ability and know-how in Good Manufacturing Process, the established regulatory standard for stem cell research.  The contract, for GMP manufacture and process development, will run until 2012.  Angel’s ability to navigate the complex regulatory environment for advanced biologics is without doubt class leading. Having completed a fund raise in February for £1.425m Angel has the cash to ramp up, and this contract is a demonstration of that.  At the current share price, 

Filtronic (LON:FTC) (33.3p / £25.27m)
Filtronic has announced that trading for the start of H2 from 1 December 2009 has been below expectation because of delays in telecom infrastructure projects and as a result the group expects to report a small loss for the full year (H1 PBT £0.1m). The group cautioned that the demand outlook remains constrained for the summer with customer inventories overhanging the market. When we last reported on Filtronic in January we took the view that the lack of visibility of short term news flow to drive the share price boded ill for share price appreciation making the stock vunerable, in our view, to an opportunistic private equity bid. There is a fundamentally interesting business here and with £16.3m of cash still on the balance sheet we continue to hold this view.

First Derivatives Plc (LON:FDP) (295p / £45.38m)
First Derivatives has secured a contract with AFT, a leading Japanese online FX broker, to provide FX software solutions.  The contract is a transaction based agreement, whereby First Derivatives will benefit from a proportion of the revenues generated through the use of the system by AFT's client base. This is good news, further expanding its geographical spread into new, growing and large territories.  Trading at a discount to its peers in the software and computer service sector, we believe First Derivative is undervalued on a 2011 rating of 8.2x and a dividend yield of 2.8 per cent.

Herencia Resources (LON:HER) ( 0.62p/£5.85m)
Herencia has attracted the global metals group Nyrstar NV as a new cornerstone investor.  Nyrstar is subscribing to 100 million new shares at a price of 0.75p giving them a stake of 10.4 per cent and the right to name a representative to the Board of Directors.  Nyrstar brings significant experience as a global metals business with significant interests in zinc, lead and other metals.  The new funds will boost Herencia’s ability to undertake additional work at its Paguanta zinc-lead-silver project in northern Chile where recent drilling results have been very encouraging.  Additional assay results will be forthcoming 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.  We believe Herencia is becoming a new star too.

Hightex Group Plc (LON:HTIG) ( 8.25p / £15.5m)
Hightex has announced its final results for the year to December 2009 which saw revenues up 23.5% to €20.0m (€16.2m), gross profits doubled to €4.2m (€2.1m) and an underlying PBT of €1.1m (loss €2.8m). The group was pleased to announce it has already secured the market revenue expectations for 2010 and some 37.5 per cent of the 2011 revenue expectations. The group completed a number of key roofing projects, such as Wimbledon Centre Court, 2010 FIFA World Cup stadiums in Johannesburg and Cape Town, the Munich Olympic Hall. Key projects secured for the future include stadia in Warsaw, Kiev and Vancouver worth some €45.3m which will contribute at least €15m in 2011. Current expectations are for a profit of £2.25m in 2010 with 0.81p EPS putting the stock on a P/E of 10x making the stock fairly valued.

Hutchison China Meditech (LON:HCM) ( 260p / £133.42m)

This low-risk, high-reward specialty pharma, otherwise known as Chi-Med yesterday announced that its main proprietary prescription drug, She Xiang Bao Xin pill, for the treatment of cardiovascular disease, has gained a seven-year extension of its "Confidential State Secret Technology" status as certified by China's Ministry of Science and Technology and State Secrecy Bureau. This effectively extends full intellectual property protection of SXBXP until December 2016 by prohibiting generic registrations. 

In 2009, contribution of SXBXP's sales to Chi-Med's China Healthcare Division grew 41 per cent to $22.4m (2008: $15.8m).  Sales of SXBXP represented over 82 per cent of SHPL's total sales in 2009 and over 800 million doses of the drug. SXBXP holds market-leading shares in the prescription cardiovascular drug market in eastern China with market shares of 30.4 per cent in Shanghai, 19.8 per cent in Nanjing and 27.6 per cent in Hangzhou.

This good news on the patent extension follows on from September 2009, when SXBXP was included on China's Essential Medicines List of 307 drugs that are now mandatory for all state-owned health institutions in China to carry.  Furthermore, in December 2009, SXBXP had its Type-A drug status renewed in the latest edition of the Medicines Catalogue announced by the Ministry of Human Resources and Social Security in China, which means it is fully reimbursed in all provinces under the national medical insurance, labour injury insurance and child birth insurance systems in China.

We have written on HCM before, in fact we last wrote on it at the end of January 2010 and the market cap has grown by £34m since then! This is still one to watch in our opinion because we like the mix of different businesses (biotech drug development, generics and healthcare products) and also geographical areas (Europe, Mainland China…) and suggest it is well worth a look.

Innovision Research & Technology (LON:INN) (23.5p / £22.43m)
Innovision is starting its new fiscal year with fireworks by announcing the largest new contract yet for the use of its Near Field Communications (NFC) intellectual property.  The customer is a leading global semiconductor company that will incorporate Innovision’s connectivity solutions in chips for mobile handsets and other consumer electronic products.  Innovision expects license revenues from this contract in excess of $2 million this year alone which is double the company’s total revenue last year.  Building on the company’s contract win last year in NFC this is evidence that we are about to see the company’s connectivity technology being incorporated into more and more handsets.  This could bring large royalty streams to Innovision not just from the chips in the devices but even more so from the use of the technology (the tags) themselves.  The market for tags could be huge with applications for contactless cards in ticketing, payments and loyalty schemes, smart posters, business cards, music downloads, easy pairing of devices and other peer-to-peer connectivity solutions no-one has thought of yet.  No wonder the share price is up by almost 50 per cent since the announcement.  Still, we believe this is just the beginning of Innovision’s dominance in the market for NFC.

Intelligent Environments Group (LON:IEN) (9.5p/£16.64m)
Intelligent Environments, a leading software and services provider to the high-growth online banking market, has released its prelims for the year to December 2009.  Revenues were £6.4m (2008: £6.4m) with recurring revenues of £1.9m, now 30 per cent of the total. The operating profit was £0.9m (2008: £1.2m) and net cash stood at £1.1m (2008: £1m).   IE has produced FY09 numbers in line with market expectations but as management’s outlook was positive it was surprising the stock was off 14 per cent on the day of announcement. It is an achievement to have delivered flat revenues in a year of considerable weakness for retail banking. Despite being one of the worst sectors of the economy, IE signed twice as many new customers (four) as it did in 2008 and successfully diversified from credit card applications into savings (NS&I). The company is optimistic about the outlook and the market is estimating a 12 per cent increase in revenues in 2010 which should also see the establishment of its mobile banking business, which appears well positioned due to IE’s tight integration with banks’ back-office systems. The company appears well positioned to benefit from the growing demand for online banking driven by a broadening range of consumer finance products migrating online and new demographic segments adopting online banking. The company’s house broker is forecasting earnings for this year of £1.2m, rising to £1.8m for 2011, resulting in a P/E ratio for this year of 11.6x going down to 8.1x next year. These seem modest ratios (when compared to, say, Monitise) given the potential growth of the mobile banking market but then even in 2012 only 30 per cent of the company’s revenues are expected to come from this space (unlike Monitise which is a mobile banking pure play).  Until there’s greater visibility of mobile banking revenues coming through we think this is one to wait and see.

Mediazest (LON:MDZ) ( 1.125p / £1.89m)*
We write for the first time on AIM listed media Company, MediaZest, which over Easter, announced its interim result to 31st December 2009. On 12 February 2010, MediaZest raised £324,000 for working capital and consequently, it extended the current accounting period to 15 months, ending 31 March 2010.
Revenue for the period fell sharply as a result of the recession, to £1,263,000 (2008 - £2,279,000) and the Group made a loss for the period, after taxation, of £141,000 (2008 – £263,000). MediaZest did however deliver a profitable EBITDA, excluding restructuring costs, for the six months to 31 December 2009, a direct result of the restructuring efforts and the seasonality of TouchVision's Education business, which is considerably busier in the summer due to the holiday period when students are not in attendance.
MediaZest has two divisions, Touch Vision which installs audio visual equipment such as in University lecture theatres and MediaZest Ventures which is about the creative use of display technology such as in the windows of high street retailers, such as HMV.
There has been evidence of a contraction in expenditure in the public sector markets in which TouchVision operates. Despite this, it won two significant University installation jobs of approximately £200,000 each. The balance of TouchVision’s customer base has continued to engage to deliver their audio-visual teaching solutions, albeit in some cases with the restriction of reduced budgets. The TouchVision business is experiencing an increase in both enquiries and activity, particularly in the Education sector as well as in general installation work. Again, this activity is from a mix of both existing customers who are aware of the strength of MediaZest’s offering in a very competitive market, and new customers searching for better value in difficult times.
Its other division told a similar story; MediaZest Ventures’ clients, predominantly high street retailers such as JD Sports and O2, continued to grow with new clients acquired and existing clients re-engaging. However, overall revenue was considerably less than the previous year. Despite expanding the client base, the level of revenue per client decreased. MediaZest Ventures continues to market itself on the basis that its unique positioning and profile will present enhanced business opportunities as the economic climate improves. It is noticeable that since the beginning of 2010, enquiries have increased significantly and its client base continues to grow. Amongst the household names with which MediaZest Ventures is engaged are the likes of Barclays Bank, Dr Martens, Famous Grouse, Fiat, Microsoft, McDonald's, Nike and Philip Morris. The sales cycle for MediaZest Ventures business can be several months and so the Board expects the outcome of the current increase in enquiries to have an effect during the second half of 2010.
The outlook appears good for MediaZest, better capitalised and with numerous household names with which it is engaging, we expect that the news flow may increase.


Milestone (1.425p / £1.48m)*
Over the Easter period, AIM listed digital media and technology solutions Company, had several announcements.
Milestone announced (April 7th) the appointment of Mark Hargreaves to the Board as a Non-Executive Director. Mark Hargreaves was previously Head of IT at Manchester United and General Manager of Manchester United Interactive Limited. During Mark's 12 year tenure with Manchester United, he ran www.manutd.com, one of the world's   most   successful   websites,   and worked  with  major  brands  and support-service companies to deliver content and e-commerce solutions. Mark  is  currently  Chief  Operating  Officer  of  Knowledge  MGI  (a  UK-based management consultancy providing interactive marketing and implementation advice to  global brands  within the  sports, entertainment  and media  sectors) and Ve Interactive Limited.
Mark is responsible for Ve Interactive's launch of its VeCapture technology, a patented re-commerce software tool, effective in securing additional shopping cart conversions from aborted online transactions.  Milestone has a global agreement to sell Ve Interactive's CEM (Customer Experience Management) Solutions product which includes the Ve Capture technology. It is clear from the hiring of Mark that he will be driving the Ve Interactive product line forward to maximise revenue.
Milestone also continued to strengthen its balance sheet, to give itself some financial firepower and tidy up its creditor situation. It announced (April 1st) a small placing at 2.75 pence per share, raising £10,000 and the day before (March 31st) it entered into a convertible loan agreement of £150,000 for twelve months to provide additional working capital. Milestone also agreed (April 1st) to issue shares at a price of 1.8 pence per share to certain creditors in lieu of £6,555 payable in respect of services provided to the Company and again, a separate announcement the day before that on 31 March 2010 it had agreed to issue shares at a price of 1.5 pence per share for the conversion of certain outstanding loans together with associated accrued interest amounting to £37,385.
The Company has a clear strategy of actively growing a portfolio of controlling and non-controlling stakes in digital technology (one of which is Ve Interactive), 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 complete, that there are three focused business units and that we expect to see perhaps further deals for interesting technology going forwards.

Newbury Racecourse (575p / £18.31m)
PLUS - listed Newbury Racecourse is a leisure company engaged in redevelopment of  the Newbury racecourse property, has announced its preliminary results further to raising £5.7m  in rights issue net of expenses. Turnover was £10.2 m, down 7.3 per cent since the year before.  The revenue decrease reflects a fall in corporate spending due to weak economic climate, loss of the totesport day in February as well as bad weather throughout the peak season.  To mitigate the effects of slow corporate market, Newbury started the Party in the Paddock initiative, a nursery business and secured the media rights to supply live pictures to licensed betting offices, all of which are intended to extend the appeal of Newbury’s facilities. Notwithstanding any exceptional items in 2008, the revenues increased in 2009, further to the cost of sales decreasing by 12 per cent. In the following year, with a constant gross margin, the company will likely need a mid single digit growth rate to break even, a likely outcome given the previous marketing initiatives as well as the increasing rate of corporate spending.   

Seeing Machines (LON:SEE) (3.5p / £14.2m)
Leading developer of advanced vision based industrial systems has almost doubled its market capitalisation since we last wrote on it a few months ago. This follows on from announcing a string of contracts in 2010 to supply the DSS to both Freeport McMoRan and BHP Billiton. Last week, it announced the Freeport-McMoRan Copper & Gold Inc contract to supply DSS driver monitoring equipment to the Safford mine in Arizona.  This second contract for the Safford mine is to complete the fit out of the entire haul truck fleet at this mine. The contract gain is a result of the success of the pilot of DSS equipment conducted at the Safford mine in late 2009. The DSS is an active system that directly monitors the driver of a vehicle for distraction and fatigue events and provides a series of interventions aimed at managing these events and averting potential disasters.
Nick Cerneaz, CEO of Seeing Machines commented: "We anticipate further DSS progress arising from the other DSS pilots currently underway across a variety of operators and locations throughout the 2010 calendar year, and will announce those to the market in due course."
The week before Seeing Machines announced that it had raised £3.3m via a placing at a price of 3.5 pence per share, which represented a 22 per cent premium to the closing share price on 8 April. During the last financial year, the company restructured and we believe that now that it is very well capitalised and on a roll in the mining sector that it has now broken in to, it could potentially have a number of good announcements to come in terms of client wins.

St Helens Finance (SHF.PL 6.75p/£1.27m)
PLUS quoted minnow, St Helens Finance, may be growing into a bigger fish in the PLUS pond following the recent investment by main market quoted City of London Group to finance St Helens’ new legal funding product.  The investment comprises facilities of up to £1m for St Helens’ new SPV, a £125,000 loan note convertible into 20% of the SPV and a convertible loan note in St Helens of £170,000.  Despite the complex financing structure the idea is very simple and that is to provide funding to lawyers who have won their case for their client but are waiting for the quantum of costs to be paid to them by the losing side to be determined.  This is a neat idea and in itself quite interesting but after meeting management we came away with the impression that there are yet grander plans afoot.  The finance market as a whole has been traumatised by the withdrawal of capital by the UK banks and, indeed, the withdrawal from the market as a whole of many foreign banks.  This leaves a huge opportunity for a creative and ambitious management teams, like the one at St Helens, who are prepared to grasp it. We expect more products, innovative funding and are warming up our maggots to catch this little fish before it gets much bigger.

Mission Marketing Group(the) (LON:TMMG) (13.5p/£5.34m)
Advertising group, Mission Marketing, has announced its preliminary results for the year ended December 2009 and a balance sheet restructuring leaving the group looking one of the cheapest stocks on the market.  The numbers themselves were in line with expectations with turnover down 17% to £86.0m (2008: £104.2m), against a market decline of 15%, operating income (Revenue) down 15% to £36.1m (2008: £42.7m), headline operating profit down 34% to £6.0m (2008: £9.1m) and a reported loss before tax £0.9m (2008: profit of £7.2m) after a £4.0m non-cash impairment charge.  The excitement though comes from the balance sheet restructuring under which the bank debt of £20.4m has been split into a term loan of £17.3.m with repayment holiday of 15 months and a £3m mezzanine piece repayable in 2013.  Additionally, some £4m of acquisition liabilities have been satisfied by the issue of shares, further strengthening the balance sheet. After having met management we were impressed by the quality of the underlying businesses built up by the group, reflected in their class leading operating margins of 17 per cent, over 60 creative and performance awards and their focus on organic growth and repayment of debt.  These attributes are clearly recognised by the bank and this also gives confidence.  So, in valuation terms an EV/EBITDA multiple of 6x equates to an EV of £36m and an equity valuation of £15m giving shareholders a return of 3x on the current share price and that’s one mission that’s not impossible.  

Valirx Plc (LON:VAL) (VAL 0.425p / £0.671m)*
ValiRx announced a successful fundraise of £500,000 at the discounted price of 0.35p. The Company’s partners include Cancer Research UK, Imperial College and Cambridge University and they recently signed a Commercial partnership with LGC (Laboratory for Government Chemistry) for development of the diagnostic technology for gene activity which introduces new potential clients and distribution network to ValiRx.
The business is split into three main operating divisions which provides diversification and reduces the overall risk profile of the business:
ValiMedix – marketing and distribution of nine current self-check diagnostic products which are generating revenues now.  These are expected to break even by the middle of this year.  The company recently announced a distribution deal for Canada and the US for these products and expects to launch further products in the future as well as additional distribution agreements
ValiBio – the diagnostics division, the prototype tests for early stage biomarkers of cancer in small blood samples.  This will be used first in patients in remission and provides an easy test for monitoring health post treatment.  It is expected to launch in H22010.
ValiPharma –involved in personalised therapeutics, the company has two drugs currently in Phase I, as well as the exciting GeneICE technology platform for a potential whole class of new drugs. This is a gene silencing technology used to detect and deactivate ‘rogue’ genes before they are expressed. Initial phase of the two year pre-clinical study funded by Eurostar has been completed and approved against milestones agreed with Eurostar.  The total grant for the consortium of three companies working on this GeneICE technology is €1.2m, and ValiRx retain all commercial rights to the technology.  This grant funding takes the platform to the stage where ValiRx will be in a position to complete a licensing deal with a major partner, without requiring any further cash funding.  In our opinion the stock has been oversold and the current share price takes no account of the significant upcoming news flow opportunities and that the business is sufficiently funded to take advantage of these.