Hybridan Small Cap Wrap: ANT marches on, Cello strikes a chord and SQS demonstrates its quality

Anglesey Mining (LON:AYM) (AYM 31p/£47.5m)

Shortly following the announcement of obtaining an agreement with the Quebec Innu who had been blocking access to mining properties, Anglesey’s 41 per cent owned associate company and Toronto Stock Exchange listed Labrador Iron Mines Holdings (LIM) has made a similar deal with the Naskapi Nation of Kawawachikamach with respect to the development and operation of LIM’s iron ore project.  LIM has now commenced ground clearing of the mine site enabling construction of the plant and other facilities this autumn and eventually commercial production of iron ore in the spring of 2011.

ANT (ANTP 25p/ £6.07m)  

ANT, the software company that creates platforms which allow TV operators to manage their content and provides customers with the ability to self-select services on demand, has announced that their Galileo Platform is now capable of streaming BBC iPlayer, which marks an important step in the delivery of catch-up services to set-top televisions. In what is rapidly becoming a major social trend, internet catch-up television is growing from strength to strength with the BBC website currently receiving up to 123 million play requests per month. The ability to receive BBC iPlayer on a set-top box looks set to capture a whole new audience, as well as providing additional functionality to mainstream digital users.

ANT also announced that it has been selected by Humax (one of the world’s largest manufacturers of set-top boxes) to deliver a Sky Player solution to be used in Freeview HD products. This has been developed in close collaboration with BSkyB and is based on the Galileo Platform, which continues to demonstrate its flexibility in application. Users with a Humax HD box that have an appropriate Sky Subscription will be able to access the Sky Player services, which offers enhanced capabilities such as access to live and on-demand TV via an internet connection.

We can’t help but admire the innovative steps being taken by ANT to ensure their product really does do what it says on the tin, as well as the highly respectable collaborations it is engaging in, and we certainly look forward to seeing how this company progresses through this dynamic and exciting industry.  

Cashbox (LON:CBOX) (CBOX 1.325p/£1.99m)

Cashbox, the UK’s largest independent operator of ATM’s has signed a five year deal with UNS Hospitals, the WH Smith subsidiary and leading UK hospital shops operator. UNS has 72 stores in 62 hospitals and as part of the contract Cashbox will install ATMs at 4 UNS sites and will survey the balance of the portfolio to identify suitable additional opportunities for further ATM deployment. This is the latest win in a series that has added circa 140 sites to the Company’s installation pipeline, including new customers such as Ascot Racecourse and an expansion of work for existing clients such as Greene King and Mitchells and Butlers.

The Company also gave firm guidance on the full year results, indicating revenues of the order of £6.7m (2009: £6.4m) and a loss for the year of £2.4m (2009:  loss of £3.68m, ignoring the one off credit of £1.2m as a result of the accounting treatment of acquisitions). This is a very good performance, particularly when one bears in mind that this year’s figures were impacted by First Quench/Thresher going into administration, with whom Cashbox operated over 300 ATMs.

Overall during 2010, CBOX has continued to focus on high footfall sites and has enjoyed a significant increase in transaction volumes, which bodes well for the future. In fact , trading for the first period of the current year has generated a positive EBITDA result, compared to an EBITDA loss of £400k for the year to 30 June 2010 and an EBITDA loss of £1.5m in 2009. After the poor share price performance since the end of March, it may be time to go to an ATM and withdraw some cash to purchase some CBOX shares……

Cello Group (LON:CLL) (CLL 46p/£28.25m)

Cello continues its impressive share price performance with a further rise of over 25 per cent since the end of July when we last commented on the Company. Today it announced its half year results showing headline ongoing operating profit up 25 per cent to £3.3m (2009: £2.6m), margins improved to 10.9 per cent (2009: 8.9 per cent) and net debt down to £11.7m (2009: £14.8m).

The fall off in income from the public sector has not impacted materially the overall mix of business, with the top 20 clients from 2009 remaining significant revenue generators for the Company in 2010, with many increasing their levels of expenditure. The largest customer accounts for only 4.4 per cent of total income, with the top 20 customers for less than 40 per cent. The robust Pharmaceutical sector on the other hand now accounts for over 25 percent of the group’s income. The Company thus appears to have created a secure and solid base from which to advance.

On the results the CEO commented “We are now seeing a pick up from our clients in the private sector across a range of industries….(and) have started to carefully organically expand the business again”.  This positive statement, along with the small 5 percent increase in the interim dividend bodes well for investors who we expect to continue to support the progress of this growing company.

Frontier Resources International Plc (FRGP 5.5p/£3.38m)

PLUS listed Frontier Resources, the Houston based hydrocarbon exploration and production company, announced interim results for the 6 months to 30 June 2010. The Company incurred a loss of $285,000 (2009: $259,000), whilst the basic and diluted loss per share fell by 50 per cent to $0.005. Whilst this appears to be disappointing, the Company continues to remain optimistic about its outlook given that it has secured an agreement to provide technical services to ResCom-Shelf (a Russian oil and gas consulting group) as well as the fact that it has successfully completed a well (Stridde 1) in Liveoak County, Texas that has provided an additional 270 mcf of gas per month to Frontier (the Company holds a 2.53 per cent working interest in the production through an investment in Bison Investments II). It has also submitted a number of applications for exploration licences internationally, and continues to review potential acquisitions.

Gulfsands Petroleum (LON:GPX) (GPX 289.75.75p/£351.11m)

Gulfsands, the oil and gas production and exploration company, provided updates for the Tunisia and Syria Drills. In Tunisia, ADX Energy, who are operating the Kerkouane Exploration Licence, has detailed the update on the Lambouka-1 well (Gulfsands is acquiring a 30 per cent participating interest in the licence), where drilling is now complete and 2 hydrocarbon zones have been interpreted. Based on information from a number of wireline logs (which were concluded after the well reached a depth of 2786 meters), these zones are likely to be gas and condensate. A net pay of 23 meters has been interpreted by the operator in the 2 reservoir units, which compares favourably to the 14 meters in the Abiod. Due to ongoing drilling fluid losses and increasing bore deterioration the Company has not been able to safely recover fluid sample from the Abiod formation, and the joint venture has decided to suspend the Lambouka-1 well in order to test the Abiod Formation at a later date- this will maximize reservoir information to be acquired in the drilling and testing of a hole in the Aboid formation of the existing gas discovery. Gulfsands is also to take a 40 per cent participation interest in the drilling of an exploration well in the onshore Chorbane permit before year end. 

In Syria, the drilling of a third development well on the Yousefieh field (in which Gulfsands holds a 50 per cent interest and acts as operator) has recently been completed, with an average net reservoir section of 710 meters being assessed (with average porosity  of 17.9 per cent and average oil saturation of 86.5 per cent). Flow testing is to be completed in September, followed by a field wide pressure survey. Interestingly, aggregate oil production from the Khurbet East and Yousefieh Fields has now exceeded 10,750,000, with daily production averaging 20,000 barrels of oil.

Whilst the updates demonstrate a considerable amount of change, we expect the Company to continue providing the market with information as and when it becomes available and look forward to such announcements. 

Herencia Resources (LON:HER) (HER 1.6p/£15.33m) 

As a quick follow-up to our report last week regarding Herencia’s announcement of high grade copper and silver assay results at its Doris project at the Paguanta zinc-lead-silver-gold project in Northern Chile, further assays confirm the results from the surface sampling.  The Company reports copper assays of up to 3.3 per cent copper and silver assays up to 617g/t silver.  Herencia is planning a systematic mapping and sampling programme at Doris over the next few months.  This work is in addition to the Company’s main Patricia project.  An update of the Mineral Resource Estimate is expected by the end of September which would allow Herencia to move to a Feasibility Study phase in the fourth quarter.

 

Highams Systems Services Group (HSS 2.88p/£1.98m)

Highams, the recruitment consultancy and niche provider of technology, business and professional services to the insurance and financial sectors, provided an AGM statement. Whilst the public sector has faced cutbacks, Highams has been quick to point out that it has not been affected and is optimistic about improvements for the year- first quarter revenue for the year is up on the prior year, whilst the number of contractors on site continues to steadily increase. The Company also has a good collection of long standing clients (which deliver 94 per cent of repeat business). When we last wrote on Highams we reflected on the Company’s improved year-end results, and the current AGM statement strengthens our belief that the Company has much to look forward to.

Immunodiagnostic Systems Hldgs (LON:IDH) (IDH 795p/£222.22m)

The Company has announced the acquisition of MGP Diagnostics AS (MGPD) of Mjøndalen, Norway, along with its portfolio of patents. MGPD is a research company that was founded to develop and document a unique biomarker, Matrix Gla protein (MGP) - which is a strong inhibitor of vascular calcification. The cash cost of the acquisition was not disclosed.

MGP is synthesized in the arterial vessel wall and is the artery's prime tool to protect itself from calcification. MGP is also set free in the circulation, where it may be used as a biomarker for cardiovascular disease and as a risk marker for morbidity and mortality. There is growing evidence that MGLA is a controlling factor in the inappropriate calcification of soft tissues such as the carotid arteries and heart valves, with an increasing number of publications appearing in the scientific literature in recent years. Vascular calcification is known to play a significant role in the development of cardiovascular disease.  It is particularly common in patients suffering from chronic kidney disease and those on kidney dialysis, who commonly develop bone disease as a result of their failing kidneys.  More than 80 per cent of dialysis patients develop some degree of coronary artery calcification.

IDH also announced that it has entered into a Research Agreement with VitaK BV of Maastricht, Holland.  VitaK is the leading research establishment in MGLA biology in the world, having filed the original patents now acquired by IDH from MGPD.  IDH and VitaK will work closely to accelerate the proof of concept studies needed to establish the clinical utility of MGLA.

The combination of the acquisition of MGPD and the research collaboration with Vitak propels Immuniodiagnostic Systems into the forefront of this exciting clinical area, where rewards for success could be substantial.

ITM Power (LON:ITM) (ITM 30p / £31.46m)

ITM, the energy storage and clean fuel company at the forefront of developing the capability to produce commercially “on-site” hydrogen as a vehicle fuel, has just announced that in collaboration with Revolve Technologies (a private UK company specialising in high-performance automotive technology) it has signed up Scottish Water to participate in its Hydrogen On Site Trials (HOST).

Scottish Water is the latest organisation to enter the programme (joining the London Borough of Camden and Sheffield City Council who signed up last month) where ITM’s transportable refuelling unit will be used in conjunction with two Revolve Technologies hydrogen Ford Transit vans.

Regarding the future prospects of this on-site hydrogen production capability, the fundamental unknown is whether large fleet users will adopt “own-production” of the hydrogen fuel (and suitable of course only where vehicles return to base on a regular basis), prefer to rely upon the supply of hydrogen fuel from third party producers and distributors via (“petrol”) stations, or a combination of both. Whilst there will always be situations where own-production is the preferred solution, significant revenues will only flow from this technology if a large number of fleet operators decide that on-site production is in their commercial best interest.

The Company has also recently announced a £264,179 increase in its grant from the government funded Technology Strategy Board for work on the HydroGen project – to eliminate the use of precious metal catalysts in fuel cells. This further grant brings the total grant funding for this project to £503,476. With a cash balance of almost £17m as at 30 April and a burn rate of c. £5m per year, there should be no immediate investor concern regarding the funding of the Company’s ongoing work.

Quercus Publishing Plc (QUPP 120p/£14.05m)

PLUS listed, award-winning independent publisher of best selling fiction and non-fiction books, announced a 3-year joint venture with Sterling Publishing Co, a Barnes & Noble subsidiary, to sell fiction to the US and Canadian markets under the name of Silver Oak.

With the region being the most tightly fought in the world of fiction, such an association should be warmly received, and offers Quercus the opportunity to crack a lucrative market for any bookseller. Whilst the Company has an extensive catalogue of titles, the decision to selectively offer titles looks to be a considerably wise move in ensuring it treads the North American with a great degree of care. The expected launch date for the venture is January 2011, though we December may have perhaps been a more timely choice for the Company in capturing the vast Christmas market. Nonetheless, the news is something substantial, and we hold this Company in high regard in terms of potential forward movement.

SeaEnergy (LON:SEA) (SEA 23p/£15.9m)

AIM listed offshore wind company announced that it has agreed a Heads of Terms (HoT) agreement with The Crown Estate for it to invest up to £1.4m in key surveys and reports which will be directly contracted and managed by SeaEnergy Renewables Limited for funding the Inch Cape wind farm development. Interestingly, the consortium that was awarded the Inch Cape Project included npower (the resources company), but they dropped away earlier this year due to other ongoing commitments. A formal development agreement for the HoT is yet to be shaped up, but the news demonstrates the degree of confidence placed in the project by The Crown Estate.  A little bit of positive news for a Company, which should serve it well.

Sqs Software Quality Systems Ag (LON:SQS) (SQS 179p/£48.80m)

Software Quality Systems (SQS), the German based independent provider of software testing and quality management services, announced their interim results for the 6 months to 30 June 2010. The Company has demonstrated 9.4 per cent organic revenue growth to €73.9m, having signed up 91 new clients during the period. Gross profit has also stepped up, moving from €19.7m during the first 6 months in 2009 to €22.6m during the same 6 months in 2010 (a 13.5 per cent improvement)- an enhanced gross profit margin is partly due to the Company’s expansion outside of its traditional business and IT projects (which comprised 87 per cent of revenue) into Managed services, which offer higher profit margins on an SLA based delivery. Interestingly, SQS has continued with its offshoring strategy, increased the offshore proportion of its consultants to 31 per cent (from 26 per cent at 2009 year end), and managed to bulk up the utilization of its consultants by 6 per cent to 186 days. SQS follows a pre-defined methodology for its service offerings, which has enabled it to maintain quality and increase the hiring of junior consultants (thus facilitate improved margins), whilst also ensuring it is able to remain competitive. Given the increasing global focus on security and software reliability, SQS appears to have established itself well in what is becoming a dynamic and highly competitive industry, with many of its clients being of the blue-chip variety. While the Company is not planning to make acquisitions this year, it remains open-minded on this front and continues to monitor various prospects, though it appears this stock will be driven forward by a healthy dose of organic growth. Quality by name, quality by nature- eyes open on this services company.

Surgical Innovations Group (LON:SUN) (SUN 4.55p/£17.01m) 

Since we last wrote on Surgical Innovations (SI) towards the end of July the shares have risen by over 30 per cent. Determination pays off as demonstrated by this medical device manufacturer and distributor, evidenced by the delivery of a stunning interim result for the six months ended 30 June this year.  We have reported over the last year on SI’s investments in product innovation and sales momentum and are pleased to see that, compared to the same period last year, revenues were up by 79 per cent to £3.6 million and earnings per share increased by 260 per cent to 0.18 pence.

The re-alignment of the business that has taken place over the last 18 months involving considerable investments and upfront expenses in product development and new sales channels is now paying off with a leap in margins.  Operating profit grew by 234 per cent to £781,000 with a net cash generation of £888,000.

Sales to original equipment manufacturers such as Teleflex, Gyrus and CareFusion increased by 123 per cent to £1.3 million, representing almost 40 percent of turnover.  Meanwhile, sales of SI branded products grew by 30 per cent to £1.6 million and were driven by the Company’s Resposable products which are generating a much wider demand as surgeons and procurement managers are looking for cost-effective solutions.  SI’s Resposable concept combines disposable parts with reusable elements, thereby saving costs.

Building on the current momentum, SI continues to invest heavily in product development and has several new devices at various stages of development.  This half year result was no fluke and we expect the full year result to be equally impressive.  We encourage investors to calculate the Company’s valuation and seriously consider the timing of an investment in what appears to us to be a great growth opportunity.

Tower Resources (LON:TRP) (TRP 3.32p/£33.49m)

Tower Resources, the oil and gas exploration company with interests in sub-Saharan Africa, has provided an update on its operations in Namibia and Uganda. In Namibia, Tower has a 15 per cent interest in the 0010 licence where a 3-d seismic survey was recently undertaken and which has provided excellent quality data (processing and interpretation should be complete in early 2011). Earlier this year, we noted an independent appraisal had been conducted by Oilfield International which valued the 15 per cent interest at US$696m, of which US$480m can be attributed to the Delta Prospect and the Delta Lead, both targets for the first well to be drilled. In Uganda, the Company conducted an aero gravity gradiometry survey back in June, and is currently processing and interpreting the data, which it expects to complete in September. With news continuing to flow through, the markets appear to be responding well. This has the potential to offer towering prospects.  

Zeta Compliance Group (ZCGP 45.5p/£3.99m)

Zeta Compliance, which provides products and services to enable organisations with large estates to ensure they systematically meet their Environmental, Health and Safety obligations, announced their interim results for the 6 months to 31^st July 2010. The Company carries out risk assessment and monitoring services in respect of water and air hygiene where Legionella and MRSA are principal concerns.

Results for the period are impressive, with like-for-like growth in revenue of 21.4 per cent to £1.25m, which excludes revenue from the new activities of the Carbon, Energy and Sustainability business unit and those from the acquisition of The Fire Strategy Company (in May 2010)- taken into account this pushes growth up to 29.6 per cent, whilst gross profit for the period was £853,000 (2009: £680,000). Start up costs for these new activities, however, impeded the results somewhat with profit before taxes of £68,000 (2009: £117,000). Going forward, the Company appears to be in a healthy position for the second half, with its associate company (Zeta LLC) reporting profits for the first time and the Company announcing that it remains on target to provide full year results ahead of the 2009 comparatives.

We are impressed by Zeta’s list of blue chip clients, which includes a host of 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.