Hybridan Small Cap Wrap featuring Ark Therapeutics, Earthport and Gulfsands

This week: Ark Therapeutics rebuilds, Earthport wobbles and Gulfsands Petroleum soars.

Ark Therapeutics Group (AKT 14.75p / £30.27m)

Last week, biotech company Ark, which had bad news in mid-December about its Cerepro programme being delayed, announced that it has implemented a series of restructuring measures to extend its cash runway. The Company has begun consultations with employee representatives on headcount reductions in manufacturing, R&D and support staff, as well as reducing investment in non-core early stage research programmes. In addition, after first pilot trial results show a change in its trial design is required, Ark has decided to put the development of Vitor on hold.

The current review has focused on the need to continue the development of the Company's key strategic assets Cerepro and Trinam- principally, the gene-based medicine business with its fully developed adenoviral platform, the recognized biologics manufacturing capability and licensed facility in Kuopio, IP and stroke patents - and its rapidly growing wound care business.

The Company's operational focus will be on completing Cerepro and Trinam programmes and ensuring the key pre-clinical programmes in refractory angina (EG011), peripheral vascular disease (EG016) and fetal growth retardation (EG013) progress in Phase I/IIa development. The measures currently being implemented should mean that the Company's current cash will fund its operations into the second half of 2011.

On the same day as this cost cutting news was announced, Ark separately announced some good news that the first patient has been enrolled and treated in the Phase I/IIa trial of adenoviral short-form Vascular Endothelial Growth Factor-D ("VEGF-D") in patients with refractory angina.Dr David Eckland, R&D Director of Ark, commented:

“Today’s news of the product being successfully and uneventfully administered by NOGA catheter, directly to the ischemic heart muscle where increased blood flow is needed, is a major step forward both technically and in advanced biomedicine."

The company has over the past three months fallen from the mid 40 pence to mid teens per share. We like this Company, and it still has plenty to focus on, but we believe it may continue to languish at these levels for a while yet. The brave wouldn’t be seen as foolish however in assessing the number of assets it has and the dedicated management team and scientific advisors that are on board the Ark as sufficient to take advantage of these low levels.

Bright Futures Group (BFGP 0.3p / £0.832m)

PLUS-quoted provider of contract catering and outsourced managed services within the corporate business and schools sectors, last week issued a trading update on its activities for the three months ended 31 December 2009. During the period, the Group traded profitably, in line with the Board's expectations. The integration of Jill Bartlett & Company Limited, which was acquired on 28 September 2009, has been completed and this business is also performing to expectations according to the Company. Since acquisition, JBC has won a prestigious new contract operating in the City of London, which is already contributing to trading results. Restaurants at Work, the Group's principal operating business, also performed well throughout the period as the operating changes that were made earlier in the year had a positive effect

The New Year, however, started disappointingly as BFG was adversely affected by the poor weather conditions over the first two weeks. As a result, the Group lost a significant amount of sales which will be difficult to make up. The Board is continuing to review its cost base to offset the reduction, but it is unlikely that the Group will recoup all of the lost profit.

Bright Futures Group plc is the holding company for the Restaurants at Work contract catering business. RAW provides a broad range of catering services from a fully serviced corporate restaurant to the provision of cold takeaway snacks to corporate clients in the UK, primarily in the South East of England. The Board continues to believe that the Group is in a stronger position than it was last year and that it is well placed to take advantage of any upturn in the economic environment.

Corero Plc (CORO 45p/ £0.683m)

Corero, the provider of software solutions to the banking and securities and education markets, reported that trading for the year ended 31 December 2009, is in line with market expectations of PBT of £0.1m and EPS of 4.74p. Operating profit is expected to be in excess of £0.3m. The Business Systems division has maintained its market position by winning contracts with 25 City Academies and the Financial Markets division generated substantial revenues from the existing Blue Curve and Radica CAPS clients. Net cash stood at £0.685m exceeding the current market capitalization. The market forecasts 2010 EPS of 14.22p, which puts it on a P/E ratio 2.3x. The low rating combined with the net cash position exceeding the current market capitalization yields the rather surprising conclusion that could be an interesting play.

Earthport Plc (EPO 13.5p/ £12.17m)

Despite reassurances that a franchise fee was imminent last month, the group has now indicated that the £3.25m non-refundable first year franchise fee from Zink Financial is still to be received. The failure puts pressure on the company financially and so it has had to place up to 7m new shares at 12.5p raising £875,000. Six months cash in our view. Brace, brace, brace...

Faroe Petroleum Plc (FPM 133.25p / £141.67m)

The independent oil and gas company focusing principally on exploration, appraisal and undeveloped field opportunities in the Atlantic margin, the North Sea and Norway, last week announced that it had been awarded a new prospective licence under the 2009 Norwegian APA Round and has been prequalified as an operator for the Norwegian Continental Shelf. Significant hydrocarbon potential has been identified within this Norwegian Sea licence, which is located adjacent to the Company’s existing PL477 Cooper licence. Faroe has prequalified as an operator on the Norwegian Continental Shelf, which will allow the Company to pursue operated opportunities and retain higher equity levels in assets acquired through both upcoming licensing rounds and acquisitions.

This Company’s share price has almost doubled over the past twelve months and it now looks forward to five high impact wells in 2010, the first of which is expected to be the Fogelberg well in Norway this month. The prequalification as operator should open new opportunities for the company in Norway in the coming years. We expect the news to
continue to flow going forwards, it has been a continuous flow since we started covering this stock, probably our top oil pick.

Fusion Ip (FIP 34p / £18.4m)

Fusion IP announced a new start up in conjunction with Cardiff University. Asalus is a medical devices spin-out developing 3 innovative devices to improve the safety and efficiency of minimally invasive laparoscopic surgery. Over 2m laparoscopic operations per year are now performed in the USA and the market for devices and instruments was estimated at $12bn in 2005 and growing. Patents have been filed on all three devices; an electrosurgical smoke and steam clearance device; an innovative access port; a multifunctional device for the traumatic manipulation of tissues and organs. This looks an interesting investment but our wider concerns over the viability of this group’s business model remain.

Galleon Holdings (GON 11p / £18.10m)

One that we write on for the first time and which has caught our eye is the AIM listed entertainment media company that develops and produces multiplatform entertainment properties with a focus on emerging markets. Last week it announced a good set of preliminary results for the year ended 30 September 2009.

Group revenue increased to £27.1m, a rise of 123 per cent and profit before tax increased to £1,377,000, a rise of 60 per cent. Galleon has continued to grow its media business, and thus the business overall, despite the impact of the global economic downturn on the media and promotions sectors. A key factor of this growth has been that 80 per cent of the Group's media revenues come from China, a region which has bucked the trend and seen its media sector grow in the last financial year despite the global economic environment.

Galleon's Multiplatform Entertainment Property model means that it derives revenue from a diverse range of activities that include the "new media sector", and are not wholly reliant on traditional media revenues such as sponsorship and advertising (an area significantly affected by the economic downturn). Galleon's Multiplatform Entertainment Properties offer powerful entertainment based communication directly to the consumer through channels that allow ongoing communication. The current reference for this is "Branded Entertainment".

Galleon has seen further growth in the online and digital games markets both inside and
outside of China. These sub sectors of the media market are becoming increasingly important, with significant revenue prospects to those who can offer entertainment directly to consumers.

Galleon has now established a strong media platform in China and built a team with the understanding of both Chinese and Western media markets. This team has the commercial and creative skills to bring these two media markets together for the first time through two models. The first model consists of developing and launching MEPs in China and then selling the format and licensing rights into the rest of the world. The second model works by taking Western entertainment, localising it for the Chinese market, and then distributing it directly through Galleon's own channels or via third parties such as Super Soccer Star or Super Fashion Star.

The outlook for 2010 continues to be encouraging with some exciting developments including the launch of new properties, new business channels and higher margin product offerings designed to improve overall profitability, and we hope that the share price can react positively on the back of upcoming news as it has been languishing somewhat since the summer of last year. We spoke briefly to Stephen Green at the end of 2009 and he was bullish and excited about Galleon’s outlook. Fingers crossed for this one this year!

Gulfsands Petroleum (GPX 271.5p / £318.64m)

The oil and gas production, exploration and development company with activities in Syria, Iraq, and the U.S.A., last week gave an update on the Company's operations at Block 26, Syria where Gulfsands holds a 50 per cent interest and acts as operator. Gulfsands    has    now received confirmation from Syria’s General Petroleum Corporation that Gulfsands Petroleum Syria Limited has been granted permission to develop the Yousefieh Oil Field accumulation in Block 26 North East Syria. A production licence of 25 years duration has been granted, with the possibility of an extension if required, for a further 10 years.

The Yousefieh Field was assessed at the end of 2008 as containing gross proved plus probable reserves of 11 million barrels of oil. First oil from Yousefieh is anticipated early in April 2010. Production will commence from 2 wells, Yousefieh-1 and Yousefieh-3, at an expected initial combined rate of up to 1000 barrels of oil per day. It is anticipated that production from the Yousefieh Field will reach a rate of approximately 6000 barrels of oil per day by 2012.

This Company’s share price has had a fantastic run over the past year, almost doubling, and has had a great start to 2010. We have been impressed by the management behind this Company and think that it has a long way to go still.

Ipso Ventures Plc (IPS 58.5p / £7.71m)

The demand led technology commercialization business, last week announced its interim results for the six months to 31 October 2009. IPSO creates commercial value from technology and its business model is entirely demand driven. It works closely with its industrial collaborators to identify the demand for new, innovative technologies and then, through its strong relationships with research institutions, sources technologies which could meet those needs. Much of this technology requires considerable further work by IPSO before it can be sold to industry as a developed product. IPSO creates businesses and provides expertise, strategic direction, human and seed capital, as well as corporate finance advice. IPSO is currently seeking equity funding for the Company to provide additional working capital and investment funds, although we imagine many, hopefully not all, will want to see this exciting demand led model proven first.

Its net loss for the six months was £575,000 after interest. Revenue was increased significantly during the period through complementary revenue generating initiatives, involving university development programmes, headhunting and corporate finance activities. IPSO expects revenue to continue growing throughout the remainder of this financial year. The Company made further investments totalling £202,000 in the period. These were spread across its core sectors of activity - Energy & Environmental, Healthcare and Process & Software.

IPSO’s first batch of investments is now approaching exits which will generate cash for IPSO. The Company has sensibly reduced the overhead costs so as to give a realistic time period to achieve that exit. Cash and short term investments at 29 January 2010 totalled £277,000, based upon the current cash burn rate and in the absence of a successful exit; this will provide sufficient working capital for the Group's requirements for approximately six months of operation.

IPSol Energy Limited, its latest investment, was created to provide business and technical solutions to the solar photovoltaic market with an initial focus on testing services. First revenue was achieved within a month of the business being established, as previously highlighted in a recent Small Cap Wrap, and is evidence of the focus on commercialization of IPSO.

Of note also in several of its investments in the period: Cambridge Meditech Limited has had discussions with a US based supplier of wound and skin care products, which could lead to a commercial licence in due course. Therakind Limited, its paediatric healthcare business, reported that its first product had secured regulatory approval for its paediatric investigational plan and commenced clinical trials, which should lead to marketing approval in due course. Polyfect Solutions Limited is engaged in discussions with international manufacturers who are potential customers for its technology and expects the first relationship with regard to one particular application will be formalized through an agreement in the near future. Axilica Limited has continued further refinement of its behavioural synthesis tool software and secured its first licence agreement with a significant defence business in September 2009.
The Board's long term strategy is to create a self-sustaining business, with the capacity to pay dividends and create capital growth for shareholders. We met with management recently and were impressed. If IPSO can get funding in, this will be one to watch as it heads towards its first exit.

Lisungwe (LIS 0.25p / £0.775m)

PLUS listed resources Company which holds extensive mineral exploration licence areas in Malawi last week also gave a trading update. Since the formation of Lisungwe plc in 2005, programmes have been directed mainly towards the discovery of Gold, Nickel and Uranium. The present focus is towards the Malingunde Hill Pyrite deposit designed to provide a crucial, cost effective supply of sulphuric acid for Nickel extraction at Lisungwe’s Chimimbe Hill Nickel deposit with a proven JORC resource. The Pyrite is also designed to be a profit centre in its own right to supply the sulphuric acid and agricultural fertilizer markets of east Africa.

Disappointingly Lisungwe continues to face severe challenges in attracting further investment interest, therefore has been unable to advance the completion of a JORC resource statement and continues to survive on a limited 'care and maintenance' basis. The announcement expresses the Board’s disappointment in the London markets at understanding the potential in its asset.

Nighthawk Energy Plc (HAWK 31.5p/ £101.36m)

The US oil and gas focused company, with 370,000 acres in Colorado, provided investors with an update on their winter drilling programme at their Jolly Ranch project. Nighthawk have a 50% interest, with the remaining 50% held by the operator, Running Foxes Petroleum. They have four projects , with three in production or at development stage.

They have drilled five new vertical wells and one horizontal section, bringing the deep wells total to fifteen over the Jolly Ranch estate, two of these will be utilised as water disposal wells. Excitingly these 15 wells cross more than 150 oil bearing horizons.
Nighthawk’s 50% interest was independently analysed in July by Schlumberger Data & Consulting Services. They found that the most likely oil (P50) in the 246,000 acres evaluated was 1.462 billion barrels gross and believe there is reasonable certainty of continuity of the source rock and reservoirs.

David Bramhill the MD is encouraged by these drilling results and says he “anticipates regular newsflow” about the project over the next few months. We would see the recent fall back in the share price as a great opportunity to pick up stock in this well managed company.

Sceptre Leisure (SCEL 57p / £31.11m)

Sceptre Leisure, the supplier of amusement machines, reported interims to 31 October 2009. An 18 per cent improvement in revenues to £21.2m (H108: £17.9), driven by growth in machine numbers, combined with enhancements in gross margins to 29 per cent (H108: 25per cent) led to a three times increase in PBT to £0.9m (H108: £0.2m) and EPS up to 1.2p (H108: 0.3p). Strong cash generation and £5.5m of new shareholder money has reduced net debt to £16.7m so that debt now stands at a modest 1.5x EBITDA. The group has won high quality contracts over the period, to replace sites lost through closures at the bottom end of the market. Machine asset utilisation remained above 95 per cent and the average weekly machine rental grew by 1per cent to £39.15. A recent acquisition coupled with the better quality contracts provides the group with a strong platform to grow the business. Earnings are typically weighted towards the second half and this year is no different. The group is comfortable with current 2010 market estimates of PBT of £3.5m and EPS of 4.6p. The stock trades on a 2010 P/E ratio of 12.0x and 9.2x in 2011 which seems fair. The upside, we suspect, will come from stretching the balance sheet a little more to fit around one or two attractively priced acquisitions.

Serabi Mining (SRB 1.625p/£5.33m)

Serabi has issued a progress update on Palito, its gold mining operation in northern Brazil. Following the company’s fund raise of £2.4 million late last year, the focus is on increasing gold resources to 1.5 million ounces from the current level of 630,000 ounces. Serabi is currently conducting a variety of geophysical and geochemical analyses as a follow-up to an extensive airborne survey that resulted in a prioritised target list of 18 areas of potential gold mineralization. First pass ground geophysics is focused on a list of ten targets closest to the existing mine site with a follow-on drilling programme to commence in the summer.    The company hopes to be able to identify two or three Palito “look-a-likes” that can be developed concurrently so that they would be feeding into a central processing plant. The “new” Serabi is managing its exploration assets in a considered and rational way and we look forward to hear about the results of the analyses in late Q2.

Servicepower Technologies Plc (SVR 5.88p / £11.62m)

Following the close of its 2009 financial period, ServicePower, which is involved in the outsourcing and hosting of dispatch, claims and warranty processing, sale and implementation of scheduling software and sale of GPS and mobility products, last week reported that it expects to finish the year with revenues in excess of management's previous expectations. Additionally, it expects to report a net cash balance of approximately £3.5m at the year end.

The recent restructuring programme will result in a one off exceptional charge of approximately £0.9m in the Company's forthcoming 2009 annual results. Additionally, the Company expects to report a foreign exchange loss of approximately £1.2m, and as a result of a change in revenue mix during the financial year due to two existing client contracts operating on a margin below the traditional growth margin, there will be a £0.6m shortfall against management's previous expectations.
ServicePower share price has almost doubled over the past month thanks to the shake up and implementation of a new strategy by Mark Duffin and his team.

Spiritel (STP 59.5p / £10.62m)

Spiritel, the SME business telephony provider, reported interims to 31 October 2009, which were significantly below last year’s levels. Sales fell by 28 per cent to £7.9m (H109: £11.1m) and the group fell into losses at an adjusted operating loss of £0.53m (H109: profit of £0.25m). A substantial increase in net finance costs led the group to adjusted pre-tax losses of £4.5m (H109: £1.6m). The Business division performed strongly, delivering organic revenue growth of 18 per cent and 22 per cent in underlying EBITDA but this was offset by a weak performance from the Technology division, which saw a 67 per cent decline in revenues and a 91 per cent fall in underlying EBITDA. The group’s strategy is to focus on the Business division which was bolstered by recent acquisitions.

Following the acquisitions, the current annualised run rate of underlying EBITDA for the Business Division is over £3.5m, significantly higher than H1 2010’s £0.93m. Management is confident they will meet market expectations of pre-tax losses of £0.4m and EPS of -0.9p. With company still intent on boosting its performance through acquisitions there may still be some upside here but the share price has risen by 20 per cent since we covered Spirtel last November 2009 and so expect it to pause for breach for the moment.

Tower Resources (TRP 4.25p / £43.06m)

The oil and gas exploration company with interests in sub-Saharan Africa, principally in Uganda and Namibia, last week provided an update of current operations.
In Uganda, Tower's wholly owned subsidiary, Neptune Petroleum (Uganda) Limited completed the preparation of the Avivi-1 well site and drilling camp in Uganda Exploration Area 5 and is awaiting the release of the land rig owned by Oil & Gas Exploration Company Cracow Limited which is currently contracted to Tullow Oil plc and is expected to be released by Tullow on 31 January and will be moved to the Avivi-1 site for anticipated spudding on 12 February.

In Namibia, the 1,600 square kilometre 3-D seismic programme across the Delta structure in Licence 0010, where Tower has a 15 per cent carried working interest, is now expected to begin in the third week of March 2010. It is still anticipated that processing and interpretation will be complete by the end of 2010. The share price has gone from 2.2p to the 4.2p level over the past three months, although it saw 6.6p in May 2009. With upcoming news expected as things progress in Uganda and Namibia, fingers crossed that those 6.6p levels can be achieved again.

£WHP (WREN 8.625p / £4.39m)

The AIM listed provider of retirement living, through a range of Extra Care and other services for the independent elderly, last week announced its full year results for the year
ended 31 July 2009. Wren has continued to sell most of the remaining stock of the retirement scheme at Warlingham 1 such that at this time, three of those units are under contract and the Company remains confident that the remaining four will be sold in the early part of 2010.

Wren reported a loss before tax for the year of £1.1m (2008: £1.1m) on a turnover of £90,740 (2008: £84,000). Not surprisingly, there is to be no dividend in respect of 2009, and the directors paid a final dividend of £52,420 in the year for 2008. Goodwill has remained at £3.1m and net assets have increased by £281,169 to £8.2m.

The company adopted a dual strategy to address the difficult economic environment: taking buyer's homes in a part exchange for units sold, together with the cost cutting measures outlined in the announcement of the company results to 31 January 2009. As a result the Group has weathered the current difficult trading conditions and is well set for any upturn.

Wren has now completed repositioning the company to focus on the Extra Care element of the retirement housing market and the change of the Company name to Wren Extra Care Group Plc reflects this new focus. Wren believes its Extra Care Schemes will provide second generation retirement housing. This move will position Wren between traditional retirement homes and full residential care and nursing homes and will offer residents the best of both models, with independent living, but also the opportunity to receive care based on individual needs.

Wren has already received planning consent for three significant projects at Warlingham, Crowborough and Wallington, Surrey and is now ready to start building Extra Care Schemes on these sites as soon as the required finance is in place. Not surprisingly given the attractiveness of the Company’s new focus, it is in discussion with a number of potentially interested parties in this respect and is confident that these projects will be progressed as 2010 unfolds.

The Group's Bank, Royal Bank of Scotland Plc has confirmed that it intends to continue its banking and financing relationship with Wren Extra Care Group and at the time of writing sees no reason why existing loans cannot be renegotiated and extended, with sufficient facilities made available to support the company.

We have been impressed by the management team and given the new strategy and their position in the market place would hope to see this funded in the short to medium term and the news flow to pick up after funding.