Hybridan Small Cap Wrap featuring Cashbox, Next Fifteen & Sinclair Pharma

This week: Cashing in on Cashbox, monetising a Chinese herb and Next Fifteen moves into the consumer space

Angus & Ross (AGU, 2p / £4.9m)

The angels are watching over Angus & Ross. Under the threat of becoming insolvent from a looming $12.5m loan repayment due in July next year, the company has reached agreement with its creditor and restructured the loan into a convertible loan note. The transaction must be approved by shareholders, who also have to vote in favour of a waiver of the requirements to make a general offer under the City Code, as Cyrus Capital will end up with a holding in excess of 70 per cent of the company?s voting share capital. Nevertheless, this facilitates the company?s efforts in achieving the project finance necessary to put the Black Angel Mine into production. Appropriately enough, the company is proposing to change its name to Angel Mining.

ASG Media (ASG, 1.4p / £2.2m)

ASG Media, which operates digital screens in shopping malls and leisure locations and was until recently known as Avanti Screenmedia, has issued a funding update – again. This time Neo Media Group is providing £75,000 of loans, which can be converted into shares at 1p per share in 12 months? time. Neo Media is a Swiss digital screen specialist and its chief executive and chairman, Christian Valglio-Giors, is non-executive chairman of ASG. Following the announcement, Neo Media, if it converts its loans, would own 61 per cent of ASG. Amidst all the financial goings-on, it?s easy to overlook the fact that digital out-of-home retains a key attraction as a means to advertise to a mainstream market in an age of media fragmentation. But, with the retail sector struggling, ASG having made a £1.6m operating loss in the six months to 31 December 2008, and uncertainty over its financial structure, this may be a punt too far for cautious investors.

Cashbox (CBOX, 4p / £5.8m)

Cashbox, the UK?s largest independent operator of ATM machines, continued to pump out good news this week. The company announced that it has been awarded the contract for managing the ATM estate of pub group Tattershall Castle. The estate currently consists of some 120 machines and these will be integrated onto Cashbox's operating platform in the near future. In addition, the company also announced five-year contracts with London Town, Reel Cinemas and Marbury Taverns, and a three-year contract with Here For You Hospitality, covering in aggregate an initial 44 sites. The stock is up another 10 per cent this week, leading to an overall rise of 23 per cent since we first covered Cashbox in June. We say: don?t cash in just yet, this is one?s on a roll.

Epistem (EHP, 340p / £24.5m)

Biotech company Epistem gave a pre-close trading update this week. Trading over the year has been strong and in line with market expectations, and it expects to report a maiden profit after tax – a milestone any company should trumpet, particularly a biotech! Epistem is a well- managed biotech that develops drugs and biomarkers and provides contract research services to drug development companies. We like the model of a fee-for-service business that pays for its own in-house R&D. Having met the management team, we believe that this is one biotech that could go far.

Highams Systems Services Group (HSS, 1.6p / £1.1m)

Here?s one of those microcaps that can offer good returns for investors whose timing is right. The company has two principal operating companies, Highams Recruitment Limited and Highams Recruitment BV, which provide total IT resource solutions to the insurance, financial services and investment management sectors. Highams supplies personnel to major financial institutions down to start-up insurance companies and across to specialist software suppliers. This week, Highams reported losses substantially reduced in the year to 31 March 2009 to £0.37m from £1.92m the year before on revenue that eased to £10.5m from £13.6m. And the balance sheet potentially leaves the company exposed to having to return to the market for additional working capital if losses persist. So it was comforting that the company was also able to report that, since the year end, further cost savings have been implemented and that, in the first quarter of the current year, the company actually generated cash at the operating level. All in all the results were well received by the market with the stock up 18 per cent on the week. Hi fives guys.

Hutchison MediPharma Limited (HCM, 84.5p / £43.3m)

This low-risk, high-reward specialty pharma last week announced the completion, well ahead of schedule, of patient enrolment into a Phase IIb trial of a drug, derived from a Chinese herb, in patients with ulcerative colitis (that?s inflammatory bowel disease to me and you). Results from this trial are expected to be available in the fourth quarter of 2009. In the same week, Hutchison, also announced its interim results. Its analyst meeting was well attended and with reason: sales were up 23 per cent, to $56.7m, it reported an operating profit of $0.6m, an operating cash inflow of $7.1m and cash of $39.6m. Management pointed out that this is „no high cash burn biotech?. The China healthcare market maintains rapid growth and its China healthcare division did well.

Its infant nutrition business caught our eye. With a number of fraudulent products in infant nutrition in China in recent times, and with the rising middle-class population, we can see how Chinese parents will focus on getting the best for their (one) baby nutritionally. Its drugs R&D division boasts discovery partnerships with the likes of Merck Serono, Eli Lilly, and J&J, which look very promising. Its potential is increasingly clear without licensing activity moving on to the agenda. Hutchison?s management team say that its in-house R&D has some real prospects, and with four projects in discovery and two in phase II, this is a great time to start taking a look at HCM. Its consumer products division, Sen, has done well in a tough retailing environment in the UK and expansion into France with Marionnaud is starting well with a massive sampling for which Hutchinson is being paid as part of building the awareness.

We believe that its consumer products division has the potential to be very big indeed and wouldn?t be surprised if we start to see products being sold into China too. The management team gave the sense that it was „extremely engaged? in joint venture and M&A activities. We came away with a sense of lots of positive noises and a clear strategy for each division.

Landkom International (LKI, 16.7p / £40.2m)

Another week another intriguing announcement from Landkom, the Ukrainian crop grower. This week it?s that a new grain elevator at the Krasne base is now in operation and has taken delivery of its first shipment of wheat from Landkom's fields. The significance of this was lost on us but the market reacted well, with an 11 per cent uplift. Wheat?ll wait and see what?s announced next week.

Mediwatch (MDW, 6.1p / £8.2m)

The urology and diagnostics medtech group announced its interim results this week. In the period it signed a global marketing agreement with Inverness Medical and launched its upgraded clinic and portable systems. Revenues were up 13 per cent, to £4.9m, and with a PBT of £37,000, the investment in the US sales infrastructure would appear to be paying off. Mediwatch is a one-stop-shop in the urology market, aiming to offer the gold standard of care.

With a focus on prostate cancer, about which there is an increased awareness, this stock has a long way to go. Mediwatch is certainly one to watch and there is always the possibility of a US medtech giant wading in at a nice premium.

Next Fifteen (NFC, 53p / £28.7m)

The international technology focused PR group continues to make strides into consumer PR. Following on from the earlier acquisition of UK-based Lexis, Next Fifteen has bought US consumer PR business M Booth for $4m plus up to $13.25m in performance-related deferred payment during the next four years. This looks an interesting purchase: it strengthens the group?s operations in the consumer area and provides a platform for global expansion in this niche. And, crucially, it gives Next Fifteen the benefits of diversification. The group also issued a trading update for the year to 31 July, announcing that underlying revenues and pre-tax profits would be in line with expectations, but that one-off costs will be higher than anticipated. Chairman Will Whitehorn said the first quarter of the calendar year was „very tough?. Client budgets have, however, since stabilised and he is „cautiously optimistic? about prospects for the coming year. We are positive on Next Fifteen and the public relations sector in general, as PR continues to benefit from the need to manage reputations in the anything-goes arena of the blogosphere.

Serabi Mining (SRB, 1.5p / £2m)

Serabi delivered some encouraging news about its Brazilian gold mining operations in its recent investor update. We have previously commented on the company?s need for more capital in order to execute on its strategy of developing further mines in the region. Without access to capital Serabi is unable to fully utilise its current assets and potential. To justify the required investments in infrastructure it must reach economies of scale that can only be accomplished from a much larger operation, hence the need to establish a larger resource and reserve base. The good news is that, while the company is awaiting funding, the profit from the current surface operations more than covers its expenses. There?s even enough cash left over to fund a small surface drilling programme to keep the operations going. Sooner or later investors may realise that backing Serabi?s ambitions for regional expansion could yield a significant return.

Sinclair Pharma (SPH, 26.5p / £27.4m)

We have written before on this specialty pharma that focuses on dermatology, oral care and gynaecology. This week it announced the launch of Sebclair in the US with the mighty Dr Reddy?s Laboratories. Sinclair is now selling seven products in the US, with more to come later this year. Sebclair, its treatment for seborrheic dermatitis, has been launched under the brand name of Promiseb Cream. In clinical trials, it has shown a very good safety profile, with no restrictions on age, duration of use or application on the face. Seborrheic dermatitis, or dandruff or cradle cap, depending on your age and what part of the body is affected, is a common skin condition and there is a huge market, in terms of creams, shampoos and topical remedies, for such complaints. Sebclair is going into a market that needs improved product without the side- effects that steroids cause. Sinclair has a strong pipeline and we believe that we will see at least double-digit organic growth in the 2010 financial year, with more to come on top from new products. Expect further deals and product launches.

StatPro (SOG, 98.5p / £58.7m)

Software group StatPro announced sparkling half-year results this week, with profits up 63 per cent to £3.2m (after adjusting for one-off exceptional items) on revenues up 19 per cent to £15.5m. The group sells “software as a service” to asset managers such as fund managers, pension funds, private banks and hedge funds enabling them to monitor and control risk across various asset classes. Key drivers of the growth are the recovery in the performance of asset managers, new financial products, increased regulation and low interest rates. These drivers are causing the asset managers to seek flexible and cost-efficient solutions.

The software as a service model involves StatPro hosting on its own servers the software and data used by its clients in return for recurring revenues. Currently the company has £28m of annualised recurring revenues with 80 per cent secured for more than one year. Market opportunities abound and, as StatPro?s marginal costs of additional contracts remains low, there?s scope for significant margin enhancement. Management gave an assured presentation to City analysts this week, so we see this as a good growth story with limited downside risk. Pro?s that are hardly static, then.