Hybridan Small Cap Wrap featuring iDesign, Formjet and Milestone

This week: iDesign hits its targets, Formjet gets the Monk’s habit, and Milestone reaches a milestone

Ark Therapeutics Group (AKT 46 p / £95.27m)

Specialist healthcare group Ark last week announced that further results from its Phase III study (ASPECT) of Cerepro will be presented at the American Society of Neuro-Oncology Conference in New Orleans on 22 October 2009. Ark has five marketed devices in its woundcare division and three pharmaceutical products in late stage clinical development: Cerepro, Vitor and Trinam. We like this company as it has a completely novel mix of incredibly high class and innovative R&D and products that are being sold. It should appeal to investors as it moves into a commercial, revenue-generating phase. Its shares have been under pressure over the past few months and we would suggest buying on weakness, as Ark looks well placed to survive the flood.

Beacon Hill Resources plc (BHR 0.365p / £20.56m)

This AIM-listed resource company last week announced that it raised £725,000 by way of a placing at a price of 0.25 pence per Placing Share. The funds raised will be used, together with the £1m raised the week before last, in conjunction with the recent acquisition of Tasmanian Magnesite NL to develop the Company's significant magnesite assets in North West Tasmania, with the aim of achieving production in the next 24 months. Chairman Justin Lewis commented on the next steps with this total £1.725m now raised:

"This development will include additional exploration and drilling to upgrade the current 39Mt magnesite resource, of which 13Mt is measured to JORC standard, and fund mine design and begin construction of the mine which we anticipate to commence in the latter half of 2010."

Beacon Resources needs to do some negotiating now to secure a joint venture partner to construct a calcination plant in the vicinity of the licence area, in order to process the magnesite into various forms of industrially important magnesia, and to secure off-take agreements with end users. Beacon Hill Resources plc aims to take a portfolio approach to resources and so we expect further news flow of acquisitions of assets. We understand that near to production is the theme for the management team.

Corero (CORO 48p/£0.7m)

Corero, the specialist provider of software solutions to the banking and securities and education markets, announced that it signed a major contract extension with a large global investment bank, for its Radica CAPS software. The bank, a customer since 2003, has purchased a perpetual licence, for an unlimited number of users, to use the software across all its processing centres in Europe, Asia and the United States. The news though appears to be a double edged sword for although the deal will provide Corero with a significant boost to revenue this year it will also have the effect of reducing future support revenues from this customer. Added to this are continued concerns over the balance sheet of the company lead us to believe that this is one minnow not worth catching.

Earthport (EPO 32.25p/£28.55m)

Shares in electronic payments firm Earthport have nose-dived back to terra firma after the company announced it is no longer in an offer period as defined by the City Code on Takeovers and Mergers. In July shares reached a cruising altitude of 75p. The company had been undertaking a review of strategic options, one of which was a takeover of the company. None of the takeover discussions came to fruition, the company said. This follows on from the announcement of a couple of weeks ago that it has yet to receive payment of a £2m debt due from its Middle Eastern partner. At the time we were a little worried notwithstanding positive news on current trading and contract wins. Bad news though comes in threes so fasten your seat belts and cabin doors to manual.

EPE Special Opportunities (ESO 33.5p/£8.89m)

We tend not to cover funds as we believe that our gentle readers prefer to invest directly in stocks themselves rather than pay 2 per cent for the privilege of an underperforming fund manager. One fund that we do like however is EPE Special Opportunities as this invests in distressed businesses typically following an administration. This is an area that would otherwise be difficult to get exposure to but which offers great opportunities at the moment. Last week the shares jumped from 26p to 37.5p after it said its portfolio was performing in line with expectations and that its current net asset value per share stood at 72p. The company reported that among its successes was the initial turnaround phase of tea and coffee merchant Whittards of Chelsea. We are bullish on this stock as we see further value in the portfolio and a decreasing discount to net asset value. A rare opportunity indeed.

Faroe Petroleum (FPM 143.5 p / £150.31m)

The oil and gas company focusing on exploration and appraisal in the North Sea and Norway last week announced a discovery at the Tornado exploration prospect, West of Shetland. The well discovered gas and oil in Tertiary reservoir sandstones and extensive data collection is currently underway. The participants in the well are OMV - operator (35 per cent), Dana Petroleum (30 per cent), Dong Energy (20 per cent), Faroe Petroleum (7.5 per cent), and Idemitsu E&P (7.5 per cent). Tornado is Faroe's second Atlantic Margin exploration success, following within a month of the Glenlivet discovery. Faroe has nine firm and funded well exploration programmes to be drilled over the next 24 months. Faroe seeks to reduce its exploration cost exposure whilst retaining material interests, and has performed fantastically over the past three months, operationally and in its share price. Indeed Faroe could have far to go.

Formjet (FMJ 0.78p/£2.71m)

Shares in Formjet jumped 20% after the software supplier signed an extension of its distribution agreement with Ability Software International, which provides software packages for businesses. The big picture here though will be painted by Andrew Monk, the former CEO of Astaire Securities (formerly Blue Oar), who has taken executive control of Formjet with the view to an aggressive acquisition strategy. Time will tell whether the good Mr Monk’s deals will generate long term value but we suspect in the short term this will be an interesting play for those fleet of foot.

Hutchison China MediTech Limited (HCM 172p / £88.11m)

This low risk, high reward specialty pharma, otherwise known as Chi-Med, last week gave an update in relation to the New China National Essential Medicines List Reference Prices which were published by the National Development and Reform Commission in China on 28 September 2009. The new Reference Prices represent the maximum allowable retail prices that drugs can be sold for in hospitals and pharmacies in China. About 45 per cent of Chi- Med’s drugs had Reference Prices cut by an average of 12 per cent, 49 per cent saw prices remain unchanged, and the remaining 6 per cent are to receive moderate price increases due to short supply. In response to this Chi-Med has said that they will not have to adjust their price tendering strategies or reduce ex-factory prices below current levels. We like this Company and are pleased to see that these new published reference prices will not affect Chi- Med negatively.

i-Design (IDG 14/£1.97m)

i-Design, which sells advertising space on bank ATM machines, has issued a reassuring trading update. It says results for the year to 30 September will be in line with market expectations. Unfortunately, at the half year the group was expecting to make a full-year loss of £1.2m. However, i-Design does now estimate that its end-of-year cash position will be around £1.7m, just £0.2m lower than at the end of March. As such, it is well placed to weather the recession and the banking crisis and to continue to develop an advertising channel that, unusually in this era of fragmenting media, continues to reach a mainstream audience. So, while the group faces a current tough environment, it does have some smart designs on the future.

Lifeline Scientific (LSI 69.5p/£5.92m)

Lifeline, a medical technology company whose primary Organ Recovery Systems business is to enhance human donor organ preservation during transport – a huge improvement over the traditional ice box solution – has seen its share price come back to life after a period of being frozen out. From a high of 150p at the IPO nearly two years ago the shares have been languishing at 40p the whole year until a series of positive news resulted in a revival. First, the advantages of the technology in terms of clinical benefits and costs-effectiveness were further demonstrated in studies presented at the American Transplant Congress. This builds on earlier studies demonstrating significant benefits in kidney survival and function compared to the traditional cold storage. Second, the company met expectations of making its first operating profit for the six months to June 2009 with a 123% increase in revenues to $7.8 million of which 86% came from consumables. Third, Lifeline secured a two-year, $1.5 million working capital facility to fund growth, and was also just awarded a development grant of $2.35 million from the US federal government. Last, an overhang from two large shareholders has been placed in the market with significant participation from directors. There is a significant unmet need for donor kidneys with hundreds of thousands of people on year-long waiting lists. Adding insult to injury, the traditional cold storage transport from donors to recipients led to many of the donor organs not being suitable for transplant after transport and the failure rate post transplantation is high. Lifeline’s LifePort helps increase the number of kidneys being made available for transplant while improving the quality of the organs. These are early days for Lifeline Scientific, which is developing other LifePort systems for the preservation and transport of the heart, lung, liver and pancreas. We think the share price will make a full recovery.

Milestone Group plc (MSG 1.8p / £1.59m)

The provider of digital media solutions and technology last week announced that it has entered a global agreement to sell the CEM (Customer Experience Management) Solutions of Ve Interactive Ltd. 'VeCapture' is a patented proprietary ecommerce tool, effective in securing additional form and shopping cart conversions from aborted online transactions. Milestone purchased 1.3 per cent of Ve Interactive ordinary shares for a total consideration of £101,111 and has the right to purchase an additional 1.3 per cent by the end of November 2009 for the same amount. Milestone has secured reseller rights which entitle Milestone to up to 15 per cent of the gross revenue it generates for Ve Interactive with all software installations and other costs being paid by Ve Interactive. With this second deal in a week, it looks like Milestone may start generating revenues in the short term. At the current valuation, this is an attractive play for those wanting some digital media exposure.

Monitise (MONI, 14.75p / £61.04m)

Monitise, which provides an end-to-end solution enabling banks and their customers to undertake banking transactions via mobile phones, has just registered its one millionth customer. Given that it had 750,000 registered customers in August 2009, this is some growth. And what makes it particularly interesting is that the group is seeking to expand
away from professional services fees and licence revenues into sales on a per-consumer basis. As such, increasing consumer uptake of Monitise’s services has a very direct effect on its financial performance. The group had losses of £12m in the first half of 2009, but is pushing the right buttons to move towards profitability.

ServicePower (SVR 6.63p / £12.57m)

The Company that makes workforce management software last week announced the appointment of ServicePower Asia Pacific Pty Ltd as its exclusive distributor/reseller in Australia and New Zealand in response to growing market demand in the region. Service Power shares have performed very well over the past few months. We like this company and the current management team and remain intrigued to see what happens in the bid situation.

Silence Therapeutics (SLN 24.75p/£33.4m)*

The European Patent Office has upheld Silence’s core AtuRNAi patent with a few modifications not critical to the company’s core business. Silence is a leading European biopharmaceuticals company focused on RNA interference which is a gene silencing technology. The company has a research and development collaboration with AstraZeneca, a licence agreement with Quark Pharmaceuticals and an in-house cancer development programme that are all based on its proprietary AtuRNAi molecules. Silence’s shares are currently suspended after it announced it was in merger talks with a private US company. A deal is likely to be structured as a reverse takeover and will need to be approved by shareholders. We are waiting in anticipation of the admission document for further information about deal terms and what the other company will bring to the table.

YouGov (YOU 50.25p / £48.61m)

The purveyor of online market research got rather ahead of itself. The group, with a history of continuous growth, had assumed the near future would be much like the recent past, and so continued to staff up for new business. But the recession did a neat job of puncturing this illusion, with like-for-like sales for the year down by 3 per cent, giving revenue of £44.3m. And, at the analysts’ briefing, chief executive Nadhim Zahawi pointed to staffing costs as a
cause of the group making a reported loss before tax of £0.7m in the year to 31 July. YouGov has, however, responded by reducing employee numbers, which is expected to lead to annualised cost savings of £2.5m going forward. And it does have a very healthy £12.5m net cash position. YouGov has benefited from the speed and cost-effectiveness of market research conducted online. And it is now moving into highly responsive real-time products, in which market research data can be produced in a matter of hours. The group was quick to take advantage of the benefits the internet can offer research, and these latest products suggest it remains ahead of the game — indeed you could call YouGov the guvnor.
*Price as at 29/09/10 when share dealing was suspended