Hybridan Small Cap Wrap featuring Ipoint's, Space & People, LiDCO, Anglesey Mining, Ashley House, Berkeley Mineral, Bioventix, Minco, Sareum Holdings and Summit

This week: Ipoint’s downwards, Space & People acquires and LiDCO top lines

AdEPT Telecom (ADT 22.5p / £4.74m)

Adept has secured a new contract to supply a national electronic games operator, valued in excess of £0.8m over 36 months. The contact is good news and highlights the group’s long term order book visibility and quality of earnings. However, the high debt levels of £10.2m is reflected in the low 2011 P/E of 2.7x leaving the group looking an anachronism from a bygone age.

Anglesey Mining (LON:AYM) (36.3p / £53.99m)

Anglesey’s 41 per cent associate Labrador Iron Mines has started construction of a 4.5km spur line. It is expected that rail work will be completed within the next 30 days and used to move the main components of the processing plant and the accommodation camp for which the majority of kit has already been delivered. The group has received a number of permits comprising; mining leases for the first stage of James and Redmond deposits, surface use leases for the beneficiation area, camp, and residue disposal but awaits a number of additional permits including the mine operating permit expected to be issued in the near future.

ANT (ANTP 29.5p / £7.16m)

Ant has signed another license for the Hybrid Broadcast Broadband TV (HBBTV) operating software, this time with German based Kathrein Group for use in various European markets. This combination of simple broadcast with content delivered by broadband is the most logical use of limited capacity which makes this stock attractive and an interesting peer to Motive TV*.

Ashley House Plc (LON:ASH) (43.5p / £24.23m) & AH Medical Properties (AHMP 35.5p / £22.98m)

Following our March 30 comment, we see that the bid talks at PLUS quoted AH Medical Properties have now inflicted collateral (but probably temporary) damage on its sister company (historically its parent) Ashley House. Due to the very close trading connection between the two (whereby AHMP has first refusal on primary care properties developed by ASH – we described the link last time) it seems that the possibility of another company taking over AHMP means that Ashley House cannot – for the moment – recognise the design and project management fees, and the development profit, on four properties that would, by now, have been transferred to AHMP. Neither does it feel that it is desirable- again for the moment - to continue with the close contractual relationship that it has had with AHMP.

For obvious reasons all businesses that supply the NHS are now experiencing something of a hiatus – waiting to see what the effect will be of the cuts which all insiders seem to expect even if the political parties deny they will happen. Ashley House has accordingly experienced delays agreeing some of its schemes (although only one small one, so far, might be cancelled). So that, together with the AHMP situation, has caused it to issue a c £1m profits warning (out of the £8m forecast by analysts) for the year just ended.

We explained last time why AHMP should not be affected nearly as much by any NHS cuts, and in any case has a large pipeline – which we believe that the possible bidding party – Primary Health Properties – badly needs in order to bolster its own flagging growth rate. Although we continue to believe that PHP will not want to stump up the true value of AHMP and its pipeline, it does seem odd that the situation has been allowed to drag on. Ashley House – at 47p - now looks very cheap, having promised to meet the expected 6p dividend (compared with the diminished 4p paid last year) that analysts are forecasting.

Berkeley Mineral (BMR 2.28p / £8.01m)

Since our March 30 comment, BMR has raised just over £1m via placings at 2p to progress planning and due diligence on its Kabwe zinc tailings project. With other shares issued to pay creditors, it now has £0.4m of positive net assets to meet a cash burn through the next six months or so, before the major fund raising which will be needed to fund the start-up. Hopefully some of this will be project financed, and observers seem to think will be limited to some £5m of equity. With metal in the dumps valued, apparently, at over £200m, there should be plenty of margin for a profit after recovery costs on the 352m shares now in issue. But Credit Suisse – whose bullish report on the zinc price BMR has highlighted – seems to have made a quick turn on the 17m shares (about 1/3rd of the placings on our estimates) that it apparently took.

Bioventix (BVX 195p / £9.85m)

Bioventix which listed on PLUS in April is a small biotech company – with a difference. Unlike many of its peers still struggling to fund their unproven drug developments pipelines, it is already earning a healthy amount of cash, and is promising to pay a generous dividend. Its £9.85m market cap ought therefore to have been fairly easy to set - or not – because other companies in the same field are on ratings sky-high compared with BVX’s 15 times (at 195p). Abcam (AIM: ABC) like Bioventix, operates in the field of antibodies – one of the more glamorous sectors of medical drugs – and its shares, having risen four-fold in 21 months, are now on a 70 times historic PER. BVX is a manufacturer and developer, so does not have scope to grow as fast as Abcam, which is a web based distributor of the products of many manufacturers and is rapidly expanding its catalogue. But Abcam’s rating goes to show how much investors like the sector – which in turn reflects the hectic merger and acquisitions activity among life sciences companies in recent years.

Bioventix though, more than doubled its pre-tax profits in 2009, reflecting transition from development into full scale production of its specialised sheep monoclonal antibodies, which have advantages over the more widely used mouse antibodies for some types of disease testing. Now that supply of these for use in the hospital mass blood testing machines of companies like Roche and Siemens is in full swing, Bioventix does not expect another such profits surge until a new pipeline is delivered in perhaps three years time, and this year profits might be a tad down after listing costs.

BVX declared a 4p dividend in respect of the half-year prior to listing, so may not be a guide to what will be paid. However, cash generation around 13p per share in 2009, and 29p of net cash per share in the latest balance sheet, might give a clue.

Clean Air Power (LON:CAP) (20p / £11.2m)

Clean Air Power has secured a purchase order from a leading global manufacturer of construction equipment to deliver a Due-Fuel Snow-Blower demonstrator, to be delivered to Stockholm airport. This is a good contract win which should help power up the share price.

Crimson Tide Plc (LON:TIDE) (1.12p / £3.75m)

Crimson Tide, the service provider of mobile data and software solutions for business, has launched its first Own Branded advanced software product designed for use in facilities management. The product, mpro3fx, is to be rolled out for facilities management at one of the country's leading supermarket chains. Field trials are also being negotiated for the management and maintenance of over 5,000 ATM machines throughout the UK. This is an exciting development which we hope will turn the tide for this micro-cap.

Herencia Resources (LON:HER) (0.78p /£7.45m)

Herencia has announced another assay result from its new drilling programme at the Paguanta zinc-lead-silver project in northern Chile. Results from a further four holes confirm that there is an extension to the high grade Cathedral vein at depth and strike. As we mentioned last time, gold assay results are also being returned in addition to high grade zinc, lead and silver. The current resource estimate does not take into account any gold mineralisation.

The good results shown so far have encouraged the company and its JV partner Nyrstar to undertake another 2,000m of diamond drilling at Paguanta in addition to the 3,500m in the original plan. The additional drilling is to further evaluate the new vein along strike and down dip and would hopefully add to the mineral resource estimate which is now expected by early September. With the additional work undertaken, the drill programme should finish by late June and the final assay results are expected to be returned by the end of July. This schedule should allow Herencia to move to a Feasibility Study phase in the fourth quarter of 2010.

Ipoint-Media Plc (LON:IPNT) (2.75p / £4.14m)

Ipoint, gave a profits warning last week. Revenues to June 2010 will be below expectations and the company will record a loss. This is the result of slippage relating to several tenders submitted in conjunction with Ericsson. The company expects these tenders to be delayed to H2 and cites a slowdown in the telecoms market. Financing is a concern and the company is talking to its largest shareholder Nisko Projects Electronics & Communications on extending its guarantee of the $1.79m loan from United Mizrahi Bank and is examining its financing options. This stock has offered investors nothing but disappointment and I’d point my money elsewhere.

Lidco Group (LON:LID) (23.25p / £40.44m)

LiDCO is a medical devices company supplying minimally invasive haemodynamic monitoring equipment and related disposables to hospitals. The products are used in intensive and critical care units and also in the much larger market of high-risk surgical theatres.

Scientific evidence is increasingly linking the management of patients’ haemodynamic status with improved outcomes and reduced hospital stays. As hospitals seek to improve efficiency through reducing costly surgery complications, the demand for minimally invasive monitoring products is expected to grow. In this regard, LiDCO has been selected as the sole technology for two multi-centre government-funded studies in the UK and US – respectively for optimizing cardiovascular management in high-risk abdominal surgery patients and for transplantation donor organ optimization.

Hospitals are increasingly focusing on efficiencies and improving the quality of care rather than increasing the number of surgeries undertaken. This is evidenced in the UK by the new national program, QIPP (Quality, Innovation, Productivity and Prevention) and in the US where Medicare is no longer prepared to pay hospitals for treatment of catheter and surgery related complications and infections.

LiDCO recently released its preliminary results for the year to 31 January 2010 highlighting an 18 per cent growth in top-line revenue to £5.37m, incorporating a 22 per cent rise in recurring (disposables) revenue to £3.13m and a reduced operating loss of £1.54m (2008/9: £1.80m). The balance sheet was strengthened through a £3m share issue during the period, eliminating borrowings and leaving the yearend cash balance at £1.85m (2008/9: £0.49m).

2009/10 was the first full year of sales from LiDCOrapid - which was responsible for the acceleration in number of monitors sold and placed in the period to 565 units (2008/9: 326 units). This new cardiac monitor is designed specifically for use in operating theatres for fluid and drug management during high-risk surgical procedures – a market that is worth in the region of US$800m per annum LiDCOrapid enables acute-care physicians to obtain accurate and immediate feedback on a patient’s fluid and haemodynamic status and is considerably less invasive than the older Pulmonary Artery Catheters, thereby leading to a significant reduction in associated complications, infections, length of stay and therefore overall costs of care.

The number of new monitors placed each year is on an accelerating trend – from 112 in the year to 31 January 2007 followed by 149, 326, and 565 in each of the subsequent years – resulting in an installed base of 2,075. The ratio of disposable units sold to the previous year’s installed monitor base has remained relatively static at just over 25 units per monitor and would indicate a unit sales volume for the current year of c. 52,000. Assuming a sales price of £82/unit (the average over the last 4 years is £82.9 with £82.6 for the last financial year) would indicate disposable revenues increasing to £4.26m this year from £3.13m.

In 2009 LiDCO partnered with two major global medical technology groups to penetrate the large markets of the US and Japan – with Covidien and Becton Dickinson respectively – through distribution licenses, that generated up-front agreement fees of £940,000. Sales in the USA doubled across the period and are expected to grow substantially during 2010, and Becton Dickinson is anticipated to achieve sales in Japan from 2011. Further, the new arrangement with Covidien (which is believed to have the largest monitoring equipment sales force in the US) enabled distribution costs to be reduced by c. £650,000 per annum.

The share price had a very strong performance during 2009, but only recovered to the approximate levels of 2005 and 2006. Taking account of the above information, we are not surprised that the Company is talking about achieving maiden profits in the current financial year. This is certainly a stock that could get the heart racing…

Minco (LON:MIO) (4.625p / £13.81m)

Minco’s 39.7 per cent associate Xtierra (TSX, XAG) will begin a drilling program at Bilbao next week. This will comprise around 5,000 metres of drilling from about 40 holes. The programme is aimed at shoring up data, upgrading categorisation and potentially extending resources as part of the feasibility process and mine plan and will seek to delineate areas of higher silver grades. The programme will comprise step-out, in-fill, exploration drilling and condemnation drilling (in area outlined for process plant). While Xtierra is no longer directly controlled by Minco the property still looks attractive and potentially much undervalued leaving the stock at a MINimum COst.

Sareum Hldgs Plc (LON:SAR) (0.285p / £3.35m) *

AIM listed specialist cancer drug discovery business; last week announced that Dr Tim Mitchell, CEO, was presenting Sareum's Chk1 kinase cancer research programme and SKIL technology platform (SKIL) at the Bio Industry Organisation International Convention. SKIL (Sareum Kinase Inhibitor Library) is Sareum's drug discovery technology platform that has so far produced the Company's Aurora, VEGFR-3 and FLT3 cancer and auto-immune disease research programmes. SKIL has the potential to generate drug research programmes that target many other kinase types. Sareum's Chk1 kinase cancer research programme is a joint research collaboration with The Institute of Cancer Research and Cancer Research Technology Limited. Novel chemical compounds developed by the collaboration have been shown to increase the effectiveness of current cancer therapeutics in in-vivo cancer models. Major pharmaceuticals groups have a well-known need to build their cancer drug pipelines and to bring drugs to market quickly. We believe Sareum can be expected to react positively to any good news, particularly were the company to sign a deal.

Scancell Holdings (SCLP 49.5p / £7.86m)

PLUS quoted developer of therapeutic cancer vaccines last week announced that its proposal to conduct a Phase I clinical trial on SCIB1, its DNA ImmunoBody vaccine being developed for the treatment of melanoma, has been approved by the Gene Therapy Advisory Committee (GTAC) and by the Medicines and Healthcare products Regulatory Agency (MHRA) Medicines Division. In addition, Scancell’s partner Ichor Medical Systems has obtained the required parallel approval from the MHRA Devices Division for the use of Ichor’s TriGrid electroporation delivery device to administer SCIB1 to patients participating in the trial of SCIB1.

SCIB1 is a novel DNA ImmunoBody vaccine being developed using Scancell’s patented ImmunoBody technology for the treatment of melanoma. ImmunoBody vaccines generate the high-avidity T-cells that kill cancer cells, which may overcome the current limitations of most cancer vaccines. In vivo electroporation is widely regarded as an effective method of enhancing the potency of DNA vaccines by up to 100-fold compared to conventional methods of delivery. Scancell is confident that TriGrid will provide the most effective delivery system for its SCIB1 melanoma vaccine as it enters clinical trials.

Scancell is in a strong cash position and we like the approach in the cancer vaccines space and technology platform companies in general. One to keep scanning the news on.

Spaceandpeople (LON:SAL) (70p / £8.14m)

There can’t be many businesses operating in retail and advertising that have sailed through the consumer recession if not unscathed, at least in good shape. Glasgow based Space and People) – listed since December 2004 – in 2000 had the bright idea of bringing together more efficiently the owners of all that free space in shopping malls, rail stations, and exhibition venues, and the advertisers and retailers whose promotional display stands seek to attract the attention passers-by. Prior to SAL’s arrival, those property owners tried to sell such space, if at all, on their own. But SAL has persuaded the owners of over 310 such ‘venues’ (up from 122 in 2004, and 23 per cent of them since 2006 in Germany and France) to delegate to them the marketing of all their free space to advertisers and retailers. In a recession, these tend to concentrate their advertising spend on the ‘bottom line ‘- i.e. closer to ‘point of sale’ than through the press and TV – and with recession-hit property owners looking to supplement their income, SAL is sitting neatly in between.

With no premises or stock to service, the business is a pure cash generator – which has enabled SAL both to quadruple its dividend in four years and to expand its idea into Germany and France and, more recently into Hong Kong and India. Balance Sheet cash at the latest October 2009 year end amounted to £1.34m (18 per cent of the market cap) so it is intriguing that SAL is not using that cash to help fund its just announced acquisition of Retail Profile Ltd, who operates ‘retail merchandising units’ (RMU’s) also in the same shopping malls but who is also expanding rapidly throughout Russia.

RPL is costing £6.3m in shares and loan notes, with a £1.1m cash element which SAL is raising through a placing at 62p. That will increase shares in issue by 61 per cent and improve their liquidity, a drawback which - with management and backers holding about 2/3rds - until now has caused the company to adopt something of a low profile. With SAL expecting RPL to be earnings enhancing (even though – more directly exposed as it is to retailing itself - it generates less than half SAL’s 24 per cent margin) and with the management believing that the synergies RPL will bring will ‘accelerate further growth’, we think SAL is one to keep an eye on, even though the PER – at a historic 22 times - might be just a little high for current markets. A 5.7 per cent dividend yield is not to be sneezed at however.

Summit Corp Plc (LON:SUMM) (4.75p / £7.9m)*

Summit announced their preliminary results for the year ended 31st January 2010.

The exciting news is that Summit’s DMD drug (that is partnered by Biomarin Pharmaceuticals who are conducting the Phase I clinical trials) is now expected to have initial results from this trial in Q2 2010. This means there could be significant news flow within the next few weeks. The DMD drug could potentially be a first as a disease modifying medicine where there is huge demand from the patient population for this debilitating disease that affects children. If the trial results are positive, Summit expect that Biomarin would commence a Phase II patient trial in Q1 2011.

The Summit business model of partner funding for their drug candidates is demonstrated again working well for the compound against C. difficile which is funded by the Wellcome Trust meaning no further cost to Summit.

Additionally Summit’s immunosugar platform, SeglinTM Technology, continues to deliver, with active Seglins identified against a number of major disease areas, including diabetes and Hepatitis C.

From a business administration point of view Summit have reduced their cash spend by 70 per cent by getting rid of non-core businesses and cutting headcount and the Board and executive management took pay cuts of between 20-55 per cent, a clear demonstration of their belief in the business. Alongside the £5.4m raised in December 2009, this means the business is well funded out to end of December 2011. By which time we would expect them to have announced milestone payments from existing deals or possibly new ones.

It is a wonder that the share price has moved so little consider the position of strength Summit now occupies. A strong buy!

Synairgen (LON:SNG) (23.5p / £14.04m)

Respiratory drug discovery and development company with a particular focus on viral defence in asthma and chronic obstructive pulmonary disease, last week had two announcements. First that it had started its first Phase II study of inhaled interferon beta for the treatment of exacerbations of asthma caused by respiratory viruses including influenza. The Phase II study, known as SG005, uses the Company's exclusively in-licensed formulation of inhaled IFN-beta (SNG001) and aims to assess the efficacy and safety of inhaled SNG001 compared to placebo administered to asthmatic subjects after the onset of respiratory viral infection for the prevention or attenuation of asthma symptoms caused by respiratory viruses. Following on from the announcement in November 2009 that SNG001 significantly reduced the ability of influenza to infect lung cells, the SG005 study has now been broadened to include patients who contract influenza as well as common cold viruses. The SG005 study is being conducted at a number of clinical trial sites in the United Kingdom. The first volunteers were entered into the study on 31 March and the trial is expected to be completed during the summer of 2011.

Second, Synairgen announced that the patent for inhaled interferon beta to treat rhinovirus infections in asthma and COPD has been granted in Europe. Richard Marsden, CEO of Synairgen, commented, "The European patent grant and the US patent granted last year are key ingredients in the out-licensing package."

We last wrote on Synairgen in September and since then its share has gone up nearly 30 per cent. Synairgen compounds are potentially going into truly enormous markets. There are around 23m asthmatics in the US and the cost of emergency department visits and inpatient care in relation to asthma in the US is $4.7bn. COPD includes chronic bronchitis and emphysema and the economic cost to the US of COPD is a whopping $42.6bn a year. Synairgen is aiming to tackle the cold and flu viruses that make asthmatics and COPD sufferers’ lives particularly miserable and which cost health systems a huge amount. Adults get an average of two to four colds per year, young children suffer from an average of six to eight colds per year, and these often rhinovirus infections are the major cause of asthma exacerbations, accounting for 50-80 per cent of all such attacks in both children and adults. We don’t think that this one will catch a cold anytime soon.

*A corporate client of Hybridan LLP

A full archive of previous week’s Small Cap Wraps can now be viewed on www.hybridan.com

The Hybridan Small Cap Wrap is a weekly review of some of the most interesting small cap stories of the past week. Our review will usually be of those companies whose market capitalisations are less than £50m although we may occasionally cover larger companies. Our review is not intended to constitute research and is not to be taken as investment advice.