Hybridan Small Cap Wrap featuring SpiriTel, Transense, Seeing Machines, Angel Biotech, Faroe Petroleum & Clean Air Power

This week: SpiriTel is expanding, Transense is on message and  Seeing Machines soars.

Angel Biotechnology Holdings (ABH 0.28p / £4.17m)*

We made reference to several announcements in last week’s Small Cap Wrap that biopharmaceutical contract manufacturer made and last week, it also announced the signing of a contract with Progenteq Limited, a Fusion IP spin-out company from Cardiff University.  Progenteq is developing a novel cell therapy for the treatment of acute knee injuries.  Under the contract, Angel will provide consultancy and development services for Progenteq's novel cartilage replacement therapy. We also note that Angel is closely linked to ReNeuron, one of its clients, who last week also had good news that it had received final regulatory approval to commence a landmark stroke clinical trial in the UK, which given that Angel manufactures product for this trial, is good news all round.

Angel Biotechnology Holdings is a biomanufacturing company offering process development services, GMP manufacturing for advanced biologics and regulatory support including preparation of dossiers for regulatory submissions. Angel specializes in the provision of advanced biologics including autologous and allogeneic cell therapy products including stem cells and cellular vaccines, specific purified natural and recombinant proteins and bacteriophage. We understand that this is the most licensed facility in the UK, and that the Company has a good spread of clients, with no particular one that dominates, amongst them ReNeuron, the UK’s leader in stem cell research and Materia Medica, Russia’s 6th largest Pharma Company, with whom it has contracted work of £4m in manufacturing over three separate contracts and has recently signed an umbrella frame agreement and the first contract under that in non-manufacturing for £110,000. We expect further announcements under this agreement and with other clients now that Angel has the capacity to take on the work. Expect several more pieces of news before Easter about contract wins.

Clean Air Power (CAP 23.5p / £13.25m)

Clean Air Power, which develops and commercialises Dual-Fuel technologies for heavy vehicles, has entered into a concept development agreement program for the North American market with Navistar, Inc, an American producer of diesel engines, brand commercial and military trucks, buses, brand RVs, motor homes and step vans.

The intention is to use Clean Air Power’s unique technology to develop an innovative natural gas/diesel engine able to meet the North American customers weight and performance requirements and to achieve the US Environmental Protection Agency (EPA) 2010 emissions standards, which will bring significant reductions in NOx, particulate matter and CO2 emissions as well as generating fuel cost savings for the operators.

Clean Air Power will spend approximately $1.5m on developing the concept and it will apply, along with Navistar Inc, for US grant funding to fund the production. 

With continued economic and environmental concerns, the rise of the oil price and the wide availability of Natural/Bio gas we see further growth in CAP.

Energybuild (EBG 15.5p/ 38.53m)

The Welsh coal producer announced it’s interim results for the 6 months ending 31st December 2009.  Energybuild’s coal is sold to the local Aberthaw power station and wholesale and retail coal markets. 

Numbers were disappointing with gross profit of £224,000 (2008: £1.7m profit) leading to a net loss of £99,000 (2008: £841,000 profit).  However Energybuild has a strong cash position thanks to a recent fundraise in December when£14.5m was raised for the next phase of the development programme leaving a cash balance of £8.3m with no debt at the period end.  As further validation, Western Coal Corp, a significant shareholder also came into the placing and increased their stake to 54.7 per cent of the Energybuild Group.

On the more positive side, the new opencast site at Nant y Mynydd finally moved into production in the middle of December 2009 after a 10 month delay, and is on schedule to produce105,000 tonnes per annum by 2011.

We believe Energybuild now has the resources in place to hit their target of production of 750,000 tonnes of high quality anthracite by 2013 and the recent dip in the share price could be a opportunity.

Eco City Vehicles (ECV 6.5p / £19.63m)

Eco City has launched an all electric prototype of the London-licensed Mercedes Vito taxi (Vito), the zero-emissions, lithium-ion battery vehicle, co-developed and  distributed exclusively by the Group. Controlled trials to confirm eVito's suitability for road usage as a London licensed taxi will be carried out later this year. The electric taxi is powered by Zytek's 70kW electric powertrain and is expected to exceed a total range of 120 miles in a typical mixed drive cycle on a single charge.  If the Mayor of London's proposed new clean air standards for London taxis are introduced for the London Olympics demand could surge… but then we’ve been here before with ideas for environmentally friendly transport that never quite seem to leave the taxi rank. Hope the meter’s not running.

Faroe Petroleum (FPM 131.50p / £134.60m)

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 drilling has commenced on the Fogelberg prospect (Faroe 15 per cent), located in the Norwegian Sea. Partners in the well are Centrica Resources Norge AS (operator 28 per cent), Petro-Canada Norge AS, (30 per cent) E.ON Ruhrgas Norge AS (15 per cent) and North Energy AS (12 per cent). The drilling operation, to be undertaken by the operator Centrica using the West Alpha semi-submersible drilling rig, is expected to take approximately 80 days.

Faroe was awarded this licence in 2007, as one of its first Norway licences, and one of several licences identified and won on the basis of Faroe's own original technical work. Fogelberg is the first of two wells scheduled for the Norwegian Sea this year. The second is the Wintershall operated Maria appraisal well (Faroe 30 per cent) which is expected to commence in the second quarter. 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,Fogelberg being the first. 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.

Frontier IP Group (FIPP 0.95p / £4.72m)

PLUS quoted Frontier IP, which specialises in the commercialisation of university intellectual property, announced that portfolio company, Rapid Quality Systems Limited ("RQS"), a spin-out the University of Dundee, has launched its first software product, CodeRocket. CodeRocket is a software tool which simplifies and supports the design of software systems.  Developed at the Space Technology Centre at the University of Dundee, the software product represents a market-leading innovation, providing software developers with the facility to speed up software development, enhance productivity and significantly improve design documentation. Frontier IP received its equity stake in RQS as a result of its partnership agreement with the University of Dundee and the equity stake is its third with the University of Dundee, with which it has a 10-year partnership contract. We particularly like Frontier’s model of providing commercialisation support in return for equity in spin-out companies and expect more newsflow in the coming months to support the upwards trending share price. 

LMS Capital (LMS 51.5p/£139.05m)

LMS Capital plc announced that Glenn Payne is to be appointed Chief Executive and that Robert Rayne, the current Chief Executive will succeed Jonathan Agnew as Chairman. Payne is currently a Director of First Reserve Corporation, a leading investment firm specialising in the energy industry and previously was the Director of Strategy for Suez Energy, a major global electricity and gas provider. He also worked at McKinsey & Co. as an Engagement Manager serving electric power and natural gas clients. Before joining McKinsey, he was at the Atlantic Richfield Company (ARCO, now BP), where he served as a Director of Business Development. LMS trades at a discount of about 41 per cent to the last reported NAV and so we’re hoping that concerns over succession can now be laid to rest and the discount narrowed to something more sensible.

Lotus Resources (LOTP 2.5p / £1.61m)

The Plus Markets quoted mining company with assets in Mongolia announced that it has completed a £600,000 fundraising; £100,000 through the issue of 4,694,835 ordinary shares at 2.13p per share with a further £500,000 raised via a convertible secured loan note.

The funds will be used to continue the expansion of the company which after the last acquisition in December 2009 is actively looking to add further licences and to acquire producing assets. Lotus Resources is expected to be profitable in 2010 which would be a considerable achievement and a valuation enhancing milestone.

Milestone Group (MSG 1.7p / £1.74m)*

AIM listed provider of digital media solutions and technology, last week announced that it has been appointed by Music Monk to design and develop a new innovative iPhone Application aimed at live music and event goers around the world. Music Monk is a global club and music events/venues directory which offers promotional services and information for music events/venues in real time. The Music Monk team is a highly experienced group of entertainment industry professionals with a particular focus within the club and promotion industry. Music Monk is focused on providing a solution to delivering key functionality to every part of the music entertainment sector and in order to help them achieve a scalable creative platform, Milestone will also be developing a Web application and advising on other aspects of digital marketing and online/mobile services for Music Monk.

The Company has a clear strategy of actively growing a portfolio of controlling and non-controlling stakes in digital technology, content or service companies. MSG is now firmly focused on generating revenue to help support the business expansion and we believe that this stock is also well worth a look now that the turnaround is complete, that there are three focused business units and that we expect to see perhaps further deals for interesting technology going forwards.

Motive Television (MTV 0.7p / £3.26m)*

Trading was restored in media Company Motive TV last week and at the same time it announced that it has raised £400,000, with institutional and retail investors, at 0.2p per share. The net cash proceeds will be used by the Company to continue the marketing and development of its digital terrestrial technology business previously announced in July 2009. Michael Pilsworth, Executive Chairman of the Company, has subscribed £8,000 and in addition, the Company announces that certain Directors have agreed to capitalise deferred salary payments amounting to a total of £18,000 by subscribing for new shares at the Subscription Price. On top of this cash influx, we also understand Motive is selling Brown Eyed Boy Ltd, one of its TV production companies. This clearly leaves the Company well capitalised, and it is a positive signal that Directors are participating and also converting debt owed to them into stock.

This cash enables Motive to continue the step change from being a TV content production company to move to being a Digital Terrestrial Television (DTT) Company with its Adecq deal, a Spanish media company, for whom it will distribute its BesTV DTT technology. This technology allows DTT broadcasters to transmit programmes using existing signals to a DTT set-top box, enhancing their content offering and also offering video-on-demand, and catch-up TV. Motive has global rights, ex Spain and Italy to this product. We think it likely that Motive will focus at the outset on the Central and Eastern European markets and on the US, which is a good thing as there is already competition focused on the Western European markets for instance.

This is great news for Motive TV and good to see it up and running, clearly the market agrees with the share price up more than three times the subscription price.

Patsystems (PTS 23p / £42.16m)

AIM listed Patsystems, which provides tailored software solutions to enhance derivatives trading performance and trade processing, has announced very strong 2009 results.

Patsystems, despite the economic downturn and the loss of a major client (Lehman Brothers), demonstrated a strong performance during 2009 delivering a solid profit increase (net profit of £3.36m, £0.62m 2008), excellent cash generation (the cash balance ended at £8.9m, 2008: £5.9m) and sales growth. Thanks to these excellent results it has proposed a dividend increase of 16 per cent from the 2008 0.36p per share to 0.42p per share.

After the 2009 results announcement the share price, which has been quite steady in the last year, increased by about 5 per cent and it is possible it will continuing this trend. The Company’s adjusted diluted EPS rose by 4.7 per cent.

For this cash generative software company 2010  started strongly with new opportunities coming in Indonesia, Malaysia, Brazil and Korea.

Sarantel Group (SLG 2.125p/£6.55m)

Sarantel, the company that makes high-performance, miniature antennas for portable wireless devices, has announced its preliminary results for the year ended 30 September 2009.  It confirmed earlier reports that revenues grew by more than 50 per cent despite challenging economic conditions as a result of the company’s strategy of focusing on the high-margin niche markets.  Sarantel has won and continues to win a number of design opportunities and the company’s GPS solutions are being deployed in a much broader range of applications.

As gross margins improved to 43 per cent  and operating costs were reduced by 14 per cent, EBITDA was reduced to a loss of £1.9 million compared to a loss of £2.8 million in the previous year.  The company states that it has good visibility of many opportunities both in the mass-market GPS and the high-value markets.  We share the company’s positive outlook and remain confident that their strategy will deliver continued progress.

Seeing Machines (SEE 2p / £6.24m)

The AIM listed developer of advanced computer-based imaging software systems announced last week that it has concluded a Master Purchasing Agreement with Freeport McMoRan Copper and Gold Inc.  The MPA is a corporate level agreement establishing the master terms and conditions for the supply of the DSS product suite to Freeport's group of operating companies. Freeport is a global mining company with copper, gold and molybdenum operations across multiple continents. This first resource industry deal follows the successful completion of a short DSS pilot at one of Freeport's copper mines in the USA. Nick Cerneaz, CEO of Seeing Machines commented: "The intended deployment of DSS will be undertaken on a mine by mine basis and it is anticipated that the first new installations will be completed within this financial year…With a number of DSS pilots currently underway with other mining/resource companies, we are enthusiastic about the future success of the DSS."

The market reacted well to the great news, up over 20% on the day it was announced. Looking at the screens, we anticipate further buying interest and this should move the price up accordingly. During the last financial year, the company restructured and we believe could potentially have a number of good announcements to come in terms of client wins.  

Sigma Capital Group (SGM 14.25p/£6.67m)

Sigma, the specialist asset management and advisory group, announced that two of its portfolio companies have been identified as amongst six of the most promising technology companies in the marine energy sector by the Carbon Trust.   Aquamarine Power and Pelamis Wave Power have been selected by the Carbon Trust, which was set up by the UK Government as an independent, not-for-profit company to lead the low carbon technology drive, to receive a combined total of GBP9.9m from the Marine Renewables Proving Fund, a £22m fund set up by the UK Government Department of Energy and Climate Change and managed by the Carbon Trust. Marine energy has been identified as an important growth industry in the UK and the MRPF has been set up in order to assist the most promising technologies. Aquamarine Power, which has developed an innovative hydro-electric wave energy converter, will receive £5.1m and Pelamis Wave Power, which has developed the first commercial scale machine to convert wave energy into electricity, will receive £4.8m to support the ongoing commercialisation and early deployment of their technologies. Wave to go, Sigma.

SpiriTel (STP  62.5p / £11.06m)           

Spiritel has announced a further acquisition, acquiring London base Mobotel Management, which provides converged mobility services to corporate customers in the legal and financial services sectors. £1.15m is payable in cash on completion with up to a £1.0m performance related earn-out if vigorous growth targets are achieved over the coming two years. Based on the current performance, no earn-out would be payable.   The vendor of Mobotel will also receive a payment of £1.0m from Mobotel's cash deposits at completion. In the year ended 31 December 2009, Mobotel had net assets of c. £1.0m including a cash balance of c. £1.25m. For the year ended 31 March 2009, Mobotel reported revenues of £2.1m and PBT of £0.3m. The deal looks attractive as the group is paying a mere 3.8x historic PBT for the acquisition, assuming no earn-out, and excluding significant synergies we expect it to generate. Management believe the acquisition is immediately earnings enhancing. Whilst sometimes it’s not the destination (which we can see) it’s the travelling – this particular journey continues to leave the market unmoved. Why so we ask?

Synchronica  (SYNC 2.875p / 16.60m)

Last week Synchronica had the global launch of their MessagePhones.  These phones have been developed specifically for Emerging markets.  They offer push email, calendar and contact synchronisation, instant messaging, web access and are designed to become the main internet device for those who don’t have regular access to a PC, as well as MP3 and built in FM radio and camera on a large colour LCD screen.  These phones offer similar functionality to the Smartphones we are all familiar with and yet they are offered at around a retail price of $99, a fraction of the cost of a Smartphone.

MessagePhones, with their comprehensive and affordable mobile messaging and internet, are aimed at entrepreneurs and the growing middle classes across Africa, Latin America, Eastern Europe and South-East Asia.

Operators in the local area can white label the MessagePhone, and by offering all these additional services to the basic voice service, can create stronger brand loyalty and reducing churn, something which is a real problem for operators in Africa.

Having seen the actual phones for the first time, we were impressed with the capabilities of it and think this could be a great time to invest in Synchronica, before a significant uptick in the share price.

Transense Technologies (TRT 8.5p / £6.25m)

AIM listed technology transfer company last week announced that its subsidiary, Translogik RFID Limited, has signed an exclusive global distribution agreement (excluding China) with Qingdao Mesnac Co. Ltd. for its range of RFID (Radio Frequency Identification) products, including its RFID tag.  The tag has been developed to be embedded within the tyre during the manufacturing process, where it will last the lifetime of the tyre, or alternatively in a patch which attaches to the tyre wall, as an aftermarket solution.

Graham Storey, CEO of Transense said, "The potential tyre RFID market is currently estimated to be in the region of 1.2 billion units per annum. We have the first commercially available, independent (non-OEM) RFID tyre tag available to OEM's, fleets and service providers. The tag has undergone a rigorous and extensive testing process during the past 18 months, in both truck and car tyres, and has proven to be exceptionally robust, meeting all quality expectations. This agreement adds another complementary technology to our existing product portfolio, allowing us to meet the developing demands of our existing customers and the wider automotive asset management market.”

Graham goes on to explain the economic benefit of Transense’s tags: “There are several compelling reasons for a tyre manufacturer or fleet owner to fit an RFID tag into their tyres; recent price increases mean that tyres now represent their second highest maintenance cost behind fuel, as a consequence managing tyre assets is enormously important in maintaining profitability. RFID allows for accurate, real-time management of tyre assets and when combined with the Translogik range of fleet inspection tools, provides our customers with a total end-to-end tyre management solution to monitor tyre pressure, tyre temperature, tread depth, and now with the use of RFID, full tyre tracking to prevent counterfeiting and tyre theft, a significant problem for truck and bus fleets, and car rental companies worldwide".

Translogik RFID Limited is a provider of innovative RFID (Radio Frequency Identification) based technology solutions for Data Capture and Asset Management to the Commercial vehicle and Industrial markets. It is a wholly owned subsidiary of Transense Technologies PLC. It is the first time we write on Transense, which develops Surface Acoustic Wave (SAW), wireless, batteryless, sensor systems in partnership with its licensees and partners, Honeywell, Melexis, Michelin, Sengenuity, Stack, Tai-Saw, Texas Instruments, SCHOTT, McLaren Electronic Systems and Carbon Motors. Current applications include Tyre Pressure Monitoring Systems (TPMS) and torque systems for Electrical Power Assisted Steering (EPAS) and driveline management. Transense is in a tough market dealing with the automotive industry, but we expect that with the number of partnerships in place, that Transense should be a stock with an increasing amount of news flow in 2010 as it moves towards 2011 profitability.

Worship Street Investments Limited (WSIP 2p / £1.42m)

PLUS quoted Investment Company Worship Street last week announced three investments. One in the PLUS quoted company, Mechan Controls Plc. Based in Skelmersdale, Lancashire, Mechan Controls PLC is a designer and manufacturer of electronic non-contact safety switches for use in a wide range of industrial sectors. The company has access to a £100 million per annum global market and under the current management team, has an unbroken record of revenue growth since 2001 and has been consistently profitable. The company started paying a dividend in 2003 and this too has steadily grown. Worship Street acquired 25,000 shares at 130p representing 1.25 per cent of the issued share capital of Mechan.

The second and third investments last week were in Conduco Plc and English Wines Group. WSI has acquired 237,000 shares in Conduco Plc at a price of 8.5p per share, representing 1.89 per cent of the total issued share capital of Conduco Plc. Conduco plc is a software development company based in Manchester, and its background is in developing password management and location software for the UK National Health Service. Today, Conduco operates within both public and private sectors, developing leading edge solutions focused in Realtime Locating Systems, Password Management and Corporate Communications. Following this acquisition, WSI now holds 1,000,000 shares in Conduco representing 8 per cent of the issued share capital.

WSI has also acquired 82,500 shares in English Wines Group Plc at a price of 14.5p per share, representing 0.19 per cent of the total issued share capital of English Wines. Worship Street also holds GBP100,000 worth of convertible Loan Notes, paying an 8 per cent coupon, in English Wines Group Plc as part of the placing announced by English Wines on 5th June 2009.

We write on Worship Street Investments for the first time. The Company's strategy is to make investments in securities including the acquisition of debt or equity, in PLUS quoted companies. The Company may also make investments in companies that the Board feels represent good value by taking equity positions in the secondary market. The objective of the Company will be to deliver long-term capital returns by investing in what the Directors believe to be undervalued companies. The Company will aim to spread risk by investing in a range of such investments. The Company's investment strategy is intended to be a generalist one with no specific sector, national or regional bias.