Hybridan Smallcap Wrap 7th Dec 2009 featuring Intelligent Environment, Plant Impact and Ipoint-Media

This week: A setback for Intelligent Environment, growth prospects for Plant Impact and iPoint-Media misses the point

BGlobal Plc (BGBL 51p/£40.13m)

Smart meter provider, Bglobal, reported its interims to 30 September 2009 with revenues up 116 per cent to £5.8m (H109: £2.7m) driven by an increase in meter installations and that gross margins increased by 7.2 per cent to 33.5 per cent driven by economies of scale and increased operational efficiency. Pre-tax losses were reduced to £0.67m (H109: £2.0m) but significantly the company was able to report that it was generating cash at the operating level from September. Net cash stood at £2.4m at the end of November 2009 following a placing to raise £2.25m in November.

Nick Kennedy impressed us in his debut role as the company?s new CFO with his focus on cash and working capital management and he was particularly proud of his working capital efficiency gains which managed to generate net cash in the period of £450,000 notwithstanding the headline loss. On the trading side the group has won significant new customers including Gazprom, which is making a concerted push to break into the UK energy market by offering an all smart metered solution for business users and it seems there is strong business demand elsewhere for the smart meters with an increasing order book.

The company also looks to be well positioned to take advantage of the take up of smart meters in the residential market with a “future proof” meter that should meet the regulatory requirements when published over the next 18-24 months. The market continues to forecast 2011 pre-tax profit of £4.5m and EPS of 5.7p, which puts it on 9x earnings which looks very attractive in our view given the market potential and operational and financial efficiencies now in place. Smart one, guys.

Geong International (GNG 41.5p/£15.7m)

We write for the first time on this China based provider of enterprise content management (ECM) software and solutions, which last week announced its unaudited interim results for the six month period ended 30 September 2009. Revenue was up 26 per cent to £6.5m (H1 FY2009: £5.2m) and net profit was up 137 per cent to £0.84m (H1 FY2009: £0.36m). The net cash position (prior to fund raising of £2.2m gross in September) at 30 September 2009 was £2.4m and the current order book stands at £14.0m (H1 FY2009: £12.9m). During the period, ten new clients were secured within the Information as a Service (IaaS) model, including Qilu Bank, Shangdong Rural Bank Alliance, Dongfeng NISSAN, and China Central Television, and seven new clients secured using the Software as a Service (SaaS) model including Xinhua Insurance, Guangdong Development Bank and EMC.

At an analyst meeting which Hybridan attended, we were party to much talk about a new strategy of „Go Deep and Broad? which was been implemented for the SaaS model, by this is meant delivering larger and longer term projects going forwards, which would ultimately improve the profit margins. Chief Executive, Wang Weidong said: “We foresee our full year results being in line with market forecasts”, which explains the jump in the share price during last week. In order to improve debtor days, Geong talked of increasing volumes of second tier banks and corporations, which would pay faster than the largest corporations with whom they have relationships currently. The CEO mentioned that the financial sector would remain important for them and that their automotive client business would pick up. Geong has ambitions to broaden out beyond China and aims to be the Asia Pacific leader in the ECM market, not just in China. We will continue to watch this one.

Herencia Resources (HER 0.61p/£5.17m)

In a project update Herencia announces that a new drilling programme has been designed for its Paguanta zinc-lead-silver project in northern Chile. Following the successful recent fund raise the company is now approaching drilling contractors with a view to commence drilling in February. If everything proceeds according to plan, Herencia should be in a position to publish an updated mineral resource estimate by mid-year and initiate a feasibility study in the second half of 2010.

Hightex Group Plc (HTIG 7.75p/£11.6m)

Hightex, the designer and installer of large membrane roofs and fac?ades worldwide, has announced a placing to raise £2.7m at 7p per share in order to strengthen the company?s balance sheet and provide working capital for future growth. The company has really started to motor this year with its strategic change focusing on large, high margin contracts and has posted a profit for the first time since flotation. The second half of this year has seen two significant high profile contract wins: these are the Warsaw and Kiev contracts, which have a combined value in the region of EUR32m. Market expectations are for a pre-tax profit of EUR2.6m next year with earnings per share 0.9p putting the company on a current rating of 8.6 times. A fair rating in our view but certainly one to buy on any weakness.

Intelligent Environments Group (IEN 9.75p/£15.85m)

In what is likely to be a temporary setback for the online software provider for financial services, Intelligent Environment has issued a profit warning as a customer has cancelled a significant order for the company?s NetFinance platform. This is due to the customer merging with another financial institution and putting all major projects on hold. Until Intelligent Environment reaches a certain level of orders and customers, the revenue will be volatile and events like this will be unduly noticeable. However, the company is able to offer attractive cost saving solutions to the financial services industry including non-financial customers such as retailers as well as traditional banks and savings institutions. We think the company?s transactional revenue model will turn out to be a successful strategy in the longer term.

Ipoint-Media Plc (IPNT 2.25p/£3.12m)

iPoint-Media which provides live interactive video applications and content delivery platforms for web and 3G mobile, has announced that a Chinese national MobileTV operator has selected its new product GOliveStudio for immediate deployment at the company?s workstations . The contract represents a few hundred thousand $ in revenue for iPoint for software licenses and services. However, this good news is outweighed by a profits warning that the company will report materially lower earnings and a pre-tax loss of around £0.5m because two major contract decisions have been delayed until 2010. While the fact that it is achieving traction from a leading Chinese National MobileTV company bodes well, it is at a delicate stage where it is heavily exposed to one or two major contracts. Not surprisingly, the shares have come off strongly down 35 per cent to 2.25p against the offer price of 4p under the company?s open offer of this summer when it raised £1m. As this company has missed every forecast since its IPO five years ago last week?s news was not the greatest surprise in small cap land. The wonder is that this summer?s investors seemed to have missed this point.

Offshore Hydocarbon Mapping Plc (OHM 7p/£4.87m)

We write for the second time and the second week running on this provider of remote electromagnetic offshore oil and gas sensing services, which last week announced that it has been awarded one of its largest rock physics and seismic inversion projects to date, with an order value approaching $1m for a client operating in West Africa. Work on the project is expected to commence in January 2010. Since the start of 2009, OHM has been awarded approximately $3.5m of seismic inversion project work in West Africa, which is an up and coming region for OHM and indeed which is an active area in general. We like OHM?s shift in focus and its restructuring and cost cutting should position it well going forward. We expect to see more deals from its new relationship with the Chinese bureau of geophysical prospecting.

Plant Impact Plc (PIM 32p/ £9.74m) *

Developer and marketer of ecologically friendly crop nutrition and crop protection products announced on 7th December its interim results for the six months ended 30 September 2009. Turnover was £969,554 (2008: £225,287), primarily from sales of nutrient products in the USA and the milestone payments for BugOil, giving an operating loss of £879,381 (2008: £1,300,464), whilst cash at the period end was £1,584,942.
Pi recorded a number of important achievements during the six months under review. These achievements include entering into a licensing agreement for BugOil, the Group?s pesticide product, with Arysta LifeScience Corporation (ALS) under which it has received the first regulatory milestone payment, and signing an extramural agreement with the United States Department of Agriculture for extensive trials on PiNT, the Group?s nitrogen delivery technology. Plant Impact has continued to experience commercial growth in both its BugOil technology and crop nutrient products. The next regulatory milestone for BugOil is the UK approval which is anticipated during the first half of 2010. Crop nutrient sales continue to grow especially in the key territories of the Americas and Europe.

During the period the Company recruited an additional salesman in Spain and has subsequently added a business development manager for the Americas, who brings 30 years of industry experience. A number of strategic initiatives have been undertaken during the period including a collaboration agreement with CEM Analytical Services Limited (CEMAS) in June 2009, the establishment of the Plant Impact Scientific Advisory Board in September 2009, and the appointment of the Group as a Member of the Parliamentary Science Committee to the House of Commons in July 2009. After the period end, in October 2009, Pi received approval under the European Framework 7 grant process for a grant to assist in development of its nematicide technology. The grant is for €1m and Plant Impact is the nematicide technology provider and coordinator of a consortium of seven members with approximately €300,000 payable in respect of Plant Impact?s contribution to the consortium. Plant Impact continues to improve its patent portfolio, with two patents granted in the UK in 2009 on the Alethea technology.

Field trial development continues in Europe, the USA, Central America, the Middle East and Africa. The objective is to expand both geographically and in the number of crops. The trials focus on high value fruit and vegetables, ornamentals and nuts. Since the period end, and announced by Pi last week, the Company received the final field trial results from Eurion Consulting on melons, cucumbers, tomatoes and lettuce using InCa (from Plant Impact?s CaT technology). The key findings included a 41 per cent increase in marketable yield for standard melons, a 50 per cent in marketable yield for standard tomatoes, a 22 per cent increase for standard cucumbers and the fresh weight of lettuce was 9 per cent better than standard and 12 per cent better than competing products.

Even discounting material revenue growth going forward, we believe Pi has sufficient capital to comfortably fund the next 18-24 months, at current operating levels. We see Pi?s continued commercial, strategic and technological developments as greater indications of the company?s value than near term performance – especially given the difficult trading conditions ongoing across the agri-business value chain. We forecast Pi will reach profitability in 2011, and believe that it will continue to generate plenty of news flow along the way.

Serabi Mining (SRB 1.8p/£5.33m)

Serabi announced that an additional £317,274 was raised as a result of the northern Brazilian gold mining company?s open offer to shareholders to participate on equal terms to a previously announced £2.4m private placing. In addition, three board directors have subscribed for a total of £82,000 at the placing price. Serabi now has sufficient funds to initiate the first stage of its exploration programme. The company has identified a number of targets and will use the funds to prioritise and drill 4-6 of them next year.

* A corporate client of Hybridan LLP