Hybridan Smallcap Wrap featuring Cello, Just Car Clinic and Glenlivet

This week: How Cello is starting to play to a new strategic tune, why Just Car Clinic is no car crash dummy, and why the Glenlivet exploration well now looks less whisky

Bglobal plc (BGBL 42.75p / £32.61m)

We have reported good news many times in the past few months for this market-leading provider of smart metering services to the UK energy market. And since we last wrote on the share, it has doubled. Last week Bglobal announced two new deals. First, an agreement to deliver smart metering services to Gazprom to supply and install its latest generation of smart electricity meters to its growing base of UK business customers; and, second, an agreement with Superdrug to install smart meters at all of its UK stores, totalling more than 900 sites. Although the share price has done well, we believe there is much more good news that could come from this company.

Cello Group (CLL, 38.5p / £22.5m)

Cello is less a case of fiddling while Rome burns and more a case of adjusting strategically while the recession bites. In the six months to 30 June 2009, the direct marketing and market research group saw operating income decline by 10.9 per cent. But careful financial management saw staff costs reduce by 8.1 per cent, leading to positive adjusted earnings per share of 2.81p. The group now plans to increase its focus on marketing services to the healthcare and ‘well-being’ areas, which means not just pharmaceutical companies, but health and beauty retailers and public sector health campaigns. Finance director Mark Bentley told Hybridan that this strategic shift provides employees with a clear direction. But another key benefit is that these areas are typically less vulnerable to macroeconomic pressures. Despite the tough economic climate, Cello looks to be astutely reducing its financial risk.

Crimson Tide (TIDE, 1.48p / £4.91m)

We wrote on Crimson Tide a few weeks ago following its landmark full-year results, which trailed month-on-month positive cash flow this year. This one slipped through the net in last week’s Small Cap Wrap. We see the company evolving quickly and part of this evolution has been the recently announced disposal of the group’s Time and Attendance business in Ireland for €105,000. This leaves the group focused on its core offering of mobile data solutions for the facilities management, healthcare and finance and insurance sectors. One to watch.

Deltex Medical Group (DEMG, 9.75p / £11.26m)

Last week, the leader in oesophageal monitoring announced the results of a new survey into doctors' technology preferences for monitoring cardiac output in intensive care. The survey confirmed the trend towards less invasive methods of monitoring cardiac output and, of these; Deltex’s CardioQ-ODM was the first choice of technology among 55 per cent of respondents. Deltex’s technology has long been appreciated in the UK, but this survey was conducted in Italy, which suggests its technology is exporting well. We like this medtech share and understand that no one else had a product nearly as precise or comprehensive in its monitoring function as Deltex. As always with medical technology, it is a question of convincing the opinion leaders and changing habits, which the company seems to be doing quite nicely.

Faroe Petroleum (FPM, 122.5p / £128.84m)

Another one that has more than doubled since we last wrote on it – and which has reported great news repeatedly since we began coverage – is Faroe Petroleum, the oil and gas company focusing on exploration and appraisal in the North Sea and Norway. Last week it announced the discovery of gas at the Glenlivet exploration well, West of Shetland, 10 per cent-owned by Faroe. An immediate appraisal of the discovery is being considered with the planning of a potential sidetrack well ongoing. The Glenlivet well is the first of a firm five- well Atlantic Margin exploration drilling programme that Faroe is undertaking, the second of which is scheduled to commence drilling by the end of September 2009. We continue to maintain that Faroe has far to go in delivering value and share price appreciation.

Goldplat (GDP, 10.5p / £11.73m)

The African precious metals recovery and mining company has delivered a shiny set of results for the year ended 30 June. Production from the South African and Ghanaian gold recovery plants increased by 9 per cent, to 21,068 ounces, at the same time as contained gold in stockpiles for processing increased to 88,000 ounces. Revenue rose 44 per cent to £11.1m resulting in a net pre-tax profit after exceptionals of £1.9m plus a capital gain of £420,000 from the sale of a 15 per cent stake in the company’s South African operations. Goldplat has increased capacity and streamlined operations with the purpose of lowering production costs per ounce. As we reported earlier, the company recently purchased the remaining 50 per cent of Kilimapsea Gold that it does not currently own for $2.7m from its former joint venture partner.    An aggressive exploration and development programme has been implemented at the Lolgorien gold project situated in southwest Kenya, in the historically productive Migori Archaean Greenstone Belt. The current plant is capable of a production of 3,000 ounces of gold a year. Unfortunately, the company is still waiting for the Kenyan authorities to convert the exploration licence to a mining licence, which has delayed commercial production by several months. Nevertheless, we believe Goldplat is pursuing a sound strategy of advancing the junior mining business by taking advantage of their experience with small-scale operations in historical gold mining areas.

Intelligent Environment Group (IEN, 11.25p / £17.93m)

Financial transactions are no longer exclusively provided by financial services companies, but by retailers as well. Intelligent Environment (IE) has so far sold its software to banks and savings institutions who want to offer their products online in order to reduce costs and provide a better customer service. Proving that the company is just as capable in dealing with non-financial customers as with banks, IE has won a three-year contract with Home Retail Group, which will implement IE’s system. This will enable Argos and Homebase store card customers to receive comprehensive electronic card statements and the Home Retail Group with much improved knowledge of their customer base. The deal further solidifies IE’s transactional revenue model.

Just Car Clinic (JCR 52.5p / £7.16m)

Just Car Clinics is the sort of stock we love at Hybridan. It combines decent revenues, a healthy bottom line, a strong management team, a sensible balance sheet and a share price that looks good value. JCR is the second largest independent chain of accident repair centres in the UK and undertakes collision damage repairs to cars, vans and motorcycles. It operates from locations throughout Yorkshire, Lincolnshire, the Midlands and northeast of England. The company has reported its first-half numbers and booked a profit of £563,000 (£647,000 last time) on broadly flat revenues of £21m, albeit down 4% on a like-for-like basis.    Just Car Clinic reported that mandatory vehicle insurance meant the accident repair market is insulated from the wider economic climate but, against this, reduced road usage has resulted in fewer collisions. And this, along with reluctance by retail customers to incur insurance excess payments, has adversely affected volumes across the industry. The company kept a tight rein on costs, and cash generated from operations remained strong, at £1.2m. This allowed debt to be repaid down from £1.8m to £1.3m. Further acquisitions remain on the cards, justifying our view that this stock is just the ticket.

Minster Pharmaceuticals (MPM, 5.125p / £3.02m)

The rumours of the death of Tonabersat may have been greatly exaggerated. Earlier this year, Minster’s Phase IIb study of Tonabersat in migraine prevention did not meet its primary endpoint. However, an earlier but smaller Phase II trial of Tonabersat in migraine with aura had shown a significant preventive effect and these results were recently published in the Lancet Neurology. Aura is a symptom experienced before a migraine or seizure and is effectively a field of luminous multicolored lights that a patient may describe as flashing lights that he or she sees. Following up on these results, the lead investigator professor Jes Olesen, who is one of the world’s leading headache specialists, last week presented a paper at the International Headache Society congress concluding that Tonabersat has the ability to inhibit cortical spreading depression which is the cause of auras. Furthermore, at the same congress, Dr Paul Durham of Missouri State University presented a poster explaining the mechanism of action of Tonabersat concluding that the drug should be useful in preventing migraine attacks associated with sensitisation. These positive findings suggest that Minster may be able to find a partner who wants to develop the compound further. In that case Minster, which currently trades at half of net cash value, is seriously undervalued.

Plant Health Care (PHC, 277.5p / £143.18m)

PHC last week announced its interim results for the six months ended 30 June 2009. It reported a wider first-half loss following lower sales: $3.86m from $3.34m a year earlier, on revenue down 30 per cent, at $5.51m. Most significantly for the period, it raised £10.5m in a placing. Plant Health Care management seem confident in their current partnerships and comment that they believe there are more announcements to come on new deals. We believe, however, that Plant Health Care has had a good run and for value, and prefer Plant Impact, (PIM 26.75p / £8.41m)* in this space. Our view is that Plant Impact has some potentially disruptive technologies that could contribute to easing emerging agricultural sustainability issues and that have access to the large and growing fertiliser & agro-chemical markets. It should also be remembered that Plant Impact has raised a fraction of the monies that Plant Health Care has over the years and yet has a full stable of products as well as its share of agreements with industry leading
heavyweight companies. Any weakness in the company's share price should only be seen as a buying opportunity.

TyraTech (TYR 17.5p / £4.01m)

Another company in this space, TyraTech, also had its interims results ending 30 June 2009 last week. This novel eco-technology company for human, animal and environmental health has had a rough ride in the last three months. Net revenue of $3.3m is some $886,000 more than the first half of 2008, largely as a result of expanding its relationship with Terminix and having signed three other sales contracts. Costs have been hugely reduced, so that the company’s loss from operations is only $6.2m, as opposed to $8.9m last year. This has been done by establishing a more streamlined administrative function; solidifying trade channels and having the directors take a 10 per cent salary cut. However, the company is shedding cash at a fast rate, which needs to be addressed, although it mentioned that it was in talks with a strategic investor and management say that it has adequate cash to maintain operations for the second half of the year and into 2010. We remain on the sidelines with this one and prefer to watch and wait.

WIN Group (WNN, 64p / £6.5m)

WIN, which provides a range of specialist mobile-phone-related services for businesses such as mobile operators and internet portals, saw revenues broadly flat in the half year to 30 June, at £19.7m. But underlying EPS fell by 35.8 per cent, as WIN increased its sales force and headcount as it strives for continued growth. And indeed the group has been making clever strategic moves into ‘managed services’, in which WIN becomes more integrated into client operations and is able to secure higher margins. Significantly, managed services made up 62 per cent of gross profits in this half, up from 55 per cent in the first half of 2008; and finance director Lance Moir told Hybridan he’d like to see this figure rise to 67 per cent going forward. Furthermore, the group has yet to fully exploit the UK mobile phone operator market, and sees opportunities to expand into Eastern Europe. Despite its relatively small size and a difficult economy, WIN is continuing to pay a dividend and continues to be profitable. Oh, and it is also debt-free. In this case, then, size is clearly not everything.

Zenergy (Zen 125.5p / £66.35m)

Zenergy, the superconductor energy technology company, announced its results for its half year to 30 June. The period was busy for the company, which installed its first superconductor Fault Current Limiter in California, received a commercial contract for a
Limiter for The Consolidated Edison Company of New York, received additional funding from the US Dept of Energy for development of a low cost “2G” superconductor wire, and secured a commercial contract from RWE. Conversely, however, revenues took a backward step, with Zenergy booking only €214,000 against €1m in the same period last year. And, with a bottom line loss of €5m, it’s reassuring to note that €10m of new equity was raised in the period to fund the company’s ongoing cash burn.

The order book does look to be picking up, however, and stood at €2.3m in June with further new orders received since then. The science behind the company’s technology is compelling and it is beginning to gain traction in its markets. But, as with so many promising tech stories, whether the company has the zenergy to last the distance remains to be seen.
* Corporate Clients of Hybridan LLP