Hybridan Smallcap Wrap featuring Lombard Risk, Cashbox and Indox

This week: Another win for Lombard Risk, Cashbox gets its foot in the door, and Idox wins over local authorities

Cashbox (CBOX 2.875p/£4.32m)

Cashbox, the UK’s leading independent ATM operator, has been awarded a contract with Fuller’s, the brewery, to take over the supply of 35 existing ATM machines. This foot in the door may lead to the group wining the ATMs in the remaining 360 pubs in the estate. The contract is for 18 months and the first installation will commence by the end of this month. Furthermore, The Orchid Group has appointed Cashbox to supply and maintain the existing 15 ATM's which it has inherited as part of an acquisition, along with the opportunity to survey the rest of the 45 sites that they have purchased. The new contract wins provides the group with increasing revenue visibility as its turnaround continues apace. Not one to cash in on just yet.

Datum International  (DATP 7p/£2.1m)

PLUS-quoted group that authored the Enterprise Content Management solution KnowledgeWorker last week gave a trading update of strong trading in November and December. The company has closed deals in this period with a combined value in excess of £250,000 with clients including CSC, Bombardier, Thales, Scanplan, Luccini and Metropolis (Greece). David Hornsby Chief Executive commented that he was encouraged by such a strong start to the 2nd half of the year. It is great to see that both revenue generation and a tight control of the cost base means that the board fully expects to announce a profitable full year result. KnowledgeWorker is sold and supported internationally through a growing network of distributors, OEM's and reseller partners. KnowledgeWorker creates competitive advantage by enabling employees, customers and suppliers to collaborate on information and to participate in managed and audited business processes. The system comprises a fully integrated suite of modules for document management, scanning, business process management, enterprise search and "on-the-fly" publishing to web sites, intranets and portals.

dotDigital (DOTP 1p/£2.93m)

We write on PLUS quoted dotDigital Group for the first time as they announced a trading update for the six months ended 31 December 2009. The period looks to be characterized by continued strong turnover growth with an anticipated like for like increase in excess of 40 per cent. During the period, the Company committed further investment in staff recruitment, taking the headcount to 74 and dotDigital anticipates that the returns on this investment will be seen through continued growth in the email marketing client base and expansion into new areas within the Company. Consultancy, ecommerce services and search engine optimisation operations are now fully operational and starting to deliver revenues in line with expectation. dotDigital Group continues to manage its cash prudently with a net of in excess of £2m, not bad for a market cap of £2.9m, which suggests this stock is severely undervalued. dotDigital Group is a full service digital marketing agency and market leader in email marketing services. Founded in 1999 to provide bespoke website design and development services, the business is industry recognised through its market leading brand name dot Mailer'- a service originally developed as an email marketing solution for a division of the BBC.

Good Energy Group plc (GEGP.PL 58p/£4.53m)

PLUS quoted Good Energy Group has announced an £11.8 million financing package for the repowering of its wind farm at Delabole in North Cornwall. The £11.8 million package includes £9.6 million in debt finance from the Co-operative Bank and £2.2 million equity from Good Energy Group PLC's own resources. The funding will allow the ten existing turbines to be replaced with four modern, more powerful, Enercon turbines to harness the wind resource more effectively. With a total combined capacity of 9.2MW, these turbines will increase the wind farm's output by roughly two and a half times, enough to supply over 7,800 homes. Delabole wind farm was the UK's first commercial wind farm and began generating in 1991 and Good Energy is unique in the supplier industry by buying and selling only 100 per cent renewable electricity. With the company’s focus on improving its financial performance and the new turbines due to come on line Good Energy seems to have the wind in its sails.

Herencia Resources (HER 0.635p/£5.25m)

In a second project update following the successful recent fund raise Herencia has announced more details about its new drilling programme designed for the Paguanta zinc-lead-silver project in northern Chile. Major Drilling has been engaged to undertake 3,500m of diamond drilling starting in the second week of February that will target potential high grade extensions to the known mineralisation. Assay results could be available during the April – June period which will allow Herencia to update its Mineral Resource Estimate by mid-year and eventually move to a Feasibility Study phase in the third quarter of 2010.

Idox ( Idox 11.25p/£37.65m)

Idox, the supplier of software and services for the management of local government services reported full year results to the end of October 2009. Despite the extremely tough conditions of 2009, reported revenues were largely stable at £32.2m (2008: £34.0m) with profit before tax down only slightly, £6.7m (2008:£7.6m). Additionally debt was reduced, debtor days down by 30% and net cash significantly increased to £3.2m (2008: £1.0m).The company increased market share up to outstanding 78 per cent of UK local authorities, providing them with the tools to manage information and knowledge, documents and content as well as enabling the provision of council information to the general public over the internet. In the face of the current economic climate and the widely discussed cuts to public spending, Idox remains confident of capital expenditure for their services and software. This means the company will focus on smaller modular contracts and upgrades of software with incremental revenue which are easier to win rather than large unwieldy contracts, which can cause issues with the unpredictability of applying resources. With Idox’s dominant position with Local Authorities the company is in a strong position for industry consolidation and we think will be interesting to watch in 2010.

Ipso Ventures Plc (IPS 58.5p/£7.71m)

Creator of commercial value from technology last week announced that IPSol Energy Limited had secured its first customer revenues within three months of being established. The Company, which was recently created to provide business and technical solutions to the Solar Photovoltaic market, is focused on testing and measurement services and these initial revenues have been generated testing a solar building integrated photovoltaic product prototype for Solarcentury. IPSol Energy is developing the UK's first independent commercial PV module testing facility, which will provide manufacturers and installers of solar PV modules with third party validation of their products. Shares in IPSO Ventures rose 6p to 54½p on the news and clearly it validates IPSol Energy’s offering at an early stage. This rapid generation of revenue also validates IPSO Ventures demand-led commercial business model, setting IPSO clearly apart from its competitors in the IP model of University spin outs and licensing and developing technology with a view to commercialisation.

Lombard Risk Management (LRM 5.25p/£10.86m)

Lombard Risk Management, the global provider of specialised software solutions that improve the management of collateralised trading, liquidity and regulatory compliance, announced its first regulatory contract win of 2010 taking to six the total of contracts won by Lombard Risk for UK regulatory reporting in the last two months. These six contracts have a total first year value of over £500,000 although the majority of these revenues will be recognized in the financial year to March 2011. One of these six firms is a new client for Lombard and the others are existing bank and building society clients. Given the Liquidity Standards finalized by the FSA in October 2009 we are expecting continued wins John Wisbey, CEO said that "in a world of increasing financial regulation, some of the world's top banks rely on Lombard Risk to report to regulators and to monitor and manage their risk. Our products in Collateral Management, Liquidity and Regulatory Compliance are all increasingly complementary as banks and regulators alike look in ever more similar ways at counterparty risk, liquidity and collateral flows". Analysts expect sales for the current year to March 2010 to be no higher than the previous year at £8.7m and another loss whilst Lombard works its way through old underpriced contracts. However, with the revenues from these new wins hitting the top line in the year to March 2011 we expect this one to start climbing strongly on further good news.

Summit Corp Plc (SUMM 6.5p/£10.81m)

UK based drug discovery company, Summit, ticked up on last week’s news that one of its partners, BioMarin Pharmaceuticals Inc had initiated a Phase 1 clinical study of SMT C1100. This small molecule is an upregulator for the treatment of the fatal genetic disorder Duchenne muscular dystrophy. Initial top-line results are expected in Q3 2010. The DMD programme is one of eight drug programmes that form Summit's partnered product portfolio. This portfolio requires no further investment from Summit but has contractual, success based development, regulatory and sales milestone payments totalling over $160m plus sales royalties of up to 13 per cent. BioMarin has a great track record in developing orphan drugs to market and is we believe the best partner to develop SMT C1100 into a medicine in the shortest possible timeframe for the benefit of all DMD patients. Although there is no financial milestone associated with this event, the DMD programme was one of Summit's original drug discovery programmes, and so is a major endorsement of Summit’s own scientific capabilities.

The recent placing provided Summit with financial resources that will last until at least December 2011. We believe that this stock is likely to generate a healthy amount of news flow: we expect news on the Evolva programme based on the licensing agreement, an IND filing in Q3 2010 with a milestone payment attached relating to the Evolva programme and then it would enter the clinic in early 2011. In addition, we would hope to have some data from the Wellcome Trust C difficile programme, announced recently at the same time as the placing, towards the middle of this year and assuming it is positive, it should help get potential partners interested. Well funded drug discovery companies with a portfolio of programmes partnered and worth $160m, and a library of Iminosugars that is the most comprehensive globally with ongoing drug discovery activities are rare and well worth a look.

Verona Pharma Plc (VRP 16p/£39.39m)

AIM-quoted drug discovery company Verona Pharma last week updated the market on progress with respect to its recent fundraising, its most advanced project, RPL554, and its other two ongoing drug discovery projects. Verona Pharma is dedicated to the research, discovery and development of new therapeutic drugs for the treatment of allergic rhinitis (hay fever) and other chronic respiratory diseases, such as asthma and chronic obstructive pulmonary disease (COPD), as well as other chronic inflammatory diseases. The Company currently has three potential drug treatments under development and continues to look for other possible drug development opportunities aimed at the respiratory and inflammatory diseases markets.

Verona Pharma recently raised £3m, providing the Company with a strong financial position. We write on this company for the first time, our attention was drawn to it having received the final quality assured study report from the Centre for Human Drug Research at Leiden University for its Phase I/IIa trial of RPL554. The trial demonstrated that RPL554 produces clear clinical benefits in patients with asthma and allergic rhinitis with a good safety profile. Discussions with potential licensees for RPL554 are ongoing. Verona Pharma is also seeking to develop an anti-tussive drug that works to suppress the generation of a cough signal at the nerve endings in the lungs. Regulatory documents for the proposed clinical trial of its cough treatment, VRP700, have been prepared and are in the process of submission to the appropriate authorities. The trial is expected to commence in Q1 2010.

Verona Pharma has been working hard filing new patents and it continues to look for additional opportunities to enhance its Intellectual Property portfolio. Management is very credible and if you look at the market cap compared to the people involved and quality of the investors who have invested to date, as well as the molecules that it has in development, their various stages and the data generated to date, the company looks extremely undervalued.

Wincanton (WNN 108p/£10.97m)

Win, the leading provider of managed services over the mobile phone, has given a trading update for the year ending December 2009 and has repeated that margins steadied in the first half of the year and that in the second half it focussed on higher margin sales. Trading in the final quarter has led to a result significantly ahead of market expectations for the year. Revenues will be over £40m (£38.8m for 2008) following a 20 per cent growth in message traffic in the last quarter. A new Next Generation Messaging Platform is being developed and should be ready for Q4 – with an associated depreciation charge of £0.15m. Analysts estimate a pre-tax profit £1.9m for 2009 with 12.6p EPS giving a P/E of 9.1x. A comfortable valuation but still scope for a little more to win.

About Hybridan

Hybridan is a corporate broker and PLUS markets corporate advisor specialising in fundraising, research and after-market support for small and micro cap AIM-listed companies.