Hybridan Smallcap Wrap featuring Summit, Cashbox and Sarantel

This week: Summit far from its peak, Cashbox in a hole in the wall and Sarantel picks up the right signal

Ant (LON:ANTP 29.5p/ £7.16m)

Ant, the software company that allows TV operators to manage their content and  provides customers with the ability to self-select services on demand, announced its 2009 year end results.  Revenues were up 26% at £4.7m (2008: £3.7m), a grand performance considering the challenging economic environment.  This reduced the loss before tax to £626,000 (2008: £1.013m), down 38% and with a  strong cash position of £5.05m (2008: £5.65m).  Ant signed 14 new licences, 7 of which were from completely new customers.

The market has been driven by consumers appetite for high value applications (such as on-line games through the TV), digital TV and on demand services such as catch-up TV and pay for movies.  The technology allows consumers to access this variety of services without needing to know whether it is coming from the web or by satellite. The operators are also keen to use Ant’s platform to enable them to reduce churn and increase their revenues from their catalogue of content. With no direct competitor offering a complete ‘one-stop shop’ of services and greater demand for personalised TV, we think this little Ant is on the march.

Beacon Hill (LON:BHR, 0.295p, £19.34m)

Beacon Hill made two announcements last week. The first relates to the provision by Fortrend Securities of up to £5 million of funding. The agreement will enable Beacon Hill to draw down funds over the next 3 years to help develop its Arthur River Project in Tasmania and facilitate the appraisal and development of other projects. Under the drawdown agreement, Beacon Hill can issue new ordinary shares at a 10 per cent discount to the prevailing market price, which means dilution is contained at reasonable levels, with the maximum drawdown a function of prevailing trading volume.  For every 4 shares Beacon Hill will grant one option exercisable at the prevailing market price for 3 years. Beacon Hill will also pay a fee and has granted options over 20.8m ordinary shares, exercisable at 0.30p per share until 2 March 2013. The second of last week’s announcements cites ‘excellent progress’ made towards satisfying the due diligence and legal requirements relating to the acquisition of the Mina’s coking coal mine in the Tete Province of Mozambique. Beacon Hill and partners will initiate a defined development plan in order to maximise the full potential of the significant coal asset to generate near-term cash flow. The company has begun discussions with potential off-take partners. The statement speaks of finalisation of a feasibility study to create a large open pit mine producing 4 million tonnes per year with completion of the acquisition expected to be completed prior to the end of June 2010. A shining beacon in the night.

Captive Audience Display Solutions PLC (CADP 1.125p / £1.96m)

Last week we wrote that PLUS quoted Captive Audience Display Solutions plc was in talks in the Middle East to close an agreement to roll out its Out-of-Home Digital Media Network (Cads). The company announced last week that it has signed an agreement with NAFT  Services Company, a fast growing petrol station retail group, to develop a programme to roll out its digital media network across Saudi Arabia with the potential to deliver advertising content to 27 million people. The company’s share price ticked up at 1.12p (27 per cent) after the announcement with the possibility of more to come as we expects further agreements in the coming months.

Cashbox (LON:CBOX 2.75p/£4.13m)

The UK’s largest independent operator of ATM machines announced its interims to December 2009 which saw revenues of £3.37m (09H1: £3.43m), gross profits of £1.28m (09H1: £1.23m), a loss of £1.20m (09H1: loss£1.45m) before tax and net debt of £9.87m (09H1: net debt £9.27m). The group ended the period with 2,528 machines installed (2,438). The lack of progress in profitability is a concern – on this basis the group will need to add 50 per cent more machines at their current usage to reach breakeven. Until that time the group continues to burn cash particularly in paying a convertible loan note at 12 per cent. It seems the company is now in a hole in the wall with little prospect of climbing out without a dramatic change of direction.  We hope to discuss this management shortly and will report back then. In the meantime, keep your cash card firmly pocketed.

Hydrodec Group (LON:HYR 12.75p / £36.33m)

Hydrodec, the recycler of waste transformer oil, has announced an agreement with Kobe Steel Group of Japan to exploit Hydrodec’s technology throughout the wider East Asian market. It also gave a trading update and said its refining plants are running well but supply constraints in the US market have limited sales in the first 2 months of the new year, so Q1 sales will match but not exceed Q4. Worryingly, availability of feedstock at acceptable prices has constrained US sales which is critical as this process uses waste oil and refines it to compete with virgin material. The group also warns that this constraint and US limited availability of trade credit terms is forcing the group to examine “a number of financing options to support the development and working capital requirements of the business”. Whilst we accept the danger of a potentially dilutive funding round is in the offing we do not believe the full significance of the Japanese opportunity is yet understood by the market. Do not waste time hanging around as this one’s about to soar.

Imaginatik Plc (LON:IMTK  4.5p/ £7.17m)

Imaginatik, the provider of collaborative innovation software and processes, has reported that contract slippage will prevent the group from breaking even for the year ending 31 March 2010. Turnover is expected to be marginally ahead of the £4.58m achieved in 2009. Uncertainty surrounding the time of closure of various ongoing discussions provides further uncertainty surrounding the loss for the year. Whilst this announcement is disappointing the upside is that contract slipping into 2011 may lead to an upgrade in market expectations for 2011 PBT and EPS of £0.33m and 0.20p. Not one to rush out and buy just yet but following any upgrade we’d imagine this could be interesting.

Interquest Group (LON:ITQ 48.5p/ £14.83m)

Interquest, the IT recruitment specialists, released their preliminary results for the year ending 31st December 2009.  The company remains profitable and cash-generative and set up nine new brands for niche recruitment sectors over the year: in five cases acting almost as a private equity backer to experienced sales managers who want to go it alone but using Interquest finance and front office systems.  Some of these are already profitable.

Recruitment in particular has faced an extremely challenging period in the face of the tough global economic conditions and yet for Interquest revenues were down only a 8% at £97.4m (2008: £105.5m) giving gross profit of £12.4 (2008:£15.3m) a fall of 19%. The company has doubled the dividend to 2p per share for the full year (2008: 1p)

This surprisingly solid set of results continues into the new year, with Interquest seeing permanent recruitment strengthen 40 per cent compared of to the average in the first three quarters of 2009.  They are open to strategic acquisitions in 2010 and we feel that having added another 68 contractors already this year (2009: 928) 2010 should be a stock to (head) hunt down.

Just Car Clinics Group (LON:JCR 48.5.5p/ £7.09m)

Just Car Clinics, the independent collision repair chain, reported prelims to 31 December 2009 that were in line with market expectations. Revenues remained flat at £42.9m (2008: £42.6m), but LFL revenues fell by 4 per cent. The group reported an 8 per cent decline in adjusted PBT to £1.2m (2008: £1.3m), 13 per cent decline in adjusted EPS of 5.6p (2008: 6.4p) and DPS up by 2 per cent to 1.63p.  Revenues from mandatory vehicle insurance held up, but the group reported lower volumes of repairs impacted by reduced road usage and a general reluctance by retail customers to incur excess payments. The company continues to add new business and has succeeded in growing the fleet and local business sectors, whilst extending its offering to include mobile light cosmetic repairs, tyre fitting and mechanical servicing at selected locations. Gross margins fell to 41.0 per cent (2008: 41.7 per cent),  negatively impacted by variability in weekly repair volumes resulting in reduced efficiency and the difficulty of passing cost increases on to customers in the prevailing economic climate. Net debt fell to £1.28m (2008: £1.82m). The group continues to seek acquisition opportunities. Overall, the company has performed well, given the tough economic climate and the current financial year has started well as the company has benefited from the recent adverse weather conditions.  The market forecasts 2010 PBT of £1.3m, EPS of 6.2p and DPS of 1.7p. The stock trades on 2010 PER of 7.9x with a yield of 3.3 per cent. which is just about right in our view.

Lighthouse Group (LGT.L 9.12p, £11.65m)

Lighthouse, the IFA business, has been appointed as the exclusive Financial Adviser to Royal Mint employees in relation to their deferred benefit pension transfer options under their new final salary scheme. The group has zero bank debt and net cash of £12.2m at the end of June 2009 which exceeds the current market capitalisation. Despite the unloved sector, we’ve seen the light.

Metrodome Group (LON:MRM 2.25p / £4.16m)

We write on this AIM listed media play for the first time. Metrodome is active in the licensing, marketing & distribution of feature films, television and video programming and last week announced its preliminary results for the year ended 31 December 2009. The company has returned to profit despite challenging trading conditions at the start of the year, with the collapse of Woolworths and its DVD distribution arm Entertainment UK, together with the loss of Zavvi, which left Metrodome in a difficult position, unsure of how the DVD retail market would shape up. The Company reported revenues of £9.1m (2008: £6.6m), up 38 per cent. Profit before tax came in at £199,000 (2008: loss of £543,000) a positive result for the first time in terms of PBT.

We are impressed at the speed at which Metrodome took the initiative and developed direct relationships with new retail customers, including former EUK customers and successfully raised new finance to strengthen its financial position. Metrodome has continued to outperform the market with a 19.2 per cent increase in DVD sales.

Metrodome now has two objectives, namely to maintain profitability and to expand the company, by focusing on its core business of film distribution, as well as investing in related activities such as co-production deals and seeking diversification in related markets through mergers and acquisitions. One comment accompanying the results that “organic growth for the current year is unlikely to reach the high levels achieved in each of the last three years” may hold the share price back and clearly Metrodome needs to look further afield, to an acquisition strategy, for growth. After a spike in the share price in early December, the share has been quite flat of late. We wait for further news on its acquisition strategy to perhaps drive the share price further. Until further news, we advise watching this one with interest.

One Media Publishing Group plc (OMPP 1.25p /£1.14m)

The PLUS quoted One Media Publishing Group, which is involved in Business to Business music and video rights, issued its final results for the year ended 31 October 2009. The company reported strong results with turnover of £794,728 a 29 per cent increase from £615,667 in 2008 and a  profit of £65,841 compared with the 2008 £89,350 loss.

Michael Infante, the company’s Chairmen, stated:  “The digital market place has its own challenges with a reliance on consumers becoming internet literate and all homes achieving a decent broadband connection. As the current retail high street becomes ever more under pressure due to the recession we are experiencing continued growth via our online digital distribution model”. We imagine that One Media will continue to explore digital content acquisitions under license or by straight purchase and expect to see further news on that front in the near future.

Sarantel Group (LON:SLG 2.25p / £6.55m)

Sarantel continues to win contracts for its high performance aerial. This time a major US defence contractor has signed for a dual-frequency antenna for military satellite communications and, importantly, they are funding the project. The signals we’re picking up on our antenna are causing quite a buzz.

Summit Corp Plc (LON:SUMM 5.25p / £8.73m)*

It would be crude to say that investing in Summit Corp at these share prices is a no brainer, but then trying to pick which is the most compelling valuation case for the stock is, well,….take your pick! Summit is far from the peak of its potential valuation. It is trading at close to cash and yet has multiple high value opportunities that could easily add hundreds of millions to its market cap. By far the largest opportunity is its DMD partnered programme with BioMarin. In January BioMarin Pharmaceuticals Inc. announced that it had initiated a Phase 1 clinical study in SMT C1100 or its partnered Duchenne Muscular Dystrophy New Chemical Entity (NCE). The market appears to have not fully digested the significance of this deal. The DMD trial is likely to read out phase I results in Q3 this year and move up substantially in valuation gear as it starts phase II in Q1 2011. There are $140m of potential milestones attached to this product alone. However, the importance of this product is not only highlighted by the Company and by us, but by Summit’s partner who is class leading in Orphan Drug development. At BioMarin’s recent year end results, BioMarin welcomed multiple questions on the partnered DMD product and talked about the commencement of a phase II trial in 2011 which would most likely lead to a pivotal trial. The start of phase II triggers a $3m milestone to Summit we forecast and a pivotal trial, a $10m payment, in our view. A filing in the US, UK and Japan for this DMD drug, which is spitting distance away in drug development terms, could trigger milestones of $30m to Summit. If you only bought Summit for DMD, the potential valuation uplift could be hundred fold.

Another important value driver is that Summit has identified a novel class of compounds that are effective against the infectious disease C. difficile. This has attracted a grant of £2.2m from the prestigious Wellcome Trust which will completely fund the development until 2012, at which time the Company would expect to have a compound ready to enter human clinical trials.  We could have results on this as early as the second half of this year.

Summit's major R&D focus is on developing new medicines from its proprietary iminosugar drug discovery technology platform. This technology platform is attracting increasing levels of interest and Summit is exploring potential collaborations with a number of pharmaceutical and biotechnology companies to investigate its platform in a range of major therapy areas. The Board believes the next 12 months will be an important period in the development of this innovative technology. There are multiple licensing opportunities in the iminosugar platform. One of these is in the multi-billion dollar therapeutic area of diabetes and also infectious diseases. This includes SMT 14224, which is being developed as a new treatment for type II diabetes with data on this compound indicating that it potentially works via a new mechanism of action. Initial marketing of SMT 14224 has resulted in interest being shown from several leading pharmaceutical companies and Summit is investing a portion of the new finance into studies designed to add further value to this programme.

Summit is now focussed on developing its iminosugar platform having disposed of non-core businesses, having made significant reductions in its cash burn, and having raised £5.4m in December 2009 which provides the company with at least 2 years cash, well beyond the point where it anticipates receiving significant milestone payments from its partners, which all added together could total $180m at this stage and with many more programmes and products to potentially partner in high value areas such as cancer and inflammation and in bioterrorism.

It would appear to us that only the brave would sit on the sidelines ahead of Summit’s DMD programme entering phase II, at which point this languishing share price will only be a distant memory and those who want a piece of the action will have to pay multiples of where this Company currently trades. Clearly Summit’s directors and Executive management team think so, given last week’s share purchase announcement by Summit's Chief Executive Officer, Dr Steven Lee, and the Company’s Chief Financial Officer, Mr Raymond Spencer, amongst others at a range of 4.67-4.7 pence per share.

Win (LON:WNN 111p/ £11.63m)

Win announced that it is launching a range of new applications for the Vodafone 360 platform, which combines the popular social networking sites and email contracts with games, music and apps all in one place.  Win’s three new apps are: Pocket Doctor (a medical guide giving information on illnesses and ailments); Lottery (which generates ‘lucky dip’ numbers and gives information on winning numbers); and Snow & Ski (which gives information on snowfall and skiing conditions in resorts all over the world). Whilst Pocket Doctor and Lottery are free apps to the consumer, Snow & Ski will incur a charge of approximately €0.99.We agree with Graham Rivers, Win’s CEO, when he says that having three applications on the Vodafone platform is “a tremendous endorsement of our capabilities”, a real win.

Zeta Compliance Group (ZCGP 33.5p / £2.91m)

We write on this PLUS quoted company that  provides  products  and  services  to  enable  organisations   with   large estates  to  ensure that they systematically meet their Environmental, Health and Safety  obligations, for the first time.  The Company's wholly owned subsidiary, Fineapply Limited carries out risk assessment and monitoring services in respect of water and air hygiene where Legionella and MRSA are principal concerns. Last week Zeta announced a new division launching in March, to be known as Zeta Carbon.  Building on Zeta’s leading compliance solutions, Zeta Carbon will provide clients with the ability to comply with the growing level of legislation in this area, including the Energy Performance of Buildings Directive and the Carbon Reduction Commitment.  The Division will also provide technical and strategic consultancy services to clients, with services addressing Energy/Carbon Management, including Air Conditioning Inspections, Energy Performance Certificates and a full range of Energy Management Consultancy Services.  The Division will also provide clients with Sustainability and Environmental Management services, Health and Safety, and Fire Risk Management. It would appear that this small company has a long way to go and a large market to address in the growing areas of increasing legislation in Environmental, Health and Safety arenas and should be able to make good money from it’s a to zeta consultancy offering.

* A corporate client of Hybridan LLP.