Smaller companies spotlight

EACH week, former Fleet Street City Editor Patrick Lay keeps This is Money readers up-to-date with a neglected, but exciting sector of the stock market - smaller companies.

Bullish about Genus

CATTLE breeding group Genus is best-known for the performances of Machoman, the Holstein Friesian bull voted by the US Department of Agriculture number-one supplier of the necessary material to breed cattle in the world.

Little is heard of the consultancy division, which accounts for around a fifth of the group‘s turnover and mainly has involved specialist consultants helping farmers at home and abroad increase productivity.

However, a new challenge for the consultancy division is to prevent disgruntled Russian nuclear scientists defecting and helping build nuclear arsenals for unstable states.

The former Soviet Union set up 10 ?closed nuclear cities‘ inhabited only by scientists engaged on 'the project', their families and the support staff needed to make the areas run smoothly. The cities were so secret, they were only ever known by their post codes.

The ending of the cold war has meant the work of these scientists and technicians has become redundant. Genus, whose consultants have been involved in many UK Government aid projects in developing countries helping boost food production, has been given a £3m contract by the Department of Trade and Industry, to co-operate with Russians ministries and local authorities over the next three years, to manage a programme to find challenging alternative employment for these people.

'We have experience of working with the Russians,' says Genus chief executive Richard Wood. 'We set up a satellite ground station there a year ago to spot forest fires. 'Our aim here is to help them set up biotech companies and encourage research into a range of areas, many of them in the food chain.

'In essence, we hope to turn the former closed nuclear cities into Silicon Valley-type areas. We will encourage, not only research into areas outside of nuclear activities, but also send in marketing people who can advise on the commercial aspects.

'Genus, or to be precise, our subsidiary P-E International, will be the project team leader and literally hundreds of specialists from around Europe will be involved, most of them spending up to three months in the area.

'We are focusing initially on three of the 10 cities, Sarov, Snezhinsk and Seversk, but it is important for Genus, because the consulting division will be well placed to explore further work with the DTI in this and parallel fields.'

Another factor is that when the scientists produce a commercially viable product, Genus is right on hand to become a partner.

There‘s more than one reason to be bullish about this company.

Gold diggers

JOHNNY Van den Berg, head of AIM-listed Bullion Resources, has been back in town this week, breathing some life into the share price. The company has had a switch-back ride since listing on 10 June at 40p and slumping to 27p as fears that the 'black empowerment' lobby would make life difficult.

'On the contrary,' says an ebullient Johnny. 'It is likely to benefit us. We support the minerals bill and believe it will mean a new inflow of money into mining in South Africa, and we already have plans to do a joint venture with black empowerment junior miners next year.'

Meanwhile, the company has started a dry run at its Drylands plant, 'tweaking the mills and machinery, making sure it is all working smoothly and we should be producing gold there by the end of September,' says Johnny.

The company‘s policy of buying good second-hand machinery is paying major dividends. It has bought seven complete mills and two incomplete mills, together with the entire steel construction housing these plants, for a total of £156,000. To buy one new mill would normally cost around £500,000.

The company now has all the mills necessary for its planned mining operations, together with two complete spare mills for the first new mining site to be acquired in the future.

Johnny is confident the company will meet its target of producing 140,000 ounces of gold a year by the end of 2003, and with the cost of production down at just over $200 an ounce (the value of buying second hand equipment) there is a wide margin of profit while the yellow metal stays at over $300 an ounce.

Johnny will be returning to London in November when he will be able to report on the amount of gold Drylands has produced, meanwhile he seems to have calmed investors‘ nerves – the share price has recovered to 35p.

Under the microscope

NOT many companies make an announcement every time they win an order for one item, but Ofex-quoted Millbrook Scientific Instruments is proud to announce its 11th individual sale – this to Japan.

The company makes a chemical microscope which is used in the chemical analysis of solid surfaces. This is a bench-top instrument which can be plugged into a normal electric socket, competing against instruments that can occupy entire rooms.

The price, too, helps with Millbrook‘s dainty model costing its Japanese customer around £85,000 against the £500,000 to £1m it could have cost for a conventional product.

The company has distributors in the USA, France, Benelux, Germany, China, Japan and Australia and its target market includes universities, research institutes and manufacturers engaged in electronics, biosciences and medical, catalysis, corrosion, coatings and materials such as metals, plastics and glass.

With so many distributors, and such a wide target, it shouldn‘t be long before the company is announcing orders two at a time.

Some you may have missed

ANDREW Knight, chairman of drug discovery group Henderson Morley, is a very nice chap, but I can‘t believe him when he says: 'I am pleased to announce our financial results for the 12 months to April 30.'

Nobody can be pleased reporting sales of £22,270 (down from £29,225 in 2001) and losses of £587,058 for the year, albeit reduced from a loss of £673,377.

Including the £240,000 raised in June, the company has sufficient funds to last 12 months at its current burn rate of £40,000 a month. The company has continued to attract the attention of large pharmaceutical companies with a view to negotiating potential licensing opportunities. Mr Knight will need some success on this front if he is to be pleased with this year‘s results.

PC Medics Group, the AIM-quoted contract IT services company, has signed a co-operation agreement with Nexus Management, a communications services company. PC Medics will market services on behalf of both parties, and Nexus will provide support services. PC Medics has also been granted a call option for a nominal £1 to acquire all the share capital of Nexus. The option will last as long as the co-operation agreement, for which there is no fixed term.

SPRUE Aegis, maker of the FireAngel plug-in smoke alarm, is raising up to £1.04m through a placing with institutions of new ordinary shares at 25p each. The cash will be used to boost working capital, marketing and product development.

IRISH pharmaceuticals company Elan is to seek shareholder approval next week, to buy up to 15% of its share capital.

ACCOUNTING software company Touchstone is seeking to spend some of its 'substantial cash balances' and is exploring the acquisition of further products and services.

Some to watch out for

DESPITE reporting a first half operating loss of £5.5m (against a loss of £7.4m in the first half of 2001), life sciences company Xenova rates a 'buy' recommendation from Seymour Pierce analyst Brett Pollard. He does make the point that the company is a potential take-over target and the share price is currently depressed.

BOOK retailer Ottakar has been the subject of gossip in the markets this past week, with a bidder said to be waiting an opportunity to buy.