Smaller companies spotlight

EACH week, former Fleet Street City Editor

The new blue-chips?

PROFESSIONALS tend to pour scorn on the small cap sector warning potential investors that they can be 'risky.' These are the same professionals who, in the past, have talked up such 'unrisky' shares as Marconi, Railtrack, EMI and Vodafone and one or two others that have tumbled from favour.

So it is good to see the 'Pink ?un' - the Financial Times – devoting two columns of its Saturday pages to a John Lee under the headline: 'I like small caps and their big prospects.' It‘s quite flattering really when we have been pointing out the merits of such investment vehicles for more than a year.

Having identified one or two small caps that have produced 'significant capital growth and much appreciated dividend increases' Mr Lee concludes: 'The conventional advice always used to be 'blue-chips for widows and orphans'. Setting aside how one defines a blue-chip today and how the regulators and others define risk, perhaps the time has come to reverse the habits of equity investment. Don‘t small caps provide a safer haven and more acceptable total return today than blue-chips?' he asks.

Hear! Hear! say I.

Message in a team change

THERE are many methods of share selection that do not follow the conventional statistical assessments of analysts. One that I used in the past, which proved better than average, was to identify companies that changed their financial public relations teams.

The thinking was that if the company felt that it had a good story to tell then it‘s share price should reflect that; if it didn‘t then the message was not being delivered adequately by their existing spin doctors. Therefore, change the messenger.

In this spirit I bring to you StatPro, which earns its living by producing software that enables asset managers not only to measure their performance, but to identify strong and weak areas in their portfolios.

The software can produce daily updates that backroom staff could previously produce only monthly on a batch of unwieldy spread sheets.

Chief executive Justin Wheatley has recently appointed WeberShandwick as its new PR team – I will not embarrass the former agency by naming it – and already Mr Wheatley is on a round of meeting and greeting financial journalists and planning on spreading the word around fund managers and analysts.

The company was launched on the main market near the height of the tech boom at 80p a share with a business plan that said it would move to profitability in 2003. The shake out in the sector has reduced the share price to 30p, but the company has survived and according to house brokers Peel Hunt is on target to move into profits next year.

From just 11 clients on board at the end of 1999, the company reported 74 by the end of 2000 and currently has more than 125, which include some of the biggest names in the fund management industry throughout Europe and the United States. In South Africa, which has only recently been targeted, eight of the 12 biggest asset managers have already signed up and the remaining four are expected to join before the year end.

The business is now cash flow positive on a monthly basis and Peel Hunt says: 'The shares are cheap on less than five times our estimated cash flow for 2003, and should be bought.'

That seems to be the message the new PR agency has been hired to spread.

Some you may have missed

ROSE Bowl, the company that includes Hampshire Cricket Club among its assets and which is heading for AIM, has raised the minimum amount of £2.4m under the current offer for subscription. It is now being extended until May 31 as the company goes for the full £5m it is seeking.

RETAIL Decisions has signed a new contract with Shell UK which will see its payment card fraud protection system implemented at all of the 600 Shell company-owned and operated service stations in the UK. The contract enables Shell to screen more than 400,000 transactions a month over the period of the two-year agreement.

SOUND Alert Technology has provided a manufacturing licensing agreement with Edwards Systems Technology of Connecticut, to give the US company access to Sound Alert‘s directional sound evacuation technology for use in buildings. Changes are being proposed to the US fire code that could lead to the new technology becoming standardised over the next few years.

VI GROUP, a supplier of CAD/CAM software to the mould and die sector, has raised £2.65m by the issue of more than 12m new shares at 21 1/2.5p each. The proceeds will be used for increasing working capital, marketing and product development projects.

PROPAN Homes has sold its Caistor Hospital site for £3m, a sum that produces a substantial book profit of more than £1m, which will be used by the AIM-listed company to reduce debt and increase working capital.

SPRUE Aegis, developer of the FireAngel plug-in smoke alarm, has won the Innovation in Business category in the 2002 Business Awards sponsored by the Coventry Evening Telegraph. Congratulations are in order.

INTERACTIVE Digital Solutions chairman Dorian Marks was in upbeat mood at the AIM-listed digital software company's yearly meeting, claiming the group was positioned to 'expand aggressively over the coming year'. He added that new contracts were expected shortly in all three divisions and the company had secured long-term revenues with contracts spread over 15 years.

Some to watch out for

ANALYSTS at web research group MoneyGuru are in Spring-like positive mood this week. James Follows repeats his 'buy' recommendation for UCM Group, having recommended the chemicals company at 90p in January and seen the price rise to 106p he sticks to his target price of 160p by the end of the year. He also likes the look of SkyePharma following the full-year results and continues his 'buy' recommendation with the target price now set at 113p against the current 71p.

HEALTHY results from LA Fitness have encouraged Paul Bethell to change his recommendation from 'sell' to 'buy' with a price target of 261p against 218p while Wojciech Mikolajczak is initiating coverage of James Halstead, distributors of motorcycling accessories and floor coverings, with a 'buy' recommendation and target price of 330p against 257p.

STEPHEN Thomas, analyst at broker, Teather & Greenwood, likes the look of Basepoint, which he suggests will raise its number of units to 434 in eight centres by next February from 287 units in six centres last February. He believes a re-rating is justified and that the dividend will be increased by 20% this year followed by a15% growth for 2003 and 2004. His target price is 120p against the current 76 1/2p.

DAVID Whelan‘s JJB Sports has received a 'buy' recommendation from brokers Peel Hunt. He says the shares at 391.5p are undervalued.