Smaller companies spotlight

EACH week, former Fleet Street City Editor

New venture capital funds face a challenge

THE myth persists in Government circles that small and medium sized companies are being held back by lack of funds from banks and others. The truth is that that there is plenty of cash out there, but it will only be invested where risk is perceived to be at a minimum and decision makers are not going to lose their jobs by backing the wrong horses.

Consequently, I am less than excited by news that the European Investment Fund has committed e86m (£53.5m in real money) to the UK‘s nine new regional venture capital funds.

The Small Business Service, headed by David Irwin, will administer the funds – a Government-backed initiative – which will 'provide venture capital of up to £500,000 to bridge the equity gap often faced by local small firms'.

The funds will be distributed on the basis of normal commercial venture capital criteria and 'experienced private sector fund managers will make all investment decisions'. That might be prudent but not necessarily wise.

In the private sector there are dozens of venture capital funds that raised money three years ago and still haven‘t invested all of it. They are now becoming desperate to find a home for the cash.

Those funds were raised at the height of the tech boom but, by the time the fund managers had assessed opportunities the market was turning upside down and they decided to wait. And they waited, and many still are waiting but need to find a home for their cash within three years of the fund‘s launch to meet the tax concessions available.

The regional venture capital funds have already attracted significant amounts of private sector investment, according to Trade Minister Patricia Hewitt, and the first fund is expected to be launched next week with the rest following during 2002.

What is needed, however, is not just money, but an input from those who understand business and risk and didn‘t get their fingers burnt backing fashionable hi-tech operations three years ago.

It will be interesting to see how much the regional venture capital funds have invested, and in how many companies, by this time next year.

Muddle on the balance sheet

THE idea of pulling together into one group a nationwide network of regional and local accountancy firms to challenge the might of the 'big five' seemed a good idea. But confidence in the concept shown by Ian Buckley, chief executive of the Tenon Group has yet to be proved.

When we met in October he was confident the group was on target for a £100m turnover in 2002, a year earlier than the original business plan. I wrote at the time that accountants who couldn‘t get a forecast right might not set the right image for clients, but at least the error was on the right side.

However, a trading statement in the past couple of weeks, is more confusing. He now says: 'The board is confident that their original aspiration to generate annual turnover of £100m within three years will be met.' So the original forecast looks good, the later forecast looks less good.

Costs of acquiring and integrating 16 firms over the past 14 months have thrown calculations out of the window with pre-tax forecasts for 2001 downgraded from £6.1m to between £500,000 and £1m.

This, said the announcement, 'reflected a combination of integration costs, both in terms of investment and management time and a slowdown in corporate finance transactions'.

While all may come out well in the end clients will be justified in querying any long-term assessments made by the group on their own businesses.

Ben Archer at broker Teather & Greenwood is clearly confused and has left his forecast for the year ahead unchanged 'for the moment' but adds: 'On balance the risk continues to be on the downside.'

Some you may have misssed

Alternative Investment Market nominated adviser status has been granted by the London Stock Exchange to City Financial Associates, corporate finance subsidiary of Abinger Investments. 'This will allow us to provide full corporate finance services to growth companies,' says chairman Stephen Barclay.

PATHWAY One Venture Capital Trust has raised £302,000 in its offer for subscription where the closing date has now been extended to 31 January 2002.

ECTwo Investments has invested around £300,000 in Coinmaster, a company expected to be admitted to Ofex shortly. Cardiff-based Coinmaster designs, makes and sells multi-player gaming machines worldwide. Founded in 1980, the group is raising £2.8m at 55p a share to expand operations. Projections for next year show turnover at £8.5m with pre-tax profits of £1m.

An institutional placing is being arranged by Daniel Stewart & Company. ECTwo has a wide range portfolio of investments, including Sportingbet.com (UK), First Artist Corporation, Lo-Q and Firmgrowth.

'THE 24 weeks to the end of November have produced a substantial increase in sales over the equivalent period of last year,' John Green, chairman of Inventive Leisure, told shareholders at the yearly meeting. Five Revolution bars have opened since the year‘s end at the end of June.

BANQUE Technology Systems has started marketing its fingerprint readers to US and European-based airports. To assist in the marketing, the company has raised £150,000 of additional working capital by issuing a three-year convertible note. The reader memorises fingerprints on a microchip contained within a smart card.

MANAGEMENT of investment bank Altium Capital Group has bought the business from Gold-Zack AG, the German-based European investment holding company. Gold-Zack remains a minority shareholder. Altium makes markets in some 120 UK smaller companies‘ stocks and publishes analytical research in the IT, telecoms, media, life sciences, software and business services sectors.

PROMISING signs from Beaufort International, the pan-European business consultancy. It has reported pre-tax profits of £3,000 for the six months to end September compared with a loss of £819,000 in the same period a year ago.

During the period the Swedish and French loss making web consultancy and internet operations have been closed and new contracts won include the FSA, GlaxoSmithkline, Telewest, Orange, National Grid and the Australian Cricket Board.

Some to watch out for

EVENTS of 11 September created major problems for the travel industry, but Peter Read at broker Beeson Gregory believes market uncertainty has created opportunities for Watermark, which provides on-line support services for the travel industry. He concludes: 'Watermark should still be able to grow both turnover and profits strongly.' He suggests the shares are a 'buy' up to 122p.

OUTFITTER Austin Reed is well suited for a 'buy' recommendation from Peter Jones, analyst at Peel Hunt who believes results in January will show the group has been trading well. He says if the shares (currently 137p) break through much above 150p 'a good run should be seen'.

THE curse of the Dome is not upon Quintain Estates, according to Stephen Rawlinson, analyst at Peel Hunt. It holds 49% of Meridian Delta, the group that has been chosen as the preferred bidder for the Government‘s Greenwich Peninsular lands with the potential for 5,000 homes and 3.5m sq ft of commercial space.

'The Government surrounds Quintain‘s own 18.5 acre freehold land,' says Mr Rawlinson.

When profits start to flow in 2004/05, they could be as high as £100m-£150m, he says and, perhaps because potential for complication and delay is limitless, the shares have not responded.

However, he says: 'Quintain shares are cheap in any case.' His value for fully diluted net asset value for the year to June 2002 is 285p against the current share price of around 180p.