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.

Cynical? Yes, but with good reason?

I have never met anybody in the mining business who does not believe that their project is ?the big one‘. I have never met anybody in the mining business who is not trying to raise additional funds, nor any who are not promising jam tomorrow.

But they accuse me of being cynical.

This week I lunched with Chris Kyriakou, chairman of Aim-listed Toledo Copper Corporation, an Australian lawyer who has been involved in mining since the 1970s and fellow director Merfyn Roberts. The occasion was the announcement that a technical audit of the feasibility study covering the reopening of the Toledo copper mine in the Philippines is “substantially complete” following several months in which the price of the metal has soared. But so too has the cost of recovery through leaping oil and coal prices.

The outcome is that Toledo needs to raise $171.38m, a figure that Mr Kyriakou does not deem to be daunting in the current market. Mr Roberts says that China, Indonesia and India are all likely to be major users of both copper and the company‘s other major product, nickel, for at least the next ten years.

The company has already signed a contract with Nippon Metals and Alloy Inc for the sale of nickel and says it expects a further contract with another ?major Japanese trading house‘ to be signed before the end of the year, and with a major Australian consumer in the first quarter of next year.

I left the lunch almost convinced, and even smiled when Mr Roberts urged me “not to be so cynical about mining companies.”

The next day I opened my Financial Times to be greeted by the headline: ?Copper Price Buckles Under Growth Fears‘. The story started: ?Copper prices yesterday suffered their biggest one-day fall in eight years as metals prices tumbled across the board‘ the fall following concerns that metal consumption growth in China is slowing.

The story goes on to reveal that JP Morgan expects Chinese copper demand to grow by 10% next year, down from 13.5% in 2004, and that global demand growth is expected to rise 3.9% while production is expected to rise 6.5%.

Also quoted is Nick Mason, a metals analyst at CRU, the metals consultancy, who said metal prices had overshot themselves. An additional paragraph said: “Nickel, which is the most volatile in the industrial metal market, slid $250.”

Me? Cynical? As if?

MACLELLAN

At least now we know why John Foley, chief executive of Maclellan Group was keeping his head down when he announced the yearly figures a couple of weeks ago - he was obviously close to clinching a major take over deal.

The group has announced that it intends to buy First Security, the manned guarding, reception, post-room and key-holding group, operating with 1,800 trained and vetted personnel in more than 300 sites mostly in London, including financial institutions and government departments, as well as shopping centres and property management companies.

The deal will cost £18m immediately, being funded by a placing of shares at 60p each to raise £10m and increased bank borrowing, and there will be a further payment of around £1.26m based on future performance.

New Issue Alert

Falkland
A new issue that has been subscribed three and a half times is a rarity these days, but Falkland Oil & Gas has caught the imagination of both institutions and the smaller investors alike.

Applications for nearly 17.5m shares were received for the 5m shares on offer, meaning that some will not receive all they asked for. Everybody will get 2,500 shares – the minimum they could apply for - but those bidding for more receive 2,500 shares and additional 12.415% of their additional application.

XL
XL TechGroup, the US-based technology group, has raised £23m and the shares have started trading on the Alternative Investment Market. Chairman Dr John Scott says: ?The funds raised will place us in a strong position to establish and develop more new companies in our pipeline.‘

Orca
Orca Interactive, a software provider for the internet protocol television market, has raised £14m through a placing by Altium Capital. Dealings in the shares started on Aim yesterday at a healthy premium and chief executive Haggai Barrel says: ?The funds will enable us to build our standing in our markets and to harness the sizeable opportunities available to us.‘

Western Canadian Coal
Western Canadian Coal Corp has started trading on Aim having raised C$20m (£9.35m). Williams de Broe acted as nominated advisers and broker to the company.

Phoenix IT
Phoenix IT, an IT services company that was founded in 1979, says it plans to list its shares in 2004, subject to market and other conditions. The company has a ten-year track record of turnover and profit growth and in the year ended last March saw turnover at £58.3m with operating profit of £10.8m.

Some you may have missed

Plant
Plant Health Care has agreed to an exclusive long-term arrangement with consumer product development and commercialisation The Scotts Company, the world‘s leading supplier and marketer of branded consumer products for lawn and garden care. It was the first significant agreement entered into by Plant Health Care since it floated on Aim in July. Within a couple days it was announcing a second deal, this the purchase of VAMTech Inc, a research and development company, for $1.95m (£1.1m) plus a payment of $775,000 (£430,000) in interest-free debt over five years.

Red
Red Squared, the IBM-managed services partner, has won orders for its Red Alert software monitoring system from Speedy Hire, the equipment hire group, and from Jacobs Babtie, a consultancy group operating in transport and development. David Johnson at Daniel Stewart, says the deals ?demonstrate the demand for product as well as its broad applicability.‘

Billam

Billam, the company that backs companies on their way to market, has a 1.9% stake in Sareum, the drug discovery company, which has started trading on Aim.

Envest
Envesta Telecom is proposing a share consolidation that, at the first stage, will consolidate 15,000 existing ordinary 1p shares into one large share with a nominal value of £150.

Premier
Premier Oil has made a successful appraisal of the Gajah Baru field in Indonesia, the results of which have exceeded pre-drill expectations. Premier now estimates that recoverable reserves for the Gajah Baru field have increased to around 325bn cubic feet, equivalent to 54m barrels of oil.

Network
Scott Fletcher, chairman and managing director of Associated Network Solutions , has bought 60,227 shares and now has a beneficial interest in 6,145,227 shares representing 49.4% of the company.

Henderson
Henderson Morley has raised £250,000 through a placing of shares, and will use the funds to enable the company to negotiate with potential partners prior to securing a licence with milestone payments

Community
Robin Singer, a former director of National Westminster Bank, has been appointed a non-executive director of Community Broking Group where he will chair the audit and remuneration committees.

Stewart
Daniel Stewart has been appointed joint broker to DawMed Systems and is now adviser to 14 Aim-listed companies and broker to 18.

Knowledge
Knowledge Technology Solutions reports group turnover up 379% to £770,000 in the year to end June and a group loss before tax of £940,000 ?reflecting continued strengthening of sales and technical teams to support the Market Terminal roll-out and extended exchange coverage.‘

Sirius
Sirius has signed a term licence with Zurich insurance group for the supply of its software. The contract is initially worth £260,000 in licence and support revenue for each year and includes professional services for phase one of £180,000.

Some to watch out for

Spectris
There is no doubting the enthusiasm that Michael Blogg, analyst at Arbuthnot Securities has for the technology group, Spectris. He describes new finance director Steve Hare – former chief financial officer of Marconi - as ?a high-quality replacement‘ for the departed Graham Zacharias and Paul Boughton, and believes the appointment should ?start the process of rebuilding confidence to normal levels.‘

He adds: ?On the basis of the international peer group, the shares should be 200p higher than the current 405p and says they shares are a ?strong buy‘.

BetonSports
BetonSports is also a ?strong buy‘ says Alan Millar from the same stable, placing a target price of 175p on the shares which are currently 139.5p.

His colleague Stephen Rawlinson believes the sale of the French civil engineering operations of Carillon is ?a sensible bit of tidying up‘ and although the shares at 211p are near the top of their short-term trading range, they remain a ?buy‘ on a 12-month view.

Centurion
Roger Tejwani, analyst at brokers Daniel Stewart, has raised his full-year revenue forecast for Centurion Electronics by £2.4m to £15.5m and, although reducing his pre-tax profit prediction by £200,000 to £1.9m, says the shares are a ?buy‘ at 86.5p.

Silvermines
SQC Research says: ?At the current price the shares (of Silvermines Media) are obviously speculative, but offer strong upside potential for what is almost option money. The right deal could see the shares rise substantially in price.‘ He sets a six-month target price of 10p against the current 4.5p.

Sports Network Group
SQC also sets a target price of 10p (current price 5.3p) on the shares of Sports Network Group claiming: ?these shares are significantly undervalued.‘

HatPin
There is also a ?bullish‘ note on Hat Pin, the employment group, which is ?now accelerating its growth and its profile‘. The target price here is 85p against the current 56.5p.

Datacash
Paul Jones, analyst at Numis Securities, admits to being a fan of Datacash and puts a target price of 116p on the shares currently trading at 89p.