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.

Potential winners

HOW good it is to be entering a New Year with virtually every forecaster predicting that 2004 is going to be better for investors than 2003, particularly as this past year is ending on a high for Small Cap shares.

The FTSE Fledgling index has risen some 55% in the past year and the AIM index is almost 40% higher.

Those of you who have followed this column regularly may even be responsible for some of those increases. That will certainly be the case if you jumped on the Landround bandwagon that started rolling around 120p at the beginning of the year and finished at 400p, having touched 447p at one stage, nearly tripling in price.

Shares of Armour Group performed even better climbing from 18p to 70p in the year while Mears, the very first share tipped in this column, doubled in price from 61p to 139p. UK Coal, tipped at 64p closed at 120p (having dropped to 48p after the first tip and risen to 136p before profit-taking).

Support services group MICE has not yet fulfilled its potential, rising from 44p to 99p but falling back to 69p and MacLellan group has climbed from 50p to 74p, both around 50% better.

A quick run down the AIM list shows some other successes. These include C A Coutts (73p-97p); Hemscott – not heavily endorsed I admit - (15p-41p); Hot Group (10p-18p); Intellexis (50p-107p); Savoy Asset Management (70p-135p); Staffing Ventures (21p-36p); Surface Transforms (5.5p-19.5p) and Systems Union (54p-102p).

While it is never wrong to take a profit, I believe that many of these companies have only just started to show their potential, and so have many others I hope to identify in the year ahead.

Ofex looks towards 2004

WE mere human beings should hang on to the coattails of successful investors. I am intrigued by the purchase of a 6.29% stake in Ofex by entrepreneur Luke Johnson, 41, chairman and principal owner of Signature Restaurants, and the former chairman of Pizza Express.

Johnson has bought 1,354,000 shares in Ofex Holdings at 25p a share, an investment of nearly £340,000. Shares rose 2.5p to 28.5p each on the news. He has also been appointed as a non-executive director to the company.

Simon Brickle, the man who developed the Alternative Investment Market, and Cyril Theret, also from AIM, have been appointed as consultants. These talented folk are not there just to add another few lines to their CVs.

Since becoming a public company in its own right, Ofex Holdings has opened its doors to a competing market-making system. Giants of the Small Cap brokerage circuit, such as Teather and Greenwood, Winterfloods, Hoodless Brennan, and market maker JP Jenkins, will begin participating in 2004.

A further £1m of working capital has been raised which, according to joint managing director Jonathan Jenkins, will be used 'to further develop the company‘s core business, as well as for strategic marketing of Ofex internationally'.

With the stock market in revival and small caps taking off, 2004 could be the year that Ofex comes of age, which should be reflected in the share price.

Timing is everything

FORMER Middlesex and England cricketer, Phil Edmonds, is making quite a success of his move into commercial life heading both mining companies and AIM-listed property investment company Grosvenor Holdings, but he still has a trick or two to learn.

Any hardened City veteran knows that Christmas Eve is the day for putting out company news that you wish to be read by as few people as possible in the newspapers. Conversely, it is a bad day to blow one's own trumpet.

Edmonds published the half-time results for Grosvenor at noon on Christmas Eve – yet they make good reading.

Turnover for the period to end September was 42% higher at £787,091 and pre-tax profits were £28,000 higher at a fraction under £250,000; not only that, but the message from the chairman at the end was 'the future looks very good for Grosvenor Land and we are optimistic about your company‘s prospects.'

Surely not a result and message that should have been lost amid the Christmas wrapping.

On the other hand, half-time results from Abraxus Investments, which concentrates on commercial property opportunities in Eastern and Central Europe, and South African Resources, a mineral exploration company, both of which are chaired by the same Phil Edmonds, are better timed.

Abraxus has made a loss of £29,800 in the six months (against a loss of £160,936 in the same period last year) and South African Resources turned in an operating loss for the period of £129,889 for the six months.

Some you might have missed

ALTHOUGH turnover was down £150,000 to £690,000 in the six months to end September, software learning systems group Intellexis turned in a profit of £51,904 this time against a loss of £1,241,128 in the corresponding period a year ago. Chairman Paul Lever says: 'The outlook for your company remains very positive.'

Destini Financial Services group has bought the 90% stake in Bloomsbury Financial Planning that it did not previously own.

ENVESTA Telecom has bought 27% of Formjet for £100,000 in cash. Formjet has been established by Lyndon Chapman, chairman and chief executive of Envesta, and others, to undertake a management buyout of Software Dialog Group, where Mr Chapman was executive chairman until he resigned in October 2003.

SUNBEACH Communications, the largest dial-up internet service provider in Barbados, has produced an operating profit of Bds$32,915 (£9,986) in the six months to end October. A company statement says: 'The period ahead will see the company deploy its cellular service and the start of revenue flows from this activity.'

HIGH street travel group, Lunn Poly, is to install the Newlands Scientific 'Whispering Windows' in six of its stores across the UK. When not 'talking' to passers by, the windows will play ambient holiday sounds, such as surf breaking and crickets chirping; the sounds will be accompanied by warming sunshine lighting that will work on a distance sensor getting brighter as the window is approached.

Some to look out for

ANALYSTS at Arbuthnot Securities have been busy sorting out their New Year recommendations.

Michael Morris: 'With such significant potential for future growth and a fantastic market position, we continue to rate the shares of Business Post Group a 'buy' at 518p.'

Gillian Hilditch: 'Carpetright has several attractive operational fundamentals' - not least being the dominant player in its market with less competitive and pricing pressure than many other retailers, and says the shares are a 'buy' at 803p.

George O‘Connor has set a price target of 75p on the shares of Kewill and says they are a 'buy' at 57p.

SQC research has set a price target of 150p on the shares of Systems Union Group for the end of 2004 against the current 102p claiming the company is a 'winner in the making.'