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.

Beyond all expectations

AT FIRST sight, the trading update issued last week by Bob Holt, chairman of Mears Group, appeared bland. He did no more than predict this year‘s results for the maintenance services firm will be in line with market expectations.

What most of us failed to understand was that market expectations were suddenly about to change, because since the statement Mears shares have soared 12p to 143p reflecting the view that pre-tax profits will indeed be higher than the £5.03m previously predicted.

The company‘s order book currently stands at £450m and stretches 10 years ahead and my guess is that it will be nearer £500m before Mr Holt gets around to reporting the 2003 figures.

This is a company that has doubled its turnover in the past two years and which is gaining momentum all the time. My guess is that soon those analysts who have been predicting pre-tax profits of £5.94m for the current year and £7m for 2005, will have to start looking at their figures again.

Real-estate goldmine at port

IT IS not often that I take an analyst‘s share tip into this part of the column, but Alastair Gunn‘s assessment of the future of Forth Ports, I believe, deserves more than just a mention in the ?Some to watch out for‘ section.

Mr Gunn, who works for Arbuthnot Securities, positively drools at the prospects for this Edinburgh-based port operator, less for its traditional operations, which are performing more than adequately, but more for its property development potential.

He says: 'It is becoming increasingly likely that Forth Ports will be able to establish a 20-year master plan to realise the full potential of its land holdings on the Edinburgh waterfront. There is considerable additional valuation upside from reclaiming 400 acres of seabed at Leith, two miles from the city centre, and the company‘s conversion to a real-estate investment trust, assuming government consultation, leads to the establishment of these vehicles.'

Mr Gunn suggests the establishment of a real-estate investment trust may enable the company to realise the value of its land assets in a tax-free manner.

The nitty-gritty of the assessment is that development of the 400 acres of reclaimed land between 2013 and 2023 at Leith increases the valuation of Forth shares from their current 1097p to as high as 1799p, and that still excludes any potential from tax changes that might arise, which are worth 284-330p a share, after settlement of outstanding deferred tax and CGT liabilities.

No wonder Mr Gunn says the shares are a 'buy'.

Acquiring Key Skills

BEFORE Christmas I predicted that Intellexis, the AIM-quoted training company, could be planning a takeover early in the new year. I based my thoughts on the fact that the company had raised nearly £2m through a placing of shares.

This week, the proof was in the publishing of a press release outlining the proposed acquisition of a company called Key Skills for a total of £2.4m in cash and shares. Key Skills provides computer-based multimedia training courses on project management.

It is difficult to believe that, less than two years ago, Intellexis was within a month of going under, until Ken Scott was brought in as chief executive to turn the business around. Shareholders will rightly be grateful for Mr Scott‘s talents, but they should also be saying a big thank you to whoever it was invited him to come aboard.

Some you may have missed

DANIEL Stewart Securities, the small company adviser, has launched a leasing division that will trade as Commercial Finance Credit and provide specialist leasing finance for the printing industry.

MINING and exploration group, MinMet, and its joint venture partner, North American Gold, says that recent drilling at its Barsele project in north Sweden includes 'a highly encouraging, gold-rich massive sulphide intersection' something which operations director David Hall says is 'highly encouraging'.

DESPITE a £2m drop in turnover, Quadnetics Group, the designer and operator of advanced CCTV and networked video systems, improved pre-tax profits by £26,000 to £648,000 in the six months to end November. It has also announced plans to buy Look CCTV, who supply bus makers and operators with CCTV systems, for a total of £6.8m.

IT HAS been a busy week for Cyprotex, the drug information group, which has announced a three-year agreement with Roche of Switzerland, a new agreement with AstraZeneca and the appointment of Dr Martial Lacroix to the board.

IAIN Muspratt, chairman of Home Entertainment group, is praying for rain, particularly around Easter and Whitsun, crucial trading weeks for the company which relies on rental and sales of DVDs for its profits. Last year‘s hot summer dented pre-tax profits in the six months to 13 December, resulting in a 15% drop to £3.3m.

KNOWLEDGE Technology Solutions, the real-time financial data technology company, is teaming up with Radianz, a provider of market communications infrastructure for the global financial services industry.

PLANESTATION, the airport and property company, is to create a major new airport cargo handling facility for food from outside the European Union at London Manston Airport at a cost of £2.5m.

ENNSTONE Breedon, part of the Ennstone Group, has obtained permission for a major extension to its site at Burford in Oxfordshire. This will provide Ennstone an additional 2.1m tonnes of limestone reserves, while output restriction at the site will be increased from 45,000 tonnes a year to 200,000 tonnes a year.

CORPORATE Synergy has raised £2.5m for CMS WebView, and issued a 'buy' recommendation, and £700,000, before costs, for Hartest Holdings.

Some to watch out for

ANALYSTS at Arbuthnot Securities have been busy tipping this past week. In alphabetical order they are:

FKI is a 'buy' at 118p says Michael Blogg

Northgate similarly a 'buy' at 552p, they have a 22-27% share price upside says Alastair Gunn

SDL worth 'buying' at 107p says George O‘Connor and Surfcontrol also receives the nod from Mr O‘Connor at 517p