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.

Spirit of the Alamo

YOU HAVE to admire the courage of Michael McElwrath, chairman, president and chief executive officer of Far East Energy Corporation, an American group that is exploring and developing three of the largest coalbed natural gas projects in China.

This Texan has in him the spirit of the Alamo, ready to battle against overwhelming odds in his search for success.

Mr McElwrath is on a whistlestop tour of London, Geneva and Zurich, attempting to raise $16m-$20m to help develop these mighty Chinese projects, a tough enough ask in itself, but in this case he is taking it on while the company is being investigated by the powerful US regulatory body, the Securities and Exchange Commission.

The SEC says it is investigating whether 'certain persons or entities from at least January 2000 through to the present' may have violated federal securities laws in connection with their ownership and trading of securities in Far East Energy. Since the SEC started its work last autumn, FEEC shares have dropped from $3.20 each to $2.

Mr McElwrath was aware of the problem when he joined the board but believes all will eventually be resolved and, meanwhile, he is convinced the prospects for these projects are too good to ignore.

This is no naïve hopeful. Before joining Far East Energy he was vice president of TMP/Hudson Global Resources, and has been a senior adviser to US Presidents on energy matters, being acting assistant secretary of energy in the Bush (the elder) administration with a $2.1bn budget to develop the nation‘s coal, oil and gas policies. He was also international negotiator and policy adviser in the Reagan administration.

His position on the board, therefore, might be sufficient to convince some European investment houses to take a stake. However, while Mr McElwrath is clearly convinced in himself, he is having trouble in getting even his best friends – some of the oil industry‘s Who‘s Who – to join him in the boardroom 'until the SEC inquiry is out of the way'.

Should UK and Continental investors be in any more of a hurry?

Mobiles fixer recovers

CRC Group, in the management-speak of today 'provides after-market services' for brand leaders in 'communications, home gateway and IT Technologies'. In essence, what they do is repair broken mobile telephones and set-top boxes for some of the biggest names in the industry.

Last summer, the company took a mighty hit when its biggest customer, Nokia, demanded a change in its terms of business, mostly because its mobiles were considerably more reliable than they were when the original contract was signed.

The effect of this was to reduce CRC‘s sales to Nokia by a staggering £45m. Some companies would just have rolled over but, to the credit of CRC, the board took it on the chin and have succeeded in boosting sales to other customers by £35m.

They have also made three important acquisitions during the year, not least buying out the repair centre of Siemens Business Services in Germany, a deal that bought new customers and contracts.

Profits in 2003 took a hit, dropping £4m to £3.7m, but the board has shown its faith in the future by retaining the year‘s dividend at 7p a share.

Chief executive Alan McLaughlin is confident of a recovery this year and has the support of Robert Corden, analyst at Charles Stanley, who says the shares are a 'strong buy' at 150p, and he sets a one-year price target of 200p.

Stefanini goes for AIM prestige

LAST week I asked if Peter Stefanini, chief executive of Millbrook Scientific Instruments 'had his ear close enough to the ground?' Well, the answer is that he has, and he rang me to tell me so.

The point behind my comment was that he had told a meeting of investors of his plan to move the company from Ofex to the Alternative Investment Market. It just happened that my previous story had highlighted the number of senior individuals leaving AIM to join the buoyant Ofex team.

Mr Stefanini told me this week that he had nothing against Ofex, in fact he had often spoken out in public in its favour, but as his plan was to expand by acquisition to a £10m company by the end of next year he needed to use shares to buy and, in his words: 'Ofex paper is not as prestigious as AIM paper.'

It‘s a beauty

IT‘S about time there was a bit more glamour in the stock market, so I welcome plans to list Reflexion Cosmetics on AIM next Thursday. Reflexion is an investment company set up to acquire and develop under-performing businesses in the toiletries and cosmetics sector. It is raising £500,000 through a placing of around 3,850,000 shares at 13p each.

Some you may have missed

THE AUTO electronics division of Armour Group has won its largest ever order to supply its VEBA in-car entertainment equipment for four Hyundai models. The new system is being launched in March.

ENNEUROPE‘s Polish subsidiary has bought Betonex, a ready-mixed concrete business based in the north west of Poland for £60,000.

ENNSTONE Breedon, a subsidiary of Ennstone, has been awarded a Royal Warrant as an Aggregates Manufacturer to Her Majesty the Queen.

SIRA Business Services increased pre-tax profits by £48,000 to £258,000 in the six months to end December, on a 2% rise in sales to £7.74m. Acting chairman Chris Gilbey says: 'Indications are that there remain good opportunities to grow the business. However, high levels of competition make these opportunities hard to secure and at tight margins.'

MEDAL Entertainment and Media is raising £3.23m through a placing of shares at 75p a share. The proceeds will be used to develop the company‘s business.

CORPORATE Synergy has been appointed broker to 1st Dental and First Derivatives, both AIM-listed companies.

Some to watch out for

FOLLOWING the announcement of record profits of £20.9m (up 35%), Morgan Sindall has received a further 'buy' recommendation from Stephen Rawlinson, analyst at Arbuthnot Securities. He says the company 'is set to deliver 5-10% growth each year in both pre-tax profit and dividend'. Mr Rawlinson also approves of the appointment of David Mulligan, 34, as finance director, which he describes as a 'positive move'.

THE same analyst also gives the thumbs up to Baggeridge Brick, not least because the company 'has around £20m of landfill assets that are in the books at nil value'. He says the shares are a 'buy' at 164p and sets a target price of 190p.