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.

A leaf out of the Sage's book

DANIEL Goldman is a computer chip off the old block. Son of David, co-founder, chairman and chief executive of Sage, his INVU document management software group is proof that those who believe 'there's something in the genes' could be right.

Formed five years ago INVU is expected to achieve its maiden profits in the year to end January 2005. Robert Sanders at Arbuthnot Securities has pencilled in £300,000 for the period and is looking for £1.5m in the next year.

The company came to market earlier this year and is now clocking up 40 to 50 new customers a month. Key to the success is the growing number of credible resellers of the company's product, distributed in a manner not unlike the Sage model.

At the last count there were 114, and the number would have been even higher if the company had not 'culled' 14 in the first half of the year because they were considered 'not capable of delivering good growth' by Mr Sanders.

The late David Goldman and his team took Sage from zero to a FTSE 100 company. Daniel says he would be happy just to take INVU into the FTSE 250, but I believe he is more ambitious than that. He knows that dad would be very proud to have another Footsie member in the family.

GALAHAD

READERS will know the cynicism that I have for the claims of mining companies and their 'jam tomorrow' promises. However, every once in a while one emerges that has even me almost convinced.

Ian Watson at Galahad Gold has come close to penetrating the thick Lay skin, for no other reason than he is already sitting on a healthy profit and has found the backing of brokers Seymour Pierce.

Mr Watson is a Canadian former mining analyst whose idea is to buy into companies after they have done the exploration but before they start production. Galahad is an Aim-listed company whose most important investment so far is in Northern Dynasty Mines, which is sitting on what could be the biggest gold deposits in North America – we are talking potentially 50m ounces.

Of course, we have to wait for the inevitable 'feasibility study' to confirm figures. That is due next June, and if positive, there is the small matter of putting together loans and equity to raise between $1bn and $1.5bn to get things moving. Then it will be 2008 before any gold comes out of the ground.

All these are factors that make me nervous about mining companies but, what I like about Galahad is that in the past 18 months it has invested some $20m in Northern Dynasty, and that stake has risen in value to $105m.

According to the Seymour Pierce research note, Galahad shares currently standing at 13p are a 'buy' with a potential net value of 25p.

You can see why it's getting under my skin.

New issue alert

MY mother used to tell me it was better to be lucky than rich, which was quite a useful philosophy considering she was never rich. Simon Brickles, the new chief executive of Ofex, however, may turn out to be both lucky and eventually rich, which is a perfect combination.

He took over the top job at Ofex, which has been losing companies to Aim throughout the year, only last Monday but already has four new companies who have joined or announced they will be joining. It has been his luck to inherit what has obviously been in the planning stages for months.

He has also inherited an organisation that now has its finances in order and an enthusiastic new management team in place.

On the other hand, Jonathan Jenkins, son of Ofex founder John Jenkins, and the man who has been running the exchange as joint managing director with his sister Emma for the past 18 months, stepped down last Monday to seek other roles 'in the Ofex/Aim space'. Having brought the new management in and been at the helm when new finance was being raised, his luck ran out.

The companies that are breathing new life into Ofex are:

Espro

ESPRO is the first Israeli company to join Ofex and is also the third-biggest company in the audio guide industry, but it is an audio guide with a difference. It enables the user to ask, and receive answers to, questions and to bookmark sectors.

It has subsidiaries in France, Holland and Turkey and shortly will have a subsidiary in the UK. The company raised £400,000 through a private placing of shares at 45p each and saw a premium of 3.5p on the first day of dealings last Monday.

Sports Technology Group

SPORTS Technology Group, which started dealing on Ofex today, has developed a sports management system. It is used by governing bodies - such as the Rugby Football League, the English Rugby Union and the England & Wales Cricket Board - to help coaches and management to monitor and analyse the development and progress of both individuals and teams over long periods.

Interestingly, each of the more than 100 national governing bodies in British sport currently hoping to get their hands on the £1bn of Lottery funding under the 'World Class Performance Programme' has to implement a sports management and registration system to be eligible.

Vicorp

VICORP, a provider of software for voice recognition and data services, has raised £500,000 through a private placing and is due to start trading on Ofex next Monday.

The company was taken private by chief executive Brendan Treacy in 2002 following a management buyout from its US parent and already includes Bell Canada, the largest Canadian telecommunications carrier, as a customer as well as Orange, Lastminute.com, HBOS, Rover and Toyota.

The shares are expected to start dealing around the 135p placing price.

Sexual Health Group

THE last time I met John French he was wearing his hat as chairman of Croma Group, a supplier of military equipment. On that occasion he pulled a hand-grenade out of his holdall in the lounge of a plush London hotel to demonstrate the model.

Old-fashioned thing that I am, I think that episode was less embarrassing than the unveiling of his current product – condoms.

Mr French is a serial director of smaller companies, sitting on the board of Air Music & Media, I-Financial Services Group, Avanti Screenmedia Group, and The Claims People Group as well as Croma.

Now he has added the chairmanship of Sexual Health Group, which is raising up to £850,000 by an offer of shares at 16p each and planning to joining Ofex in the next few weeks. Copies of the prospectus are available through St Helen's Capital (Tel: 020 7628 5582).

Sexual Health Group was founded by George Sutherland, whose CV includes 'being one of the team that launched the Mates condom brand'. It is the producer of Condomania, a condom brand that already lists the National Health Service among its clients. The NHS gives millions of condoms out free to teenagers every year and to others who are vulnerable.

But this is only a foot in the door for the company. The cash being raised is to bring on board a bigger sales team who will be armed with an increasing array of sexual health products sourced overseas but which can be marketed to our to health professionals.

Mr French says that early next year he will be offering a kit, already available in the United States, that can test both men and women for Chlamydia.

With the Government planning to spend £47.5m to implement its sexual health strategy and reduce the incidence of sexually transmitted infections, the company may not be able to prevent at least one happy event next year – its results.

Caspian Holdings

THE Aim market continues to attract new companies as well. Caspian Holdings, the shallow field oil and gas exploration and production company focused on Kazakhstan, is raising £4m through a placing and plans to float on this market in the next couple of weeks. Hoodless Brennan is acting as broker and Grant Thornton Corporate Finance acting as nominated adviser.

Some you may have missed

Maelor
Healthcare group Maelor is 'on track for profitability' says chairman Alastair Macpherson on the back of a 159% leap in turnover in the six months to end September and a 44% in losses to £408,000.

Ashcourt Investment Advisers
Ashcourt Investment Advisers, a subsidiary of Ashcourt Holdings, has launched its own Self-Invested Personal Pension offering the full range of Inland Revenue permitted investment options, including investing in commercial property as well as OEICs, unit trusts and individual shares.

From April 2006, when the rules change, this plan will also allow residential property and other 'alternative' investments, including wine and antiques, to be included in the investment portfolio.

Cheerful Scout
Stuart Appleton, chairman of Cheerful Scout, the Aim-listed multimedia group, told shareholders at the yearly meeting: 'The company is making significant progress with trading up in the first three months compared to last year's corresponding period.'

SOCO Tamtsag Mongolia
SOCO Tamtsag Mongolia, a wholly owned subsidiary of SOCO International, has successfully completed its planned four-well 2004 exploration programme in Mongolia. All four wells have encountered hydrocarbons.

BDI Mining
The recovery of 1028 carats of diamonds in its Indonesian project has cheered BDI Mining President and chief executive, Lee Spencer, who says: 'The results to date represent a recovered diamond grade approximately 20% higher than budgeted for in the feasibility study.'

Of the stones recovered 18 were greater than 3 carats and of these five were greater than 5 carats.

Sondex
Oilfield technology group Sondex saw turnover rise 32% to £9.7m in the six months to end August and losses before tax were reduced to £1.1m from £3.2m at this stage a year ago. Chairman Iain Paterson says: 'current industry conditions give us confidence of an excellent second half and a successful outcome for the current financial year'.

The company has also bought the patents and technology of a new well test production logging system from Geo Energy, a French research organisation, for e300,000 (approx £200,000).

Gippsland
A bankable feasibility study for Gippsland's Abu Dabbab Tantalum project in Egypt says the project will produce 'in excess of 650,000lbs of tantalum peroxide a year'. This would make the operation the world's second-largest tantalum producer. The project will also produce 1530 tonnes of tin metal a year, according to the study.

Health Group
Pearl Street Holdings is providing a loan of up to £600,000 through unsecured convertible loan notes in the Health Group, the provider of tailor-made private healthcare packages to corporate and individual clients.

Vitesse Media
Chris Ingram, a media and marketing guru, who sold his Tempus Group to WPP for £432m, has bought a 13.77% stake in Vitesse Media through his Genesis Investment vehicle for £500,000 and has joined the board as a non-executive director.

Avanti Screenmedia
Avanti Screenmedia has signed a contract with Brook Leisure for the supply of its Magnetic, advertising funded channel to 11 bars across Yorkshire and Lancashire.

ITrain
ITrain, the provider of IT training software is to supply banking clients of GAD, a leading German IT service provider, with IT training courses for Microsoft Windows XP. GAD supplies around 500 German banking branches – some employing more than 1,000 people – and the courses will cost e36 (approx £24) per person.

NWF Group
NWF Group has sold its five Country Stores to Countrywide Farmers for £1.8m, with a further £600,000 of deferred consideration payable in November 2006. At the same time, NWF has bought Victoria Garden Centre, near Wakefield, Yorkshire, for £6.1m, of which £3.2m is deferred, spread equally over the next three years.

InTechnology
Data storage group InTechnology has reported sales performance well ahead of market expectations, being 65% up in the six months to end September at £132m. At the bottom line group loss was £2.2m against £3.5m last time.

Some to watch out for

Matrix Communications
Tom Jenkins at Daniel Stewart feels that the current price of Matrix Communications – 122p – does not 'fully reflect the company's progress to date or its growth potential'. He says the shares are a 'buy' and sets a target price of 190p.

Collins and Hayes
We don't feature many 'hold' recommendations in this section, but there's something about Barney Gray's recommendation for Collins and Hayes, the household furnishing group at 15p.

The Westinghouse Securities analyst says: 'We believe that the current modest valuation does not factor in the potential for steady profit recovery over the next 18 months. As such we would like to upgrade our recommendation on the back of improving news flow in this period.'

Hill & Smith
Analysts at Arbuthnot Latham have had their buying boots on this week with recommendations for galvanised products group Hill & Smith, whose cherry-picking of assets from the administrative receiver of Lionweld Kennedy are expected to provide 'a pretty rapid payback'. Michael Blogg says the shares are 'significantly undervalued at 105.5p'.

UMECO
Mr Blogg also likes the look of UMECO, the company involved with the aerospace industry. He says: 'the rating of the shares fails to reflect the growth potential from several sources, and the quality of the group's offering to a widening customer base'. He says 'buy' at 442p.

Business Post Group
His colleague Michael Morris likes Business Post Group at 533p following a demerger of its DX business.

Loyalward Group
Brokers JM Finn has commissioned research on Loyalward Group, the Ofex-based company that is developing and will manage a leisure and tourist resort on the north-east of Crete, and the conclusion is that the current market value 'more than discounts the risks' and the decision to move to Aim in December will improve marketability of the shares