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.

Harrier ready to take off

THERE‘s no better time to start following a company than when it is showing signs of recovery and it looks as if Harrier, the software security group, is about to emulate its jump-jet namesake and take off vertically.

This is a company that produced a pre-tax loss of more than £19m in 2002, admittedly virtually all due to a goodwill write-off. In 2003 it made a profit of more than £200,000 and Max Royde at KBC Peel Hunt is looking for £750,000 in the current year, although this figure could be subject to adjustment.

Chief executive Jim Stoddart has taken the company by the scruff of the neck and shaken it into shape since he took control just over a year ago, backed by 29.9% shareholder Bob Morton.

Damaged client relationships have been restored and strengthened and the company is now moving ahead with plans to enter the UK outsourcing marketplace, the fastest growing sector in the UK information technology sector. It is particularly looking forward to the second half of this year when a number of very large government and commercial outsourcing projects will be going live.

Mr Stoddart believes Harrier is in a strong position to become a strategic partner and win valuable subcontracts from successful prime contractors. Meanwhile, consolidation in the sector looks likely in the next couple of years and Harrier intends to buy and merge where the economics make sense.

The icing on the cake for investors (particularly Mr Morton) is that the board intends to carry out a capital reconstruction to allow the payment of a dividend.

Armour rumours

MEANWHILE, Bob Morton can also look forward to some increasing benefits from another of his investment vehicles, Armour Group, the car and home audio equipment provider.

In a trading statement, chief executive George Dexter says the company has 'traded comfortably above expectations in the six months to February 29 and the board anticipates securing further significant new business and looks forward to the second half of the year with confidence.'

Word has it that the group has nailed a major contract with a major German vehicle maker, believed to be BMW, although nobody from the company will confirm this.

Ark starts the flood

THE successful launch of Ark Therapeutics (at the second time of asking) this week is bound to lead to a rush of initial public offerings in the next few months. We already wait with bated breath for the launch of Graham Sherren's Centaur Holdings, the magazine publisher, in a couple of weeks.

And this week I learned from Justin Lewis, head of broking at Corporate Synergy, that his group has five IPOs lined up, of which at least four are expected by Easter.

Victor Beamish, chairman of investment group Billam says 'we look to float further companies in our portfolio during 2004', and several financial public relations companies are preparing campaigns for clients looking to float this year.

The good times, they are a'comin'.

Positives for Statpro

CONGRATULATIONS to Richard Lucas, analyst at Corporate Synergy, who recommended the shares of Statpro, a provider of software to the asset management industry, at 32.5p in January. They climbed to 40p on the news and have risen further since.

The company announced this week its first ever profit in 2003, a modest £100,000 but welcome when compared with the £2.4m loss in the previous year. The company has been cash positive for the past 18 months. With the market for financial software and services improving, Statpro should continue its rapid growth.

Some you may have missed

SPECIALIST online risk consultancy Wyatt Group says trading in the second half of the year will be in line with performance in the first half. As a consequence, results for the year ended 31 March are expected to be below market expectations.

Turnover is likely to be some 50% lower than originally anticipated due to the ill health of a key executive in the main operating unit, from which he has made a full recovery. However, current trading is encouraging and discussions are at an advanced stage with regard to an acquisition.

As a result of their participation in the recent placing of new shares, Strathclyde Pension Fund holds 16.2m shares in the company, representing 7.39% of the issued share capital, and Gartmore Smaller Companies Trust holds 8.9m shares representing 4.06%.

LORD Hoyle (74) has joined the board of Debt Free Direct as a non-executive director, while Paul Latham takes on the role of company secretary as well as finance director. Former company secretary John Reynard becomes a non-executive director with particular responsibility for the audit committee.

GENETIX Group, the genomics and proteomics technology group, saw pre-tax profits fall £1.5m to £800,000 last year, however, chief executive Mark Reid says: 'Despite challenging trading conditions in 2003, Genetix remained both profitable and cash generating. We believe organisational and process developments introduced in the past year, together with an improving trading climate, will help us deliver enhanced growth over the next few years.'

GORDON Cameron's first appearance since his appointment as chief executive of Acambis last month, has been to reveal a 112% jump in revenues to £169m and a 310% leap in pre-tax profits to £39.4m after an exceptional cost of £7.4m. No wonder he says 'I am truly honoured to be taking over as chief executive of Acambis and to take the company forward to its next phase of growth'.

SPRUE Aegis, designers and makers of the FireAngel range of smoke alarm systems, has appointed an Australian distributor and has won its first order for 10,000 units down under already.

BTG Portfolio's £600,000 investment in VisionTec, the contact lens technology group, is paying big rewards. VisionTec has been bought by US-based lens retailer, 1-800 Contacts Inc, the deal being partly in cash and partly in shares of the Nasdaq-quoted company, and also includes a per-unit royalty for a period of 10 years.

LAPPS Plats, the newly formed mineral exploration company, whose principal shareholder is Minmet, has been launched on Ofex at 7.5p a share. The cash raised through the placing will used to finance initial staking of several nickel and platinum targets identified from Minmet's geochemical database.

INVESTMENT company Billam, reports net assets of £10.7m at 31 December, a growth of more than 70% in the past three years. Chairman Victor Beamish says: 'Billam is well positioned with a good portfolio of investments, minimal borrowings and has an appetite to expand its portfolio and develop its existing holdings. We look to float further companies in our portfolio during 2004.'

DESPITE a near seven-times rise in turnover to £298,000 in the six months to end December, Knowledge Technology Solutions, the market data services group, saw pre-tax losses rise by £111,000 to £432,656. However, new chairman Gavin Casey reports that annualised contracted managed service revenue now exceeds £850,000, which is 70% higher than the figure produced last October.

PETER Gibson, former chief executive and chairman of Corin Group and Jon Pither have been appointed non-executive directors of AorTech International, replacing Jonathan Brooks and Bill Strachan who have resigned.

AIM-quoted mining group, Jubilee Platinum, has finalised a transaction with New Africa Mining Fund and South African Private Equity Fund, whose goal is to help foster mining activities and empowerment in South Africa and the rest of Africa, particularly assisting junior mining companies. The deal also involves K-Plats, a black-owned South African empowerment company.

ROY Pitchford, former chief executive of Zimbabwe Platinum Mines is to become chief executive of Southern African Resources, the AIM-listed mineral exploration company on 1 April.

SYSTEMS Union, a seller of software, has produced profits up 42% to £6.1m for 2003. An inaugural dividend of 1p is proposed. Chief executive Paul Coleman says 'we believe we have the pieces in place for continued success'.

NO GOOD news from Ramco, the Aberdeen-based exploration and production company. An update on its Seven Heads gas field in the Celtic Sea shows things have worsened since the announcement of 6 February that wellhead pressure was much lower than expected. The statement says: 'Since our last announcement wellhead pressures have declined further.'

GOOD news and not such good news from Axis-Shield, the vitro-diagnostics company. Results for 2003 show a 7.2% rise in revenue to £50.3m, but a £4.5m rise in losses to £6.7m reflecting the non-recurring increase in research and development spending.

The goods news is, however, that R&D spending is obviously beginning to bring rewards. The Axis-Shield diabetes test has been chosen for a major Chinese research project, the first phase of which will run for two years, involve 200 sites and 100,000 patients and is sponsored by the World Health Organisation. It is estimated there are 40m diabetes patients in China with the number increasing by at least a million a year.

Some to watch out for

AMONG the many share selections produced by analysts at Arbuthnot Latham this past week, I draw your attention to:

Brit Insurance, about which Dilap Shah says 'the strategy of returning capital to shareholders is now in place and with the shares on a prosepective 2004 yield of 6.7%, the company is now a safer bet.' He puts a fair value of 95p on the shares and says 'buy' at 85p.

Invu, the software and computer services group, is favoured by Robert Sanders who says 'despite what we consider to be conservative forecasts, the shares look good value on a prospective 2006 earnings basis – buy.'

Spectris, the electronics group with a good position in China, is a 'strong buy' at 488p for Michael Blogg, who puts this company down as one of his major stock selections for 2004. He says the shares look at least 100p too low.

CHRIS Steele, at Westhouse Securities, initiates coverage for BKN International, believing the company is 'well positioned to benefit from a recovery in advertising spend and an exceptional library of animated children‘s TV programmes, several new and potential series and a highly experienced management team who are capable of maximising their rewards from a variety of earnings streams.'

'BUY and tuck away' shares in CenterParcs at 103p says Greg Feehely at Altium Securities. He believes that although the company came to market fully valued, its attractions include cash flow, a potential 5–10% a year rise in earnings, a soon-to-be-announced new landlord development facility and eventually a fifth site. He also suggests a move to the full list mid-year should improve liquidity.

DAVID O‘Brien at Altium Securities puts in a good word for Robert Walters, the support services group whose 2003 results were well ahead of market estimates. He says the shares should be added to a portfolio at 141p.

THE initial reaction to mark down the shares of software group CRC to 150p on results 'will be proved over the next year to be wrong' says Robert Corden at Charles Stanley. He puts a target price of 200p on the shares. His view is supported by comments from brokers Williams de Broe who suggest CRC is set for growth and Edison Investment Research who claim the 'outlook is more positive'.