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.

Crown no jewel

OLDER readers may remember a time when the company, still known as the Burton Group appeared as leaderless as the current Tory Party. Steering the company was chairman Ladislas Rice, a true gentleman of the old school, of whom I wrote: ?He is charming, so charming that if he had been in charge of the Titanic when it hit the iceberg he would have convinced the passengers it was a regular port of call, or at least the water was warm.‘

Cruel, but I believed fair, as did the City at the time, because he did not last as chairman for another full week.

I haven‘t thought about Mr Rice in years, until this week when I received a call from Wolfgang Menzel, president and chief executive officer of Crown Corporation which is due to list on AIM on October 31 following a euro200m (£140m) placing of shares.

Speaking from his Zurich office he was politeness itself; totally reasonable in outlining his plans and a person you could not help wanting to succeed and to write nice things about.

But, and it is a big but, I cannot help wondering if success will come as easily as he confidently believes.

Crown Corporation is, according to the press release, ?the brainchild‘ of executive chairman Dr Mariusz Rybak and Mr Menzel. Yet I cannot believe the ?brainchild‘ was a ?eureka moment,‘ the concept being to find undervalued public companies in the Canadian and US marketplace, take a controlling stake, then manage them properly.

Menzel believes this is unique, but I believe it is what venture capitalists and fund managers have been trying to do for years in various parts of the world.

That is not what concerns me, however. For a start, there is nothing simple about the organisation.

Crown Corporation is a Bermuda registered company (for tax reasons), owned entirely by European investors - no shares have been sold to UK holders. It will invest in Canadian and US undervalued public companies - there is a lot more transparency in those countries than in Europe - and yet it will have a quote on the London AIM market in sterling, although the shares are denominated in euros.

Menzel argues the AIM is the only second tier market in Europe which has not lost its shine, and that is why it was chosen as the place where the European shareholders would find a level of liquidity to enable share dealing.

As well as the in-house team running Crown, there are also 100-150 part-time specialists seeking target companies or, as Menzel puts it ?participating in the game.‘

Having looked at some 6000 small and mid-cap companies during the past three to four years, these part-timers have identified as many as 25 companies as potential targets. Menzel anticipates getting between seven and eight on board in the first year.

His approach will, initially, ?be friendly,‘ and he says there is much that can be done to improve a company‘s performance and that if Crown makes an investment and takes a minimum 51%, it will help the company succeed but will bring in its own management if necessary.

If the friendly approach doesn‘t work, a less friendly one will be tried, which might involve getting outside shareholders to support a change.

It all sounds so simple, but I believe Menzel‘s ?old Europe‘ charm will need to work overtime if he is to win over the boardrooms of seven or eight US companies in the next year. I wouldn‘t be surprised if a large slice of the £140m in the kitty will find its way into the pockets of US lawyers.

OCTOBER is a significant month in the calendar of print management group TripleArc. In each of the past two Octobers it has announced acquisitions. This time round is no different, except in the scale of its action.

It has made a major step forward with the reverse takeover of the much bigger Access Plus group in a deal worth more than £40m.

Jason Cromack, chief executive of TripleArc, believes it to be a merger made in heaven. He said: ?We have the technology that Access Plus needed to keep expanding in this growing market place, and they have everything we need in terms of servicing and warehousing throughout the country.‘

The deal is being done in cash and shares and, as part of the exercise, TripleArc plans to raise £11.2m to fund the deal.

But there is a cost, and after expenses incurred in the placing and the offer, the net amount raised is reduced to just £7.9m. Which means just under 30% of the cash raised goes back to City advisers. Expensive, or what?

Your deal

FOR the first time since the Ofex market was launched, specialist market maker JP Jenkins is to have a dealing rival.

From Monday, Teather & Greenwood will start trading in four securities: Brakspear, Medico Legal Consultancy, WTN Group and Scarisbrick.

It appears other market makers have expressed interest in joining in the fun, and it looks as if the door may be opening wider before too much longer.

Ofex, which supplies a share-trading platform for unlisted and unquoted companies, has created a market in which more than 450 companies have raised in excess of £1bn over the years. In April this year it took the plunge itself and successfully floated, but on the Alternative Investment Market.

Some you may have missed

THE board of medical and legal report provider LitComp, has approved the issue of 1,550,000 share options to seven directors and senior managers, all of which are exercisable in two to five years ?or earlier if certain performance targets are met.‘

CAMBRIAN MINING has raised £1m through a placing of shares with Madoff Securities International. As a result Madoff now holds 11.69%of the enlarged share capital.

PRIMARY STEPS, a subsidiary of AIM-listed Creative Education Corporation, has made a number of key acquisitions in the education sector, increasing its portfolio to 12 units.

ENVESTA group is changing its name to Envesta Telecom. Shareholders were told of the change at the yearly meeting, where they were informed the company is ?currently pursuing a number of acquisitions and start-up opportunities‘.

PETER O‘REILLY has bought a further 100,000 shares in Honeygrove Group, the residential property developers, and now holds a 3.58% stake.

BRITISH oilfield technology company Sondex has opened a new office in the United Arab Emirates.

Some to look out for

PROSPECTOR Angus & Ross has started exploration on two of the more advanced gold targets in its recently-acquired portfolio of seven licences in Queensland. Results of the drillings on at least one site are expected next month. This is good enough for Luke Ahern, analyst at Corporate Synergy, to recommend the shares as a ?speculative buy‘.

ALAN MILLAR, leisure analyst at Arbuthnot Securities, believes there remains an opportunity to develop and grow Jennings Brothers ?at a very respectable rate without undue risk‘. He adds: ?Further out, there are likely to be opportunities arising from consolidation in the regional brewing sector.‘ He recommends the shares as a ?buy‘ at 210p.

ARBUTHNOT analyst George O‘Connor remains a ?buyer‘ of IT company Kewill Systems at 54 1/2p ahead of the interim results due on November 4.

SQC Research had already upgraded the 2003 and 2004 profit estimates for travel promotions company Landround twice this year and now has adjusted them ahead yet again. The shares, which have risen from 122p to 320p this year, now have a target price of 420p by the end of 2004.

ARBUTHNOT analyst Stephen Rawlinson believes the appointment of Les Trench to succeed Barrie Cottingham as chairman of construction group SIG early next year is a good choice. He says the shares are a ?buy‘ at 332p.

PETER Cooper, analyst at Brewin Dolphin Securities, says: “Over the next two to three years, existing and emerging collaborations, and areas for commercial sales, can take Surface Transforms to break-even and on to around £500,000 pre-tax profit in the year to May 2006. The shares are currently 80p.‘

THE acquisition of MIS Ag (this column last week) by Systems Union is ?significantly earnings enhancing and Systems Union shares remain cheap at 119p‘, says Simon Strong, analyst at Panmure.