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.

Ofex

THESE are grim times for Ofex, London's smallest share-dealing market.

Joint managing director Jonathan Jenkins, son of the founder, has had to announce it will run out of cash in the next two months unless it raises further funds. He also revealed that losses in the first half of this year nearly doubled to £533,000.

This is despite an influx of senior personnel, including Simon Brickles former head of the Stock Exchange's Alternative Investment Market, and the appointment of competing market-makers to boost liquidity.

The shares, which I admit to selecting as my share of the year, and which have been as high as 40p, tumbled to 7.5p each on the news.

This downturn in fortunes has surpised many. When Ofex came to market in May last year there was much talk of companies flooding out of Aim into Ofex. Almost the opposite has happen with 24 companies leaving Ofex for Aim in the first half.

One of the problems would seem to be that - as founder John Jenkins has taken a back seat and left son and daughter, Jonathan and Emma, as joint managing directors to run the business in their own way - many in the City still see OFEX as a 'Jenkins family business'.

The City badly needs a 'third market' where entrepreneurial companies can learn the basics of being a public company but it needs to demonstrate that there is the liquidity available to help those companies expand.

I believe the funding will be raised, but I fear the Jenkins dynasty may be forced to take a less active role.

Sadly, Jonathan Jenkins, who has never failed to return my calls before, did not do so on this occasion, although a 'marketing consultant to Ofex' did come on to assure me all was going well and he would 'let me know as soon as there was something to say'.

Why am I not reassured?

Pixology

ALMOST everybody who has a digital camera will admit that while it is easy to edit out those pictures you don't want, they tend to lack something when it comes to transferring them to a computer and printing them off yourself.

I can tell you Mrs Lay has missed few opportunities to hint that she hoped there might be a Cannon SureShot under the Christmas tree this year.

She is not alone. Those who once earned a reasonable living from developing holiday snaps from old-style film cameras have seen a 20–30% drop in their business in the past 12 months and are having to fight back.

Boots and others have installed a printing system for quality digital images through software developed by Fuji and Kodak. But now Aim-listed Pixology is selling its own digital software, which they claim to be even more advanced, into other outlets.

Tesco has just signed a five-year deal to use Pixology software in 165 of its stores, a deal that could be worth around £1m to the company over the period. In a further arrangement, the company has done a deal with Nokia that allows prints to be made directly from camera phone downloads.

With the sales of both digital cameras and camera phones expected to explode over the next few years, Photo Marketing Association International forecasts 5.4bn prints will be made from digital images this year against 3.2bn prints last year. It predicts they will double to 10.6bn in 2006.

This promises an exciting future for Pixology who, this week, reported a loss of £633,000 in the first half of this year but predicted losses will peak at the end of 2004 following a year of heavy investment.

Brokers, Canaccord Capital, predict a full year loss of £2.3m this year falling to a loss of £1.2m next and then a move into profits of £2.5m in 2006 by which time sales will be nearly £14m.

IP Live

THANKS to reader Graham Thompson my attention has been drawn to IP Live, a company that came to Aim in June with the intention of investing in live entertainment – a sort of corporate 'angel'.

The company's management combines a strong City and entertainment background. Jemma George, a former analyst and fund manager with Rothschild Asset Management and a former financial journalist (they don't come better than that) is chief executive.

Martin Flitton, former business manager of Lord of the Dance and a producer and promoter, is the business development director.

So far the company has announced an investment a month since coming to market. In July it made a £500,000 investment in Billy Elliot – The Musical, a stage version of the award-winning film, with music by Sir Elton John. After an initial run in Newcastle, this is expected to open at the Victoria Palace Theatre in London next March.

In August an undisclosed investment was made in the Human Body Exhibition and less than a fortnight ago the company took a minority interest in The Diana Celebration, an exhibition that will take place throughout the major cities of North America, celebrating the life and work of Diana, Princess of Wales.

It opens in Fort Lauderdale on October 10. Word is that more investments are already being discussed.

Meanwhile, the shares that were launched at 40p are currently trading around 49.5p having been as high as 58.5p.

MacLellan

THE ways of the professional investor sometimes are strange to behold. Weirdly named mining exploration companies, still reporting heavy losses and optimistic investment plans, can come to London and raise millions on the prospects of massive finds some years ahead.

Meanwhile, a good steady company, with improving turnover and profits year on year, and already paying an annual dividend, has difficulty in attracting attention.

I write of MacLellan Group, a company that includes Boots and Somerfield among its customers. It has just been awarded an £8m a year, six-year multi-disciplinary facilities management contract for the Inland Revenue and Department of Work and Pensions estate in Newcastle, and has been working for Group Lotus for ten years.

In the first half of this year turnover rose 16% to £87m and pre-tax profits were 9% higher at £2,543,000. Since the company was formed in April 2000 it has constantly shown increases in turnover, profits and employee numbers, but the reward this week for chief executive John Foley was to see the shares slump 2.5p to 67.5p.

Over the past couple of years the shares have hardly traded out of the 65p-76p range.

You could almost taste the frustration in the note from Mike Foster, analyst at KBC Peel Hunt, whose comment was: 'The prospects seem good' - but he still was only able to make a 'hold' recommendation.

New issue alert

St Helen's
Tony Drury not only wrote the book, he has lived he experience. The author of 'The St Helen's Guide to Ofex' is already chairman of St Helen's Capital (an Ofex company) and, this week, is listed as a non-executive director of St Helen's Finance which has also began trading on Ofex.

St Helen's Finance claims to be the first leasing company to list on any public market in London. It provides finance facilities across a range of assets from information technology through to telecommunications, office equipment, plant machinery and vehicles.

European Minerals Corporation
European Minerals Corporation, looking for gold and copper deposits in Kazakhstan, and already quoted on the Toronto Stock Exchange, now has an Aim quote. Canaccord Capital (Europe) is acting as nominated adviser and broker.

Falkland Oil and Gas
Falkland Oil and Gas, which holds licences covering some 33,700 sq km to the south and east of the Falkland Islands has conditionally placed 25m shares at 40p each and is offering a further 5m shares at the same price in a public offer.

Prospectuses are available from KBC Peel Hunt or on the company's website (www.falklandoilandgas.com). Completed forms and payment need to be received by close of play on October 12.

Some you may have missed

Watermark
John Caulcutt has been able to report a strong first half for Watermark, the inflight-products group where he is chief executive. With turnover up more than 95% to £32m, pre-tax profits are 42.5% higher at £1.71m, despite having to include a bad debt of £600,000 following the collapse of Duo Airways in May.

He says the outlook for 2005 is promising with sales for the year now 66% contracted, which with additional commitments, gives total visibility on sales of more than 80%.

Cardpoint
With High Street spending continuing to soar it looks to have been a good year for Cardpoint whose cashpoint machines have been spilling out notes in record numbers. In a trading update before entering the closed period, chief executive Mark Mills says he expects results to be in line with expectations. We shall know the details on November 22.

Morgan
Morgan Est, the Infrastructure Services division of Morgan Sindall, has won orders potentially worth £340m from Seven Trent Water and National Grid Transco in a series of contracts stretching over eight years.

Sira
Contract cleaners, Sira Business Services, have made a good start to the new financial year with two significant contract gains. However, having reported a near £1m rise in turnover for the year to end June and pre-tax profits up £56,000 to £356,819, chairman Mike Dawe warns that 'in the fierce competitive environment that exists, margins are necessarily squeezed yet further'.

He says the board's primary focus now is addressing issues of growth in the business and improvement in gross margins.

Home Entertainment
Iain Muspratt, chairman of Home Entertainment Corporation told shareholders at the yearly meeting that, with 16 weeks of the current financial year now completed, group turnover has risen 9.2%.

Greystar Resources
Several new high-grade gold veins have been discovered at the Greystar Resources gold-silver deposit in northeastern Colombia.

Plant Health Care
US-based, Aim-listed, Plant Health Care, is 'very near to completing a distribution agreement with one of the world's largest manufacturers of plant products' says chairman Albert Fischer. Meanwhile he reports that while turnover rose eight% to $4.5m (roughly £2.5m) in the six months to end June, gross profit was slightly lower at $1.9m (approx £1.1m).

Cambrian Mining
Cambrian Mining has raised around £3m through a placing of shares and the funds will be used to maintain the group's interest in Western Canadian Coal Corp when it comes to Aim, probably next week.

Futura Medical
Futura Medical reports a pre-tax loss of £644,000 for the six months ended July 31, down from £946,000 in the same period a year ago. With £4.3m in cash at the bank, chief executive James Barder says: 'we believe we have sufficient financial resources to complete the development of our lead products which remains our absolute priority'.

Planestation
Planestation, which already owns 30% of low-cost airline Eujet has taken an option on buying the remaining shares. It has also raised £5.17m through a placing to provide operating capital of EU-JetOps Ltd, the airline.

Cheerful Scout
It should be enough to wipe the grin off Cheerful Scout's face, but with losses rising from £70,000 to £250,000 in the year to end June, Stuart Appleton, chairman of the Aim-listed multi media specialist group, still seems quite, well, cheerful.

Having been through a 'difficult year with challenging trading conditions and spent heavily on new technology' he says 'performance disappointments are now behind us', and adds 'we are better placed to achieve our performance targets in the years ahead'.

Quadnetics
Russ Singleton, chief executive of Quadnetics Group, the closed circuit television and networked video systems people, is confident about prospects, having reported a near doubling of pre-tax profits to £2.3m in the year to end May and a £1m rise in net funds to £4.3m.

He also announced a $2m contract to supply a CCTV digital recording system for use in a large casino in Ontario, Canada, covering around 1600 cameras.

Dana Petroleum
What a busy week it has been for Dana Petroleum. It has announced first-half results showing a 32% rise in turnover to £48.7m and a pre-tax profit of £9.1m. It has also agreed with Amerada Hess to take an additional 28% stake in the Hudson Field in the UK North Sea.

Not only that, it has received approval from the Department of Trade and Industry for development of the Gadwall Oil Field in the North Sea and, finally, entered into a multi-faceted agreement with Woodside Energy which will advance Dana's international exploration programme across four countries – Mauritania, Kenya, Ghana and Australia.

Music Choice Europe
Music Choice Europe has delivered its promise to break even this year with pre-tax profits of £505,000 in the first half of this year.

Asia EnergyAsia Energy says it has intersected a '136 foot world-class black bituminous coal seam' in its north-west Bangladesh explorations.

Clinton Cards
Another congratulations card to Don Lewin, chairman of Clinton Cards, who reports a 9% rise in turnover to £183m (including VAT) in the six months to August 1, and an 18.3% leap in pre-tax profits to £2.59m.

Mr Lewin says the company is on target to open a net 40 additional stores by the end of the financial year and, with the all-important Christmas trading period ahead, he 'looks forward to reporting further progress for the full year in 2005'.

Avanti Screenmedia
'Current trading is good and we remain positive in our outlook and fully expect to meet market expectations in the year ahead,' says David Williams, chief executive of Avanti Screenmedia, the company that supplies pubs and clubs with retail television services.

The company came to Aim on July and reports that in the 15 months to end June turnover totalled £4.6m and there was a net profit of £892,000.

Celasis International
Jay LeCoque, chief executive of Celsis International says in a pre-close trading update: 'Celsis has been experiencing strong global growth and is set for an encouraging first half year.

The product group continues to perform well across all of its market segments. The laboratory group has strongly rebounded during the first half and we are confident this will continue in the second half.' Interim results for the period to end September will be announced on October 27.

Envesta Telecom
Envesta Telecom, the alternative telephony provider, saw a 14% rise in turnover to £12.4m in the year ended June 30 and £100,000 rise in gross profits to £2.2m. Chairman Lyndon Chapman has bought 655,000 shares, taking his holding to 1,290,000, and Kevin McGovern, finance director, has bought a further 320,000 shares raising his holding to 705,000.

Appian Technology
Appian Technology, the Ofex-listed company whose technology automatically reads car number plates, has won a £120,000 contract with 'a large provincial town in the Avon and Somerset area' for its technology. It expects to win a further £600,000 worth of orders as other towns in the region sign up.

Urbium
Nightclub operator Urbium has bought Strawberry Moons in London's West End for £1.45m.

City Lofts
City Lofts, in a trading update, says: 'We are continuing to experience strong demand for our apartments and remain confident about meeting our expectations for the current financial year ending March 31, 2005.' Interim results will be announced on November 30.

New York Holdings
With revenues up 88% to $531,472 and operating losses down 48.2% to $148,952, John Radziwill, chairman of New York Holdings, the Ofex-based investment company is in upbeat mood.

He says he is confident of a further improvement in fee income in the second half and he is also confident that on the investment front the company will ultimately turn unrealised losses into realised gains.

Warner Chilcott
Warner Chilcott confirms it has entered into a confidentiality agreement with the consortium of private equity institutions who have indicated they may be prepared to offer 800p a share for the company.

BioProgress
In the six months to end June, BioProgress, saw turnover of £992,000 and made a gross profit of £430,000. Chief executive Graham Hind says: 'we expect to be making further significant announcements in the coming months'.

Some to watch out for

Red Squared
Following the winning of an order with Britax Aircraft Interiors for its Red Alert systems management software product, David Johnson at brokers Daniel Stewart says Red Squared shares are a 'buy' at 18p, adding that product sales are ahead of initial expectations.

Sirius Financial Solutions
Mr Johnson is also a fan of Sirius Financial Solutions, supplier of software to the financial services industry, which showed a major improvement in the first half of the year. He says the current share price does not appear to reflect the company's progress and prospects and places a target price of 105p on the shares currently trading at 82p.

Real Good Food Company
His colleague, Roger Tejwani comes out in favour of The Real Good Food Company, initiating coverage with a 'buy' rating and a target price of 177p against the current 151p.

Private & Commercial Finance
And following the half-time results from Private & Commercial Finance showing a small loss, James Hollins, from the same stable, says the shares are a 'buy' at 38p with the company 'well funded to drive organic growth and profitability from its consumer and business finance operations, as well as expanding its two new divisions'.

Spectris
The share price of Spectris, the in-line instrumentation and process technology group, has fallen nearly 25% since the end of June, which looks a 'gross over-reaction to a supply disruption and unrelated departure of the finance director' says Michael Blogg at Arbuthnot Securities. He says the shares are a 'strong buy' and expects the market to restore a premium rating for the shares.

His colleague Robert Sanders says the maiden full-year results from Polaron, the technology group, showing turnover up 12% to £13.4m and pre-tax profits up 63% to £1.07m are in line with expectations. He believes there is 'further upside potential in the share price and retains a 'buy' recommendation'.

James Halstead
Substantial cash reserves at floor coverings group, James Halstead, encourages Barney Gray at Westhouse Securities to issue a 'buy' recommendation on the shares at 522p.

The company has just announced a capital return of 60p a share as well as an increased dividend of 11.75p a share, and Mr Gray says he does not rule out further returns of cash to shareholders, share buybacks or bolt-on acquisitions within the next 18 months.