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.

Asia Energy

MICHAEL Frayne is back in town, and that tends to mean institutional investors are in the process of opening their cheque books.

Mr Frayne is an Australian who knows more about coal than Arthur Scargill ever did, and he can make even a sack of nutty slack seem more appealing than a bucketful of diamonds.

So when he is in full flow with a story of 428m tons of coal deposits - ideally suited to burning in a thermal power station that meets all the World Bank‘s guidelines for emissions from thermal coals - he can set a flame alight in the hearts of potential investors.

It matters not that the deposits are in northern Bangladesh, in fact it enhances the appeal. For Bangladesh is in dire need of energy supplies and the coal that is not needed in that home market can be exported next door to India for much-needed foreign currency. It is a project strongly supported by the Bangladeshi Government and could prove a cash-cow for more than 40 years.

The deposit was discovered by the giant BHP Billiton group in 1997, but sold to Asia Energy Corporation a year later when the whole of BHP group was undergoing some major changes and lost interest in exploration.

Asia Energy, now an offshoot of the Cambrian Mining group, is raising up to £15m and plans to come to AIM next month, which is why Mr Frayne and boardroom colleagues are talking to institutional investors in London, Paris, Geneva and Zurich.

He is confident the 'book building' will be completed by the end of next week and, providing the AIM quote goes ahead, drill rigs will start a 12-14 month feasibility study within days of the shares being quoted.

The study is expected to prove the coal reserves (no Shell-type assessments here) and identify various by-products of benefit to the Bangladeshi economy. It will also assess the benefits of the company becoming involved in the local development of a power station that will take coal direct from the mine and supply a quarter of the country's power by 2017.

Community Broking

THE trouble with building a business for the next generation to inherit is that sometimes the next generation does not want to follow in its fathers' footsteps. This appears to be the case in insurance broking, for instance.

According to David Worsley, chairman of AIM-listed Community Broking Group, there are 4,750 incorporated brokers in the UK, more than half of whom are 60 or older and many have no heir willing to take the business on.

Community Broking exists to provide such folk (at least those in the Manchester area) with an exit route while retaining an interest in the business they have spent a lifetime building.

By inviting brokers who deal with small and medium-sized companies and high net-worth individuals to join together under the Community Broking umbrella, with common business systems, the partners are offered cash and shares, providing an immediate sale and a long-term retirement fund.

It seems to be a working formula. Last year's turnover was up 31% to £1.5m while post-tax profits soared 104% to £214,000. Since the beginning of this year the company has bought two more firms, MVA Healthcare and Cloughley Insurance Services, who will add £370,000 to this year's turnover, and several others are queuing to join. Talks were held with three companies this week alone.

Unlike other consolidators in the financial services field, Mr Worsley intends to stay in the area he knows well. 'We have at least another two years of tidying up the Manchester area,' he said this week 'only when we feel we have done all we can do here will we take the concept to another centre' – providing, of course, that by then somebody else hasn't stolen the business model.

Community Broking shares were launched on AIM last November at 36p and are now 39.5p. Significantly, perhaps, the company came to market without the traditional PR launch, but it has now appointed a London financial PR agency, presumably to raise its profile or perhaps because it now believes it has a story to tell. Either way, it is worth keeping an eye on.

Some you may have missed

SMITH & Nephew has bought Midland Medical Technologies, a 'global leader' in metal-on-metal hip resurfacing, for £67m in cash and loan notes, with an additional £33m in cash and loan notes depending on future performance.

ARK Therapeutics Group, which came to AIM earlier this month, has received Drug Tariff approval for Kerraboot, a wound-managing device for leg and foot ulcers. Listing on the Drug Tariff from 1 May will allow the treatment to be prescribed on the NHS. Kerraboot is claimed to be 'extremely cost effective and could reduce costs by as much as 40% over a 12-week period.

SPRUE Aegis, the smoke alarm group, has raised £775,000 through an institutional placing of shares at 25p each and a private placing at 26p. The proceeds will be used for general working capital.

CARDPOINT has expanded into Europe with its first live cash machine in Germany. The company forecasts it will have 30 cash machines in Germany by the summer and 75 by the end of this year.

AIM-listed communications and marketing services group, Media Square, has bought Marketplace (Holdings) for £750,000 in cash.

OILFIELD technology company Sondex, says its revenue and profits for the year ended 29 February are expected to be in line with market expectations. Chief executive Martin Perry says: ?the results demonstrate an underlying increase in growth beyond the company‘s historic rates of 20-25%‘.

MULTI Group, who hire out tools to the construction industry, has completed a major restructuring and cost-cutting exercise that is expected to provide more than £1m of savings annually. The group‘s founder and former chief executive Russell Bracegirdle has ?left to pursue other interests‘.

Martin May, a corporate recovery specialist, has joined the troubled board of PlaneStation, the airport operator, as chief executive, initially until the end of this year. Mr May‘s track record includes an appointment at McNicholas Construction where he trimmed borrowings from £12m down to £4m in a year, and restructuring the asbestos group Cape that has resulted in a tenfold increase in the share prices since he joined in June 2002.

Some to watch out for

MICHAEL Blogg, analyst at Arbuthnot Securities, has come out with a ?strong buy‘ recommendation for electronics group Spectris. He believes a fair value for the group, when compared with its peers, would be 700p, and is targeting 600p within 12 months against the current 462p.

MR Blogg also recommends Hill & Smith Holdings following its results and says the shares at 102p are at an “excessive discount” to the engineering sector.

JOHN Beddoe, analyst at Seymour Pierce, says that Billam, a venture capital group that takes stakes in technology and biotechnology companies, is “undervalued” at 26.5p. He says that value of its portfolio of eight stocks, of which three are quoted, is not reflected in the share price.

MICHAEL Morris at Arbuthnot Securities believes the recent weakness in the price of Business Post Group “caused exclusively by small, private investors realising gains, presents an excellent buying opportunity”. His valuation shows the shares to be worth between 548p and 762p, with an average of 666p – ignoring the Devil‘s number, the shares are a “buy”, he says, at 468p.

MIKE Jones of Canaccord Capital sets a 12-month target price of Can$4.40 (£1.82p) on the shares of America Mineral Fields, compared with the current Can$2.25 (93p).

FEED yourself on shares of the Restaurant Group, says Alan Millar, at Arbuthnot Securities. He reckons this is “an ideal stock for any portfolio with a medium-time horizon‘. He puts a value on the shares of more than 100p, and sets a 12-month target of 90p against the current 80p.