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Quoted Micro 26 June 2017

NEX EXCHANGE

Good Energy (GOOD) received applications for £16.7m of the corporate bonds on offer. The maximum application level was £20m. The energy supplier will issue the bonds on 30 June. At the company’s AGM, Martin Edwards was not re-elected as a non-executive director and four special resolutions, three relating to pre-emption rights and one about calling a general meeting at 14 days notice, were not passed. Edwards has been a director of Good Energy since its formation and has expertise in renewable energy generation. It is unclear whether the length of his time on the board was held against him by institutions or whether there was another reason for him being removed from the board. He was chairman of the remuneration committee.

South Africa-based social impact investment company Inqo Investments Ltd (INQO) says that occupancy rates of its core investment Kazuko Lodge are improving and it moved into profit last year. The weakness of the Rand has helped to boost tourist demand and room rates. In the year to February 2017, Inqo revenues increased from R10.7m to R17m and a loss of R4.72m was turned into a pre-tax profit of R10.3m, thanks to a rise in other income from R867,000 to R14m. Net cash was R2.3m at the end of February 2017. This year, the first revenues from Bee Sweet Honey and retirement savings scheme provider Four One Financial Services are anticipated.

Housebuilder St Mark Homes (SMAP) is paying an interim dividend of 5.5p a share. The shares go ex-dividend on 6 July.

AIM

Phoenix UK has bought out a rival shareholder in Hornby (HRN) and this has triggered a mandatory bid at the purchase price of 32.375p a share. This purchase took Phoenix’s stake in Hornby to 55.2%. The bid values Hornby at £27.4m. Neither Hornby’s management nor Phoenix wants to lose the AIM quotation. The bid closes on 14 July.

Wynnstay (WYN) reported flat interim pre-tax profit of £4.07m prior to the goodwill write-down on the Just for Pets retail business. Pet retailing is a competitive market and it is consolidation. Just for Pets is relatively small and it loss has masked an improvement in the core agricultural division and the Wynnstay Sores retail business. A recovery in the milk price means that farmers are back in profit and are spending more money on feed. Net debt was £8.28m at the end of April 2017, which is higher than last time because of the rise in commodity prices. The interim dividend was increased by 5% to 4.2p a share. The full year profit is forecast to decline from £7.4m to £7.1m.

NWF (NWF) also benefited from a recovery in feed demand in the second half of the year to May 2017, although there was a decline in the year as a whole. The food and fuel distribution businesses both made improved contribution. The full year figures will be published on 1 August.

South America-focused gold miner Orosur Mining Inc (OMI) says that operating costs were between $800 and $900/ounce last year. In the year to May 2017, Orosur produced 35,371 ounces of gold, which is at the lower end of the expected range. There was net cash of $2.9m at the end of May 2017 even though a new underground mine has been developed. Orosur plans to commence a drilling programme in Colombia, while the deadline for a decision by Asset Chile on whether to back phase II of the Anillo project has been extended to the end of 2017, although Orosur can talk to other potential backers.

Timber importer James Latham (LTHM) reported better than expected full year figures. In the year to March 2017, revenues were 7% ahead at £199m and gross margins improved. Earnings per share were 4% higher at 55.8p and the total dividend is 15.35p a share, up from 14.3p a share. Net cash was more than £16m. Revenues were 3% higher in the first two months of the current financial year.

InterQuest Group (ITQ) continues to advise against acceptance of the bid from Chisbridge, which is a management backed takeover vehicle. Acceptances of the 42p a share cash bid have been received from shareholders owning 2.85% of InterQuest, which is added to the 40.5% of the share capital that already backed the bid. The offer has been extended to 13 July.

European Wealth Group (EWG) is raising £6.14m at 12.8p a share and could raise up to £3.07m more via an open offer to existing shareholders. The cash will be used to pay off debt and deferred consideration.

Tracking and security equipment developer Starcom (STAR) has raised £650,000 at 1.5p a share, with each share coming with one-fifth of a warrant exercisable at 2.5p a share for up to 12 months. Some of the cash will be used to pay $246,000 to YA II, which will reduce the drawn down convertible loan facility from $330,000 to $110,000. YA II has agreed to a conversion price for the rest of the facility of 2.5p a share up until the end of 2017.

Redx Pharma (REDX) has a chance of securing the funds it requires in order to come out of administration. Discussions are still at an early stage. It is unclear whether this will involve changes to management, given that the current management believed that it could string along Liverpool City Council and put off repayment of its loan. Redx has gained UK Medicines and Healthcare Products Regulatory Agency approval for oral cancer treatment RXC004. This provides permission for a phase Ib/IIa study for gastric, biliary and pancreatic cancer patients.

Clontarf Energy (CLON) is in talks to secure further projects and additional finance. Clontarf was recently awarded block 18, offshore Equatorial Guinea.

Myanmar International Ltd (MIL) raised a total of $7.3m via PrimaryBid.com and institutions, having initially wanted to raise between $3m and $5m. The Myanmar-focused investment company offered shares at $1.18 each – a 9.2% discount to the market price. Myanmar has achieved a broadening of its shareholder base. The enhanced proceeds are still expected to be invested within six months.

Digital media content business Brave Bison Group (BBSN) has appointed Claire Hungate, a former chief operating officer of ex-AIM TV production company Shed Media, as chief executive but she does not join the company until September. Brave Bison says that it does not believe a merger with fellow AIM company Zinc Media is in its interests.

Water treatment company HaloSource (HAL) has finally completed a £1.8m fundraising at 1.5p a share. The cash will provide working capital to help expand the drinking water business and develop the lead removal technology. The cash will fund the group into 2018. The new shares are more than one-third of the enlarged share capital. The completion of the conditional fundraising was announced on 21 April. There is no mention in the latest announcement of the investor that had tried to gain Chinese government approval to invest.

Gold producer and explorer Shanta Gold (SHG) raised £11m at 6p a share as part of a refinancing that also includes a new $50m debt facility to replace the existing $40m facility. Shanta is acquiring TSX Venture Exchange-quoted Helio Gold, which has gold exploration assets near to Shanta’s own licences, for $5.6m in shares. Shanta will be able to finance the commercial underground production phase at its New Luika gold mine.

Thor Mining (THR) has raised£460,000 at 0.9p a share and there is one warrant with each new share which is exercisable at 1.8p a share. Thor has agreed to acquire 25% of US Lithium, which has interests in Arizona and New Mexico, from Pembridge Resources for £59,000 and £30,000 will be provided to cover operating costs. There is an option to acquire the other 75% for 52.8 million shares at a deemed price of 0.9p each. Thor has completed a 50 hole drilling programme on the Dundas gold project in Western Australia. The results should come through in a few weeks.

First, the good news from TLA Worldwide (TLA). Management is obviously trying to suggest that it does not have contempt for investors by releasing a profit warning at 7am – its advisers must be doing something right. This is certainly a big improvement on publishing a profit warning at 6.26pm on 23 December 2016. TLA still thinks that it will be able to report its 2016 figures and post its accounts on 30 June. However, the trade receivables write-off is going to be higher than the previous guesstimate of $1.5m-$2.5m. The write-off is expected to be $3.2m and on top of that the negative effect of the accounting corrections on EBITDA is likely to be $3.6m, up from $2m previously. That will leave 2016 EBITDA at $4.8m. The interest charge will take up the majority of that figure. It is not just that, though. The original 2015 profit will be reduced by $1.9m. Net debt was $21.8m at the end of 2016 but a large chunk of the receivables that should have helped to reduce that figure are not going to come in. There is no dividend – unsurprisingly. The finance director has left, although he will be providing assistance for three months.

Superyacht painting and maintenance services provider GYG (GYG) is raising £6.9m at 100p a share prior to joining AIM on 5 July. GYG is valued at £46.6m at the placing price and the plan is to pay an annual dividend equivalent to 6.4% of the placing price, although it will be 3.2% for 2017. Last year, GYG generated revenues of €54.6m and made EBITDA of €6.7m.

MAIN MARKET

China-focused healthcare investor Cathay International Holdings (CTI) says that it will receive just over $4m in dividends from 50.56%-owned subsidiary Lansens Pharmaceutical. The dividend will be paid on 4 August. Lansens’ subsidiaries have received insurance payments totalling $2.58m. Two directors were not re-elected at Cathay’s AGM because, although they received the majority of votes, they did not receive the majority of independent votes. Further re-election resolutions will be proposed in the next four months and they will only need a majority to be passed.

Falcon Media House (FAL) has signed a memorandum of understanding with Tata Communications to collaborate on an over the top service for brands and content rights holders, using Falcon’s Q-Flow technology.

 

SMALL CAP AWARDS 2017 WINNERS

Company of the Year

Gear4Music (G4M)

Musical instruments retailer Gear4Music has gone from strength to strength since joining AIM in June 2015. The share price has risen by 600% in the past year. In May, £4.2m was raised at 690p a share.

The musical instruments market remains fragmented but Gear4Music is becoming one of the main players in Europe and it is opening distribution facilities in Europe as well as expanding its UK base. The investment required is holding back short-term profit growth and, in fact, pre-tax profit is expected to dip this year from £2.7m to £2.4m before rising to £3.3m in 2018-19.

IPO of the Year

Accrol Group Holdings (ACRL)

Tissue manufacturer Accrol had just celebrated its first anniversary on AIM when it was given this award. Accrol floated at 100p a share on 10 June 2016 and the share price has risen to 159.5p. Full year figures will be announced on 10 July.

Accrol is a leading supplier of tissue products to the discount sector and it has opened a new factory in Leyland, Lancashire. This investment takes annual production capacity to 143,000 tonnes. A ten-year lease has been secured on a 368,000 square foot warehouse in west Lancashire and this will become the central distribution facility. The warehouse management and logistics have been outsourced.

NEX Exchange Company of the Year

Chapel Down Group (CDGP)

English wines producer Chapel Down has been quoted on NEX and it forerunners for more than 14 years. Revenues have grown from £1.47m in the year to September 2002 to £10.2m in 2016. The Tenterden-based business made a small loss when it floated. Continuing operations moved from an underlying pre-tax profit of £156,000 in 2015 to £340,000 in 2016. Frosts have hit production this year but the outcome for wine production is still uncertain.

The company has developed brewing business Curious Drinks, which has separately raised money to build a new brewery but Chapel Down still effectively controls the business. The new Ashford brewery will be open in mid-2018 and this will free up space for further wine making at Tenterden.

Impact Company of the Year

Obtala (OBT)

African agricultural and forestry business Obtala is set to start to commercialise its operations this year. Up until now revenues have been modest but they are set to jump to £11.9m in 2017, trebling to £36.9m in 2018, which should be high enough to allow Obtala to make a profit in 2018. Hardman estimates that the Mozambique forestry assets could generate EBITDA of more than £25m in 2021. There are also plans to build up the orchard and horticultural business in Tanzania.

In May, Obtala acquired profitable sawn timber trader WoodBois International for $14.8m (£11.4m). The Copenhagen-based business sources timber from across Africa and sells it around the world. WoodBois has been short of capital to finance growth and it fits well with Obtala’s existing timber and forestry operations.

Executive Director of the Year

Nick Jarmany, Quixant (QTX)

Telematics technology provider Quartix is highly cash generative enabling it to finance growth in the UK, France and the US and pay increasing dividends. Chief executive Nick Jarmany founded Quixant in 2005 having spent more than two decades at Densitron Technologies. He guided the business to an AIM quotation in 2013.

The UK remains the dominant region for revenues but France and the US are growing strongly from low bases. Last year, US revenues more than doubled, from £256,000 to £677,000, but the loss was even higher than that because of the investment in sales and marketing and support services to enable growth over the next five years.

Transaction of the Year

Keywords Studios (KWS)

Outsourced video games services provider Keywords Studios has made numerous earnings enhancing acquisitions since it joined AIM but this award is for the purchase of Synthesis for up to €18m, which is one of eight purchases in 2016. This deal meant that Keywords became the global leader in localisation and voice-over recording for video games and added additional studios in Germany, France and Taiwan.

Keywords is expected to maintain a net cash position at the end of 2017 but this will depend on the level of acquisitions activity. There is a €35m bank facility that is not fully utilised and that could be used for further acquisitions.

Analyst of the Year

Andrew Blain, Cenkos Securities

Journalist of the Year

Jamie Nimmo, Evening Standard

Adviser of the Year

Cenkos Securities

Fund Manager of the Year

Paul Mumford, Cavendish Asset Management

Lifetime Achievement

Malcolm Diamond (Trifast/Flowtech Fluidpower)

 

Andrew Hore

Quoted Micro 19 June 2017

NEX EXCHANGE

Newbury Racecourse (NYR) says that raceday attendances are 29% so far this year and no meetings were lost to the weather. Conference and events revenues have been maintained despite the refurbishment of the racecourse. Occupancy levels are building up at on-site hotel The Lodge. The Rocking Horse nursery has increased revenues by 29%. The pre-parade ring and saddling boxes are completed and the Owners’ Club conference and wedding venue will be finished in the late summer. Further improvements will begin later this year. The first home owners have moved into the residential development, which will take until 2021 to complete. Newbury is involved in the new racecourse controlled betting pool from July 2018.

Coinsilium Group Ltd (COIN) has signed a memorandum of understanding with hedge fund HyperChain Capital. This will lead to co-investment opportunities in blockchain companies. Singapore-based HyperChain predominantly invests in tokens, which has proved more profitable than direct investment in companies in recent times – see Kryptonite 1. The two investors are each invested in social trading crypto platform CoinDash, which is about to launch a token offering.

Kryptonite 1 (KR1) has made a profitable turn on tokens in blockchain-related investments, some of which were acquired four months ago. The company sold 6,407 Melonport tokens for £33.17 each, raising £212,520, compared with the buying price of £3.87 each providing a profit of just over £187,000. The 2,105,254 tokens acquired in the Golem project were sold for an average price of 27p each – 27 times the original investment – raising £569,418 and representing a gain of just over £548,000. Kryptonite 1 has tax losses, which it should be able to use to offset against the total gains of £735,000. A small amount of the cash raised has been reinvested in 126,796.5 tokens in the initial coin offering of the Mysterium project – a peer-to-peer, server-less virtual private network.

Property investment company Ace Liberty & Stone (ALSP) is paying an interim dividend of 1p a share. The shares go ex-dividend on 22 June.

Peterhouse has resigned as corporate adviser to African Potash Ltd (AFPO), which has also completed the acquisition of a 21% stake in Advanced Agricultural Holdings in return for 221.6 million African Potash shares (11.8% of the enlarged share capital).

 

 

NEX Exchange Company of the Year

 

Here are the companies on the shortlist for NEX Exchange Company of the Year which will be awarded at the 2017 Small Cap Awards on 22 June.

Adnams (ADB)

£33.6m @11750p (11500p/12000p)

Brewer and distributor Adnams has been around the longest of the five nominees for this award and it is also much larger than any of the others. Adnams, which sponsored last year’s Tour of Britain cycling event, continues to invest in its brewery with beer sales moving above 100,000 barrels in 2016. More of that beer is being sold in kegs. The £7m investment in the brewery is almost complete.

In 2016, revenues improved from £65.7m to £70.3m, while pre-tax profit increased from £4.07m to £5.02m, predominantly down to a rise in asset disposal gains from £625,000 to £1.43m. The NAV has fallen to £27.5m because of an increase in the pension liability. There is a dividend of 150p per B share and 37.5p per A share.

So far this year, sales of beers and spirits continue to grow and Adnam’s pubs are trading well, although the sale of smaller pubs will reduce the profitability of this part of the group. Currency movements, the sale of the UK distribution rights for Lagunitas beers and the renovation of the Swan Hotel will hamper overall progress in the first half. This year there will be the first beer duty tax increase in four years.

 

Capital for Colleagues (CFCP)

£6.9m @45p (40p/50p)

Employee ownership-focused investment company Capital for Colleagues has not had a smooth ride in the past year with a major investee company going bust but it is still able to attract more cash from investors. Capital for Colleagues raised £1.44m at 42p a share from its recent open offer and a further £980,000 in a placing at the same price.

One of the group’s employee-owned investee companies FJ Holdings sold its businesses and was placed in administration. Capital for Colleagues was not kept up to date with these moves. The figures for the six months to February 2017 show the aftermath of this loss. The profit from ongoing activities improved from £40,000 to £159,000 but the write-off for FJ of £1.32m, more than one-fifth of the previous asset value, meant that there was a loss of £1.16m. The NAV fell to 43.5p a share at the end of February and this will be slightly diluted by the subsequent fundraising.

There remains strong demand from companies wanting to encourage employee ownership and the Capital for Colleagues management has, excluding FJ, a good record.

 

Chapel Down Group (CDGP)

£94.9m @94p (90p/98p)

English wines producer Chapel Down has been one of the most high-profile companies on NEX. Revenues grew by one-quarter to £10.2m in 2016. The Tenterden-based wine business grew revenues by 22% and the brewing operations increased revenues by one-third.

Brewer Curious Drinks separately raised money to build a new brewery but Chapel Down still effectively controls the business – although it is now classified as an associate in accounting terms. The Ashford brewery will be open in mid-2018 and this will free up space for wine making at Tenterden.

Continuing operations moved from an underlying pre-tax profit of £156,000 in 2015 to £340,000 in 2016. Gross margins on the wine business improved from 40% to 43%. More premium wines are being launched this year.

Some of the Chapel Down vineyards were hit by frosts in late April but there will be firmer evidence of any effect this month. However, management says they were the worst April frosts in two decades.

 

Crossword Cybersecurity (CCS)

£6.2m@195p (190p/200p)

Crossword Cybersecurity is developing cyber security products with six UK universities. A blockchain-related Ministry of Defence smart documents contract was won with the University of Warwick and cyber risk product, Rizikon, which uses expertise from City University, has started to generate revenues.

Crossword is also involved with CyberOwl, a spin-out from Coventry University that is commercialising research into the early warning of cyber attacks. CyberOwl has been selected to join GCHQ’s Cyber Accelerator.

In May, Crossword Cybersecurity took advantage of the high profile of cyber security problems to raise cash at a large premium to the market price. Crossword raised £145,000 at 230p a share. Brenlen Jinkens took up 50% of the new shares and he has 5.13% of the company.

In 2016, revenues jumped from £21,000 to £345,000 but the loss increased from £755,000 to £950,000 – even after £78,000 of R&D tax credits. There was £1.55m in the bank at the end of 2016. AIM-quoted Iomart is cooperating with Crossword on launching the Nixer machine learning Denial of Service (DDoS) platform on the market.

 

Sandal (SAND)

£4.9m @ 29.5p (28p/31p)

Sandal is a developer and manufacturer of energy efficiency and other electronic products. It has signed a number of agreements with retailers and distributors for its Energenie MiHome range, which is also being integrated with a number of home automation systems, including those of Google and Amazon. Retailers selling the company’s products include Argos, Sainsbury, Robert Dyas, Shop Direct Group and Ocado.

Recently, Sandal signed an agreement with Spanish smart home technology business Momit, which will redesign its smart thermostat so that it is compatible with the Energenie MiHome platform. This is part of Momit’s strategy to enter the UK market. The redesigned product should be launched in September and, along with related radiator valve sales, could add £500,000 to Sandal’s annual revenues.

In the six months to November 2016, revenues were 13% ahead at £1.88m, with Energenie MiHome products growing revenues by 74%, and the pre-tax profit has improved from £7,000 to £35,000. Further growth is expected in the second half as home automation becomes a more mainstream product area.

 

AIM

PrimaryBid.com is helping Myanmar International Ltd (MIL) to raise between $3m and $5m. The Myanmar-focused investment company is offering shares at $1.18 each – a 9.2% discount to the market price. Myanmar wants to widen its shareholder base. The proceeds are expected to be invested within six months. This is the 23rd offer by PrimaryBid and it closed at 5pm on 18 June.

Disruptive Capital says that it is not going to make on offer for Stanley Gibbons (SGI) because it was not given the information it required, although the stamps and coins dealer has effectively put itself up for sale. A strategic review has commenced and the formal sale process is part of this.

Wynnstay Properties (WSP) has kept up its record of increasing its dividend. The 19% rise took the total dividend to 15.75p a share. The NAV was 15% ahead to 674p a share at the end of March 2017.

Home improvements company entu (UK) is taking longer to turn around than was hoped. There were problems with installation capacity, which is not enough to meet demand but there are also problems with the supply chain. The underlying interim loss is likely to be similar to the restated loss in the first half of 2016. There will also be a full year loss. Net debt was £6.5m at the end of April 2017. The boilers and energy switching businesses have been closed and the LED business scaled back.

FIH Group (FIH) reported a 4% increase in 2016-17 revenues to £40.5m, while underlying pre-tax profit fell from £3.1m to £2.4m. The profit decline was not as great as originally expected.

Egdon Resources (EDR) is acquiring a 50% interest in PEDL278 in the East Midlands, with the other 50% being acquired by the proposed operator IGas (IGAS). The licence area includes a tight gas discovery from 1985.

Keras Resources (KRS) says drilling at the Warrawoona gold project in Australia, which is now part of Calidus Resources, has commenced. Calidus Resources is about to join ASX.

Savannah Resources (SAV) has received approval in principle for a tailings storage facility at the abandoned Lasail West pit in Oman. There is still potential for further copper mineralisation at the Lasail copper mine. It is taking longer than expected to gain licensing approval for the copper mine development at Mahab 4 and Maqail South. Mining should still start in the first half of 2018.

Italian PR firm SEC (SECG) reported a decline in revenues in 2016 as markets are growing slowly and competition is fierce. There was also a lack of large one-off events. Revenues fell from €21.2m to €18.5m, while pre-tax profit has slumped from €3.25m to €734,000.

Starcom (STAR) has secured a three-year, $1.5m equipment and tracking order. Shiptek Solutions is paying $1.2m for Tetis R container tracking units and there should be at least $250,000 of income from online tracking services over three years.

MAIN MARKET

IT consultancy and resourcing firm Triad Group (TRD) believes that the appointment of Arden as broker in February “is a significant step in returning the group to its former glory”. In the year to March 2017, revenues improved from £28.3m to £30.9m and pre-tax profit increased from £863,000 to £1.52m. Net cash was £2.24m. Triad intends to build up business outside of the public sector and increase exposure to new technologies, such as blockchain. Triad is returning to paying a dividend with the latest pay out of 0.5p a share. The ex-dividend date is 10 August. The trustee in the bankruptcy of former boss Mira Makar has been selling down her shareholding, which was over 21% but it has been reduced to 17.4%. The share price has held up over the past couple of months despite this.

Storage and communications semiconductors developer CML Microsystems (CML) increased full year revenues by one-fifth to £27.7m and organic growth was 14%. Underlying pre-tax profit improved from £3.5m to £4.3m. The dividend was increased to 7.4p a share. R&D investment continues to increase but there is plenty of cash to fund this. Net cash was £12.5m at the end of March 2017.

Industrial fasteners supplier Trifast (TRI) increased its pre-tax profit by more than one-quarter to £20.5m, which was better than expected. Growth is coming from the top 25 key accounts and new product launches.

Flying Brands Ltd (FBDU) has completed the acquisition of kidney stone analysis company Stone Checker Software in return for the issue of eight million shares at 3p each and been readmitted to the standard list on 16 June. A placing raised £550,000 at 3p a share. Stone Checker was previously 50%-owned by AIM-quoted Feedback (FDBK), which licenced its TexRAD software to the company for use with kidney stones.

North Midland Construction (NMD) has been awarded a joint venture infrastructure contract for Severn Trent Water on the Birmingham Resilience project worth more than £100m. This contract will be split between North Midland and its joint venture partner. The scheme starts in the third quarter of 2017 and this means that the 2017 figures will be ahead of expectations.

Jacek Slotala has stepped down as a director of fully listed shell Highway Capital (HWC). He joined the board in December 2015. Trading in the shares has been suspended since 22 September 2016. Highway has been seeking a significant acquisition for approaching two decades.

Andrew Hore

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