Monday 26th October 2009

LAST WEEK/ THIS WEEK
The FTSE closed the week up 1% with the FTSE AIM All share up 1.6% to 675. The disappointing 3 QTR GDP decline did little to slow the market as it was concluded that the best option, this side of an election, will be to continue with or increase Quantitative Easing.
This Thursday the US will be reporting 3Qrt GDP and a chartist friend tells us that the signs are pointing to a creak on Wall St. Also on Thursday the UK September Mortgage Approvals are expected to show improvement with 53,600 new loans. Meanwhile Small Caps improve from the added liquidity.

COMPANY REPORTS

Next Fifteen (NFC) – £34.8m@64.5p – Global IT Public Relations Consultancy group
The July 09 finals were better than expected when announced last week. Despite the fall in PBT to £5.2m against £6.6m last year, it was shown that £1.7m of the decrease was due to an adverse currency hit. Revenues, however rose 3.6%, to £65.4m and net cash as at 31 July 2009 stood at £1.8m.
Founded in 1981 Next Fifteen has become a global public and press relations consultancy mainly with clients in the technology sector. A sector consolidation strategy is being pursued and since the year-end, the group has announced a number of add-on acquisitions of specialist agencies, which should add to future growth. After a tough first quarter trading conditions are reported to be improving and Hewlett Packard is a recently won new contract.
Due to the better trading conditions and good momentum, the research house Edison recently raised profits forecast to £6.8m giving a FY10 diluted EPS estimate to 7.8p thus a prospective P/E of 8.3x with DPS of 1.8p an implied yield of 2.8%.

Financials
With net cash of £1.8m and a track record of generating positive cashflow Next Fifteen are well placed to make further acquisitions. The key will be not to pay too much and to continue to add value through the post acquisitions strategy, so far it seems so good

Earthport (EPO)£24.1m@27.25p – International payments system since 1998
The disappointing finals showed an 18% fall in turnover to £1.6m from £1.93m as business fell due the global, “challenges in the financial services sector”. Net losses increased 104% from £3.4m to £7.3m mostly due to increased in marketing spend.
Earthport collects and remits international payments locally on behalf of corporates and banks in nearly 60 countries and territories Earthport also makes payouts in all countries accessible via SWIFT. There is a clear need for a compliment truly global digital based payment systems. Earthport ‘s proposition is still in the ‘ early’ process of being rolled out has some big name joint venture partners including Lloyds, IBM and Adobe Systems. A US office has been opened and despite the non-receipt of payments further contracts have been signed in the Middle East. The company feel they are better prepared than ever and are confident of delivering increased revenues due the strength of their core proposition.

Financials
Over £10m has been raised in equity from a decent shareholder list over the last two years. The board are optimism that there are various arrangement in place to finance further development. Debt is unlikely to be available so it seems whether they can land a contract with robust cashflow before they do the equity rounds. As there is a short £1m cash in the bank it may be sooner rather than later.

TEG (TEG)£23.3m@44p – Composting plants supplier and operator
TEG has signed heads of agreement for a 20,000 tonnes per annum in-vessel compost plant and a 50,000 tonnes per annum anaerobic digester (AD). This will be sited west of Bridgend on land provided by TEG‘s partner Anagest. TEG will build, own and operate the plant which will provide recurring revenues for the business. Anagest will bear the risk for the anaerobic digester – this is the first of TEG’s plants to include one. TEG operates four composting plants as well as selling them to third parties.
The Welsh Assembly is about to start tendering for organic waste disposal contracts. Once enough contracts have been won to make the project viable then TEG should commence construction. This is likely to be early in 2010 and the plant should start to generate revenues in 2011.

Finance
TEG is expected to have more than £6m in cash at the end of 2009. TEG’s cash investment in the new facility should not be more than £2.5m.

Tristel (TSTL) – £16m@54p – Infection control products
The infection and contamination control products supplier reported a 15% increase in revenues to £6.85m in the year to June 2009. Profit growth was more modest, rising 6% to £1.29m. A greater proportion of revenues came from washers and the lower hardware margins were made worse by the Euro exchange rate.
Profits were held back by the costs of building up business in China and the US. Tristel has set up an 85%-owned subsidiary in China.
Clorox has licensed Tristel’s chemistry for the US. It will take a couple of years to gain regulatory approvals and launch the products but Clorox, which is known for its bleach-based products, will bear that cost. Clorox has annual revenues of $5bn and has spent a significant amount of time researching Tristel’s products and failed to replicate them.
In July, Tristel paid an initial £1m, raised from a share placing at 41p a share, for a portfolio of Medichem products. The final cost will be between £2.15m and £2.4m. These products are selling well and they are using up excess capacity in the factory. They could contribute £1.5m to revenues this year.
Astaire forecasts an increase in Tristel’s revenues to £9.51m in the year to June 2010, so there would still be organic growth of just over £1.1m. Profits of £2.03m are forecast for 2009-10, rising to £2.78m in 2010-11. The shares are trading on just over 11 times 2009-10 prospective earnings, falling to eight in 2010-11.

Finance
Net debt was £392,000 at the end of June 2009. The total dividend was increased from 1.55p to 1.7p a share – including a final dividend of 1.295p a share.

Dillistone (DSG) – £7.36m@130p – Recruitment software
Executive selection software provider Dillistone Group says that trading is starting to improve after a tough first half’s trading.
Dillistone reported a fall in revenues from £2.52m to £1.82m in the six months to June 2009, while profits halved from £949,000 to £472,000 in the same period. Revenues were slightly lower than the second half of 2008 but profits were similar. Management has successfully cut costs but has not reduced development spending.
Dillistone is expected to report a full year fall in profits from £1.4m to £1m in 2009. That represents a small improvement in the second half figures. New orders are being won. Recurring income dominates revenues.

Finance
The cash pile fell from £2.35m to £1.8m in the six months to the end of June 2009 but it has recovered to £2.2m since then. This cash pile enables Dillistone to confidently say that they will maintain the full year dividend at 10.5p a share even though the dividend cover will fall to around 1.2 times. The dividend costs £567,000 a year. The yield is 8.1%.

Beacon Hill Resources (BHR) – £1.14m@0.49p -Mining
Beacon Hill Resources has completed the reverse takeover of Tasmanian Magnesite.
BHR was formerly known as Carnegie Mines and it sold all of its previous interests including the Gambian heavy mineral sands assets.
BHR was looking for a mining operation which is associated with the steel industry and has a project that is near to production. The project needed to be simple and not capital intensive. BHR was looking to start production within two years of acquiring a project.
Tasmanian Magnesite fits these criteria. BHR issued 5bn shares at a nominal price of 0.25p a share in return for the business. The vendors of Tasmanian Magnesite ended up with more than 80% of the enlarged share capital of BHR.
Magnesite is used to produce magnesia, which has one of the highest melting points of all minerals. It is used in the steel industry to line blast furnaces as well as other sectors such as pulp and paper, agriculture and water treatment.
The magnesite deposit is in north west Tasmania and was found in 1925. The initial defined resource 39m tonnes, of which 13m tonnes is JORC compliant. A pre-feasibility study has been completed. The valuation range is A$69m-A$83m (£35m-£42m). BHR is considering building a calcinator which would turn the magnesite into magnesia. This would be done with a joint venture partner.
In the first year, BHR intends to obtain a mining licence, design the mine, sign the joint venture and undertake additional exploration. The following year BHR will construct the mine and calcination plant and then start mining. Mining could commence in the first half of 2011.

Finance
BHR will have around £1.7m to invest after raising £1m at the time of the acquisition and £725,000 after the reversal – both fundraisings were at 0.25p a share.
BHR will need to invest between £5m and £10m to develop the project.

Frontier Mining (FML) – £39.5m@7.75p – Minerals explorer
Kazakhstan-based Frontier Mining is on course to commence production at its Benkala copper project in early 2011.This should transform the business and make it a strong cash generator in the first year of production.
Benkala is in the north of Kazakhstan and it is jointly owned with Coville Intercorp. The intention is to produce 20,000 tonnes a year of copper cathode. Equipment is being bought and a JORC resource will be announced in the second quarter of 2010. Infill drilling is currently taking place.
The pre-feasibility report suggested that operating costs would be less than $1/lb, compared with a price for copper cathode of $2.70/lb. Even the recent low of the copper cathode price of $1.29/lb is above the cash costs of producing the metal.
One uncertainty is how quickly that Frontier can obtain the mining licences and permissions that it requires. There is already a huge backlog of applications but the company is keen to stress that it can continue to develop the mine while it is waiting for any licence it requires.
The appointment of Erlan Sagadiev as chairman and chief executive of Frontier has coincided with a sharp upturn in the share price. He has sorted out the business, including pumping in money through his own business interests.
Frontier started gold production at the Naimanjal complex during the summer so this is providing cash flow to cover the company’s costs. The Koskuduk gold project should start production in the middle of 2010. This will require an investment of $1.5m to bring it into production.
Zere Group was issued 407.5m warrants exercisable at 1.5p a share as part of the debt facility agreement. They would be equivalent to nearly half of the company’s enlarged share capital if exercised. In theory, these are already £25m in profit if they were exercised at the current share price, which would also raise more than £6m for Frontier.

Finance
A $10m debt facility wasprovided by Zere Group JSC, which is deemed to be controlled by Sagadiev. The facility lasts until April 2011 and the interest charge is 15% a year. At the same time, a placing raised $4m at 1.5p a share. Some of the cash was used to repay part of an existing loan note issued to Coville. The remaining Coville loan of $3.24m is repayable at the end of 2009.
During August, Frontier signed a Standby Equity Distribution Agreement with Yorkville Advisors. The SEDA is worth £5m ($8.2m) and so far £120,000 has been drawn down at a share price of 6.65p.
House broker Libertas believes that Frontier has enough cash for its immediate needs.
Libertas reckons that Frontier’s share of the development costs of Benkala could be around $15m. Frontier would like to secure an off-take agreement to help finance the development costs.

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