Monday 5th October 2009

LAST WEEK/ THIS WEEK
Regular readers, assuming there are any, should not be surprised by the profit taking on Thursday and Friday due to the uncertain economic news and as the market has risen some 20% over the last Qtr. The FTSE 100 fell -1.2% on the week and our new preferred measure of small caps is now the AIM All Share which at 632.1 was down -1.3%.


This week’s economic newsflow could stimulate economic bulls and bears – there is consumer confidence on Wednesday with Eurozone GDP. Thursday there are interest rate decisions in both the UK and US. In the US there are also Jobless claims and on Friday will be there Trade imbalance. All things being equal small caps will ignore the economic data.

DIRECTORS DEALING
The rules covering Directors Dealing makes this a more useful as a medium term indicator.

BUYS
Archial Group – 148k@10p
Douglasbay Capital – 198k@5.3p
Interbulk Group – 400k@ 3.7p
Immedia Group – 500k@9.3p
Northacre – 1.5m@20p
Global Coal – 50k@89p
Nasstar – 6.5m@ 6p
Tower Resources – 62m@2p

SELLS
BG – 2m@11.1p
Hargreaves Services – 1.4m@6.5p

COMPANY REPORTS
ADVFN (AFN) – £21m @3.4p – Development and provision of financial information
Turnover at this long established international financial website information service provider marginally improved. For the full –year turnover improved by 1% to just over £7m, while losses are reduced 67% to £0.429m, at the EBITDA level profits of £641,000 were reported. The long term strategy is to build the ADVFN brand internationally where the US market is a key (perhaps overcrowded target). ADVFN continuing to develop new products and services and although once developed they are highly scalable the payback period and return on the development investment is less visible. Advertising sales fell 9% which is relatively small drop in comparison to the kinds of slumps seen in print and TV advertising. Subscription income is making up for the loss in advertising and does presently provide a relatively stable revenue base.
Financials
The amortization of intangible asset is running at around £1m so the cash position is relatively strong with year-end cash balances at £1.5m. The relatively high market cap is not supported by earnings which suggest that there is an expansion opportunity to buy assets and earnings for shares. The 19.3% shareholding by On-Line another, Aim is valued at £4m, while On-Line at 22p is capitalised at £1.7m.

Radicle Projects (RDP)£1.1m@5.75p – Agricultural investments
Radicle Projects is trying to refocus its business so that it can become a fund management business.
The Australian agricultural projects investor historically was an investor in projects but it wants to organise funds to invest in projects and manage those funds itself. Radicle intends to improve its cash position by selling investments.
The administrator of Kaupthing Singer & Friedlander has sold its 1.96m shares in Radicle. That removes an overhang of more than 10% of the shares.
Full year figures for the year to June 2009 will be published in December.
Finance
Radicle has agreed a restructuring of its convertible loan notes. The face value of the loan notes will be reduced by 60% from £15.1m to around £6m. The face value will then be increased on a monthly basis until it returns to the original value when they mature in June 2012. The December 2009 interest payment will be deferred until June 2010.
One of the main loan note holders would like to raise cash so Radicle intends to use the money raised from asset disposals to tender for loan notes. Some of the disposal cash is also needed for working capital.
Radicle had cash in the bank of £660,000 at the end of August 2009.

AEC Education (AEC)£10.5m@22p – Education
AEC Education is on course to grow profits by 57% this year. The educational qualifications and training programmes provider is expected to report 2009 profits of £1.2m, up from £762,000 in 2008.
AEC reported underlying interim profits of £403,000 in the six months to June 2009. Demand remains strong in the company’s core market in the Far East.
London-based educational courses provider Malvern House will make an initial contribution in the second half. AEC will be able to refer students to Malvern House.
Finance
Net cash was £1.5m at the end of June 2009 but since then £1.63m has come in from a placing but around £2.84m has been paid in cash for Malvern House – or will be when the next payment is made in October 2009. The business is cash generative so it will still be cash positive after the imminent payment for Malvern House.

eg solutions (EGS)£4m@28p – Software
Operations management software supplier eg solutions managed to maintain interim profits even though revenues fell by 8% to £2.09m in the six months to July 2009.
Profits edged up from £53,000 to £56,000 thanks to cost cutting. This represents a strong recovery from the second half loss and was achieved despite a sharp fall in interest income.
There has been some downward pressure on the prices of maintenance renewals. The company has signed up the clients to three year deals to compensate for the reduced income.
Businesses increasingly need to measure the efficiency of their business processes so the outlook for the company is good. Larger customers, such as Legal & General and Nationwide Building Society, are buying software licences but are using their own staff to implement the software. This means that eg solutions does not need as many staff involved in the delivery of the software.
The second half of last year was particularly weak so eg solutions should be able to do better in the second half of this year. Analysts forecast profits of £300,000 for the year to January 2010. The shares are trading on 15 times prospective 2009-10 earnings.
Finance
Lower working capital requirements helped the cash balance rise to £592,000 at the end of July 2009.
Mirada (MIRA)£8.14m@41p – Interactive TV
Formerly known as Yoomedia, Mirada has sharply reduced costs and its loss in the year to March 2009. Annualised admin costs are running at around £6m. The interactive content services manager says that it got out of the business to consumer market because it was competing against its customers.
The marketing services side of the business has similarities to part of Velti’s operations.
Mirada’s latest development is a mobile-based parking service.
Finance
There was net cash of £1.1m at the end of March 2009. The cost savings should have stemmed the cash outflow and the company is not looking for cash for operations. It may require cash for acquisitions so that it can consolidate the market.
M&A
Mirada would like to expand geographically so that it can offer its existing products in more markets. There is a window of opportunity in the US over the next 12-18 months. It would also be interested in widening the range of products that it can offer.

Brainjuicer (BJU)£18.9m@154p – Market research
Overseas growth made up for lower revenues in the UK operations of online market research agency BrainJuicer Group. The new Swiss and German operations are already in profit and the US moved from loss to profit during the first half. The overseas operations generate more revenues from BrainJuicer’s own products and the sale of these has held up better than standard market research.
Overall revenues grew 22% to £4.85m in the six months to June 2009. Profits rose 6% to £243,000. The year started off poorly but trading continues to recover.
BrainJuicer plans to open an office in China.
The share price has risen by 60% over the past six months.
Full year profits are expected to improve from £1.4m to £1.6m. The shares are trading on 17 times prospective earnings for 2009. That is similar to the multiple at the same time last year.
Finance
The interim dividend was increased by one-fifth to 0.6p a share. Net cash was £1.19m at the end of June 2009. The figure was lower than six months before but BrainJuicer has been investing in a new software platform.

Morson (MRN)£53.1m@115.5p – Engineering recruitment
Technical recruitment has always held up well when there is a downturn in the economy. Turnover rose 4% to £220m and pre-tax profit adjusted for head office relocation costs declined 5% to £5.4m in the six months to June 2009. Permanent recruitment declined.
There was a small decline in revenues in the nuclear sector. Aerospace, construction and oil and gas all edged ahead. Newer activities are growing fastest. Morson is moving into the rail welding market.
There has been some margin pressure on renewals – a drop of around 0.5 percentage points – but some of the lost values have been made up for by higher volumes.
Brewin Dolphin forecasts a fall in full year profits from £11.7m to £11m. That puts the shares on seven times prospective 2009 earnings.
Finance
Reduced working capital has enabled Morson to reduce its net debt by nearly one-third to £18.8m.
M&A
Morson would like to expand geographically and move into new sectors.

Stratex International (STI)£9.98m@4.125p – Mining
Stratex International is expanding its interest into Ethiopia.
Up until now Stratex has focused on Turkey. A £40,000 investment has given Stratex a 5.6% stake in Plus-quoted Sheba Exploration and it also has the right to earn an initial 60% of Sheba’s Shehagne gold project in northern Ethiopia in return for spending £350,000. Sheba has There is also a joint venture that will explore other parts of northern Ethiopia.
Stratex believes that the Arabian Nubian Shield is highly prospective and it hosts a number of high-grade gold and copper deposits. Stratex says that the area it is exploring is politically stable.
Stratex expects to sign a definitive joint venture agreement with Turkish construction and mining company NTF Insaat Ticaret Ltd – for Stratex’s Inlice and Altintepe gold projects – in the next few weeks.
Stratex expects to start drilling at the Oksut gold project in Central Anatolia in Turkey in a week or so. This is the subject of a joint venture with Canada-based Centerra, which is earning an initial 50% interest in the project.
Finance
Stratex has cash of around £2.1m at the end of September 2009.

Totally (TLY) – 0.625p @0.6m – Jewish Publisher and provision of Digital Marketing services
It must have crossed the chairman’s mind that Totally will not be able to grow organically to be large enough to justify being listed on AIM or fast enough to repay convertible debt of £0.5m. The recent interims showed a brave effort in a declining market as they managed to increase sales by 5.8% to £0.86m making a PBT of £56k. There are two divisions; the publishing and media that relies on advertising and the Software Development and Digital Marketing Division. The publishing side has opened a new Events division to further monitories its mainly Jewish audience which should make a contribution by the year-end. The Software development divisions is showing relatively strong growth and works with web communities to monetise the audience through addition white labelled services such as flat share and classified ads. Traditionally the second half is stronger so continued progress is expected so profits of over £110,000 could be achievable.
Financials
The convertible debt of £0.5m is largely to Michael Sinclair and Leo Noi so is safe but does give them sufficient control to agree to a chance of business.

Legion Group (LGNG) – 1.75p@ £9.85 – Provision of total security solutions
There has been a period of significant development for this the former SectorGuard and the recent finals showed some stretch marks. Acquisition assisted turnover increased to £28.9m from £17.5m but losses after exceptional increased for a verity of reasons to £1.4m from £1.2m. After the sequence of acquisitions new management are in place and the Former FD was replaced just before these figures were announced. Legion is one of the UK’s Top Ten manned guarding companies which is a sector where there are benefits from economies of scale likely to drive further sector consolidation.
These results have not established the news management position who emphasised a need to deal with difficult ‘legacy issues’ in accounting and funding although few details were given. This must cause uncertainly in the existing forecast of PBT of £2.8m on turnover of £71m. There could be some downside in the current price but that would increase potential bid interest.

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