LAST WEEK/ THIS WEEK
For the second week in a row the FTSE 100 fell over 2% with -2.2% while the Aim All Share was -2.1% lower at 667.4. The BOE interest rate decision is on Thursday with no change. The MPC (Monitory Policy Committee) are likely to put QE (Quantitative Easing) on hold perhaps with a hint there is another £50bn potentially available .

Perhaps worth noting:
At the World Economic Forum in Davos Dominique Strauss-Kahn, the head of the International Monetary Fund, warned of the risk that governments would end stimulus programmes too soon. “If we exit too early, there is the risk of a double-dip recession. In that case, I don’t know what we can do because we have used all of the tools. The probability is low, but the risk is high” .

Company Reports

Galleon (GON) – £18.1m@11pEntertainment programming and games
Galleon Holdings has reported strong growth in revenues in the year to September 2009.

Galleon is an entertainment content and distribution business focused on China. Another branch of the business called Croco designs and makes collectible gifts for consumer companies. Galleon has been quoted for a number of years but it was the arrival of ex-Chorion managers Stephen Green and Len Dunne that led to the development of the business in its current form.

Revenues jumped from £12.1m to £27.1m last year and underlying profits rose from £860,000 to £1.38m. The make-up of those profits changed significantly last year. All the profits in the previous year were made by Croco and the entertainment division made a loss. Last year it was Croco that made the loss and all the profits came from entertainment. Consumer goods suppliers are not spending as much of their marketing budget on Croco’s products.

Entertainment products and programmes include Skunk Fu!, Mysti and Super Soccer Star, where young footballers compete for the chance of a contract at Chelsea FC. This latter format is being sold around the world. Galleon is launching a similar project called Super Fashion Star aimed at young fashion designers.

Galleon has made a football-related animated film called Sokator-442. This will be sold to TV broadcasters and on the back of this there is a TV game show format.

Finance
There was an operating cash inflow last year and, even after investment in intellectual property, the net cash position was £4.51m. A £3.67m placing helped to boost the cash pile. House broker Cenkos believes that there should still be net cash of £4m at the end of September 2010.

Intandem (IFM) – £1.6m@2pFilm Producer
An upbeat AGM statement shows that a firm recovery is underway. One film has already been completed (The Kid) and four are in post-production and should be completed by June. Intandem earns fees from representing films as an advisor and from raising the money to bring the films into production. The fees earned are typically around 2% of the films budget and commissions earned can be up to 15% on all sales generated. Agreement in principle has been reached for the financing of one major film and negotiations are underway for the financing of at least three other films. The company’s appointment to represent a library of 13 films by a US based financial institution boosts confidence in the recovery for 2010 and beyond. These films include Your Perfect Angel, a $25 million romantic comedy to be directed by Donald Petrie (Miss Congeniality), starring Sandra Bullock.

It does seem that the 2009 results were the low point. If the company can clear its balance sheet issues and the pipeline of new films continues to improve we see the potential for a major re-rating. Our forecasts assume that Intandem achieves a deal flow of 6 modest budget (average of £5 million) films this year rising to 8 in 2011. There is always the chance with the CEO’s Gary Smiths contacts in the film world for much larger projects which given the operational leverage could transform the P&L.

Finance
At the finals, Intandem showed that the cost base had been cut and its fixed overhead is now just £1 million. A drag on the expectations and the balance sheet has been a $5.7 million loan to Arrowhead which relates to a portfolio of US film licenses acquired some years ago. The AGM boldly stated that negotiations are being finalised to discharge this loan and there could be a further statement by the end of February. The debt could simply be repaid by returning the films to their original owners and perhaps with the payment of a redemption premium– the balance sheet would be left with no debt and financing costs would be eliminated.

SERABI (SRB) – £5.32m@1.625pGold Exploration & small producer in Brazil
A progress update published by Serabi Minerals on 28th January demonstrates that the funds raised in the recent placing and open offer are already being utilised effectively at the Palito gold project in Brazil. The objective of the exploration programme now firmly underway is to evaluate the JORC hard rock gold deposits in the area and to expand the JORC equivalent resource to in excess of 1.5 million ounces from its present 630,000 ounces. Producing more than 110,000 gold equivalent ounces between 2005 and 2008, the Palito Gold Mine remains the only hard rock gold mine to have been established in the region. In retrospect the initial production commenced too early and before a full feasibility report which would have identified that greater scale was needed for the operation to be economically robust.

Whilst the board of Serabi believes that the existing flagship Palito Mine could be re-established and operated profitably albeit on a smaller scale than before it considers that it is necessary first to build a larger reserve and resource base in the vicinity of the Palito Mine by finding and developing more near surface gold deposits. This would create a more robust and economically attractive proposition and help eliminate many of the issues that the Company has tried to overcome in the past.

Finance
There is net cash of £2.4m and in the short term, any further strengthening of the gold price and any positive exploration results may improve sentiment and give additional upside but the long term value upside comes from turning drill dollars into an increased resource with a higher percentage of Measured and Indicated ounces which offers the promise that Serabi can indeed establish a mine producing 60,000 oz or more of gold per annum.

SciSys (SSY) – £13.5m@46p
The supplier of bespoke software systems. IT based solutions and support services to the Media broadcast, Space, Government & Defence, Environment and Applications Support sectors. A pre-close update ahead of finals to be announced March 25th was bullish given the difficult economic background and suggesting that the effect of higher margins and steady costs is feeding through to profits. As a result it expects to report revenues and EBITA for the year at the top end of market expectations which is a PBT of £1.7m are on turnover of £41m and an EPS of 6.3p as. SciSys’ earnings per share is likely to continue to benefit from a positive impact from the low effective corporation tax rate, thus giving a prospective P/E of 7.4x. There is however caution over the prospects for Government related expenditure

Finance
The Company’s balance sheet has further strengthened with net cash of circa £2.4m at the end of 2009.

Nexus Management (NXS) – £5.06m@0.49pIT services
IT services provider Nexus Management’s performance was hit by a disappointing performance from its IT security services acquisition Resilience.

Revenues increased 43% to £5.48m in the year to September 2009 but a profit of £198,000 was turned into a loss of £4.56m. Resilience was a big disappointment and made an operating loss of just over £1m. Nexus has completely written off its investment in electrical goods retailer PD Financial, because the firm has lost its latest finance provider. This means it is not trading at the moment.

It was harder to find suitable franchisees for Nerd Force than Nexus originally thought. This led to bad debt write offs on non-payment of franchise fees.

Edison expects Nexus to make a profit of £200,000 in the current year.

Finance
Net debt was £896,000 at the end of September 2009.

Allocate Software (ALL) – £44.9m@74pWorkforce management software
Revenues increased by 38% to £9m in the six months to November 2009. The underlying organic growth was 30%. Healthcare was the fastest growing part of the business. It generated well over two-thirds of revenues. Allocate gained 17 additional NHS Trusts as customers for its rostering software during the period. Management believes that cost saving in the NHS may add new business. Pre-amortisation profit improved from £703,000 to £1.08m.

Numis forecasts an increase in full year profits from £2.5m to £3.1m. There will be a nil tax charge but there will be a normal tax charge in 2010-11.

Finance
Net cash was £4.47m at the end of November 2009. Cash was generated from operations because there was not the working capital increase reported in the first half of last year.


M&A
Swedish rostering supplier Time Care was acquired after the end of the interim period. This was financed by a £8.3m placing at 55p a share. Allocate is growing internationally and could make additional add-on acquisitions.

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