The FTSE 100 closed at 5060.92 down 2.5% on the week while the Aim All Share at 657.4 was 1.5 % lower. A progress report on the month to date the FTSE 100 has fallen 8.43% with the AIM Index down 8.03%. Astute stock selection remains key to performance and there are some large small cap movements both ways!

There is a batch of US economic data on Wednesday and Thursday but after their robust GDP figures the balance of payments, retail sales, jobless etc should not hold surprises. In the UK there is a BOE Inflation report and last month’s higher than expected Inflations rate could be an early warning of stagflation if the economy slips back.

Perhaps worth noting:
If you do what you’ve always done, you’ll get what you’ve always gotten.
Tony Robbins

Company Reports

Formjet (FMF)* ( To be renamed Third Quad Capital) – £2.2m@0.625p – Software Distribution
The promptly reported finals to December 2009 showed the extent of the corporate developments and are not a useful guide to the underlying business going forward. Turnover was £1,830k and £868.7k was from continuing operations it may be an interesting benchmark to note the historic gross margin was 38%. The eye watering loss was virtually £2m of which £1.3m was exceptional items which must include the proverbial kitchen sink. The cost reduction programme is expected to produce £500k plus savings for the full year. As part of the restructuring a prudent approach has been taken to accounting policies so that a debt amounting to nearly £400k in a Benelux Distributor of ASI Software was written-off. The product mix is restructured to focus on higher margin own label software. The core business remains to distribute and support very competitively priced alternative, ‘white label’ branded software products but with a suitable slimmed down administration overhead. Since disposing of the Panda distribution licence for anti-virus security software in July 09, the continuing products are ASI and BeAnywhere.

More significant than the disposal of the Panda licence for £1.2m, is the arrival of Andrew Monk as CEO in September 09. After investing £200k at 0.20p a share, he is the largest single shareholder with around 22%. Andrew Monk enjoyed a successful career for more than 25 years in the City since graduating from Oriel College Oxford. He was a founder and Joint CEO of Oriel Securities Limited which was built up in four years and early investors in Oriel would have made around a 20x return. More recently he was CEO of AIM listed Stockbrokers, Blue Oar, now called Astaire. He has an extensive institutional and corporate contact list. After nearly completed the recovery phase Andrew Monk’s attention will be increasingly focused on the strategic development. Andrew is only taking a nominal salary of £1,200 a year and as a shareholder is keen to generate capital growth. The new name of Third Quad Capital may relate to the fact this is Andrew’s third business and that there is a Third Quad in Oxford University.

The main asset is the world-wide exclusive distribution rights for ABI which runs until 30th September 2018. The breakup value would consist of this eight year Licence, which we forecast to produce a gross profit of nearly £0.8m in 2010 and let’s assume that’s the current value. There is Property and Plant on the balance sheet at £870k mainly consisting of a freehold property with a £285k mortgage. The second and third trench of the Panda disposal money of £700k is due by the end of the year. Making a few cautious adjustments gives an estimated break-up value of around £2.0m (£0.8m+£0.6m+£0.6m). The potential £3.4m tax losses are not taken into account but could form the tax efficient bases of a decent sized acquisition. The restructuring is largely complete and there should be evidence of the recovery in the June 2010 interims and moderate profits are nearly within forecasting distance. Due to the profile of large clients sales and the pace of recovery are difficult to predict so we have taken a cautious view on organic growth. The next 12 months and the new name Third Quad Capital will be a defining growth period as there is a more focused higher margin product range with the potential (not in the forecast) for substantial contract wins as well as the Andrew Monk affect on adding value with acquisitions.

Servoca (SVCA) – £21.45m@17.5p – Recruitment
The educational, healthcare and security recruitment and services provider reported a 37% increase in revenues to £57.6m in the year to September 2009. A pre-amortisation and exceptionals loss of £1.03m was turned into a profit of £2.21m. Reducing overheads helped with the improvement.

Educational recruitment is the biggest profit contributor but the biggest improvement in underlying profit was in the healthcare business. These markets are expected to continue to be resilient with healthcare offering the best prospects. House broker FinnCap forecasts a rise in profit to £2.7m in 2009-10 and Servoca’s tax losses are running out so it will start to pay tax. The shares are trading on 9x prospective 2010 earnings.

Net debt was £3.41m at the end of September 2009. There is also contingent acquisition consideration of £460,000.
Servoca wants to acquire further recruitment businesses in its current sectors. It believes that the pharma and life sciences sector could offer the best prospects.

Sceptre Leisure (SCEL) – £31.1m@56p – Gaming machines rental
Sceptre continues to grow its business on the back of pubs trying to find additional revenue streams. Revenues increased from £17.9m to £21.2m in the six months to October 2009. Profits jumped from £151,000 to £924,000. Average weekly machine rental rose 1% to £39.15 during the six month period. The doubling of the jackpot on the machines to £70 should help to improve revenues.

Sceptre’s ability to grow was hit by the withdrawal of asset finance facilities. Sceptre raised £5.5m from a share issue at 33p in July, mainly with Hillraod Investments in order to continue expanding. Net debt fell from £19.3m to £16.7m at the end of October 2009. In December Sceptre agreed a £6m revolving credit facility and £500,000 overdraft with Lloyds to replace a £3m overdraft.
The cash raised in the summer helped to finance the purchase of Australian 8 Ball Company, which boosts the coverage in the south of England. Sceptre is looking for other gaming machines distributors to integrate into its business.

Arden Partners (ARDN) – £26.8m@107.5pStockbroker
Revenues improved from £11.4m to £13.1m in the year to October 2009. The corporate finance operations reported slightly lower revenues with all the growth coming from the equities trading operations. Pre-share based payment profits rose from £2.1m to £2.2m and nearly all of that profit was in the second half.

Arden has also appointed additional analysts including retail analyst Nick Bubb. The firm has also moved premises to 125 Old Broad Street – the former address of the London Stock Exchange.

Clients won during the year include brokers Evolution and Brewin Dolphin. Chief executive Jonathan Keeling admits that Arden’s resilient performance has been helped by its Indian client base. The broker’s only flotation last year was wind power generator Indian Energy. Many of its fundraisings, both last year and this year, have been for Indian clients.

Arden has raised £111m for clients since the end of October 2009. Last week, Aim-quoted clean energy projects investor Greenko Group raised £72m from a share placing at 140p a share to expand its portfolio of clean power generation projects. Arden jointly placed the shares with Mirabaud and underwrote the issue. Keeling says that there was strong demand for the shares. It took three days of meetings to raise the cash and some investors were scaled back. Keeling says that there were even some investors who were disappointed not to be offered the chance to take part in the placing.

Arden had net cash of £10.5m at the end of October 2009.

Arteon (ARTO) (Formerly Turftrax) – £1.05m@120p – Property investment
Property investment and services group Arteon has signed up the first asset management customer. Arteon, formerly TurfTrax, has been appointed by an Isle of Man incorporated property company which is raising to cash to buy up to €30m of pre-let residential property in Germany. A proposed second phase would raise cash to acquire €100m of property. The property would have an initial yield of 9%-11%. Arteon will receive 0.6% of gross assets under management as an annual fee plus 0.6% of any assets when they are acquired.

Arteon will use its Orchos software platform to manage the property. Orchos enables qualified investors and funds to hold and report investment property within a transparent framework. Each property is owned by an ‘asset transparent vehicle’ and this will enable individual investors to take a stake in any property.

Orchos has been licensed from Arteon’s major shareholder Real Estate Innovations Holdings. To maintain worldwide exclusivity for the use of Orchos, Arteon has to have €300m of assets under management by March 2011. Arteon says that the initial contract will provide a showcase for Orchos.

Arteon had £84,000 in cash at the end of September 2009. There were also shareholder loans of £150,000. Shareholders say that they are willing to put more cash into the company.

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