A 4.2% improvement in the FTSE 100 to 5358.2 with the AIM ALL SHARE at 673.8 an improved of 1.9%. There were some strong banking results ( but we have RBS and Lloyds reporting this week), corporate activity and investors are either ignoring or anticipating the longer term inflationary implications of the first Government deficit in a January since records began in 1993.

This week: There is a steady stream of US and European consumer confidence and job numbers. In the Producer Price Index is likely to increase on Wednesday and followed by UK GDP on Friday at 9.30 and surely it will show further unconvincing growth.

Pause for Thought: Inflation is the one form of taxation that can be imposed without legislation. Milton Friedman
EATONFIELD (EFD) – £1.6m@1.63p – Property Developer
Eatonfield’s trading statement could sent a shiver down the small cap property market. It stated that an expected £1.5m overdraft will no-longer be forthcoming and the company may only sufficient funds for 8-10 weeks (end April). Until mid-2008 property development company Eatonfield was pursuing an aggressive growth strategy with plans to complete 300 houses based on significant bank borrowings. There are two flagship projects, the 77 acre Corus Rail site and the 83 acre Birkwood site. These are large developments and allow plenty of scope for Joint Ventures in a mixture of residential and commercial developments.

The credit crunch changed the landscape however, a £7.3 million fund raising at 5p completed in November 2009 seemed to have had restored confidence in the company, giving comfort that bank loans of £27 million which are due to be repaid by October 2010 can either be renegotiated and extended or can be refinanced via asset sales. The statement suggests there are a number of corporate developments underway and one needs to be closed sooner rather than later.

Acta (ACTA) – £5.3m@13pCatalysts developer
Acta has started shipping its hydrogen generators to distributors. These will be used for testing by potential customers. These hydrogen generators can be used to supply clean hydrogen for a wide number of uses, including back up power systems, electric bicycles and . One of their features is that they are able to operate from intermittent power sources whereas competitor electrolyser products require a stable current.

Acta will ramp up production of the hydrogen generators during this year.

Acta still does development work for customers, such as Sumitomo, but it says that the financial crisis has put everybody’s development plans back by several years. Acta is also still developing catalysts. It is working on a cracking catalyst to get hydrogen out of ammonia.

Acta has enough cash to get it well into 2011. It is hopeful that the products will begin to generate some cash at around that time.

Patsystems (PTS) – £44.9m@24.25pTrading systems and software
Electronic trading technology supplier Patsystems is growing rapidly in Asia and it is set to become the company’s largest contributor to revenues.

Considering the financial problems around the world Patsystems has done well to grow its profits in 2009. The reported pre-tax profit growth from £2.07m to £4.49m is flattered by foreign exchange movements. The underlying profit grew 7% to £3.9m. Revenues improved 13% to £22.1m.

Strong growth in Asia offset a decline in revenues and profit in North America. Patsystems lost Lehman as a client and that knocked around £800,000 off its revenues. Most of the North American decline in revenues and profit is accounted for by that loss. There was also revenue growth in Europe but the profit contribution was flat. House broker Numis forecasts profits of £4.7m for 2010. That puts the shares on 13 times prospective earnings for 2010.

Patsystems has net cash of £8.9m. The business is cash generative because of its strong recurring revenue base and this cash pile should continue to increase unless Patsystems decides to spend it on something.

An additional attraction to a potential bidder is that Patsystems has tax losses of £18.1m.

There is plenty of scope to make add-on acquisitions if management can find the right targets. Chief executive David Webber says he has talked to a number of potential acquisitions. He says that their owners tend to want too much for these businesses. However, he says he always remains in touch with the ones that would be a good fit for Patsystems just in case a deal can be done in the future. The strategy is to buy strong regional software businesses and roll the product out around the world. Adding equities and foreign exchange products would help Patsystems compete with its rival GL. Asia is a focus of growth and acquisitions could help this region to grow more rapidly. Patsystems may not be the one doing the buying, though. The business could be attractive to predators. ION Trading, which bought financial back office services provider Rolfe & Nolan more than one year ago, owns 29.3% of Patsystems and could be a potential bidder.

Media Corp (MDC) – £9.5m@3.2pInternet advertising and portals
Trading has recovered strongly since Google lifted its penalty against gambling.com. The initial contributions from poker and casino gaming business Purple Lounge have been positive and they are growing. Purple Lounge generates Eyeconomy, the internet advertising business is also trading strongly. Group revenues will rise significantly following the inclusion of Purple Lounge’s revenues and Media Corp is on course to return to profit this year. The first quarter profit was £370,000.

There was net cash of £1.96m at the end of September 2009 and that is expected to rise to £2.73m by September 2010.

Media Corp is looking to acquire businesses that use Microgaming software and integrate them with Purple Lounge, which also uses the software. The company believes that owners are quite realistic about valuations.

Electric Word (ELE) – £10m@4.375pEducational and gaming information publisher
The underlying profit rose 8% to £1.9m in the year to November 2009. Revenues fell 5% to £16.5m but that was mainly down to the restructuring of MyChild and the closure of the magazine. Subscription revenues have held up well, while events and advertising revenues increased. Even so, advertising is only 18% of total revenues. Investment in new educational titles will help book revenues to recover this year. The revenues of the professional education division were flat and sports business revenues grew 11%. Online gaming remains a growth sector. The revenues of the consumer division were lower because of the MyChild changes but it made a bigger profit contribution. Group central costs were flat.

Electric Word raised £2.7m gross at 3.625p a share last summer, which helped to finance the early redemption of preference shares costing £984,000. Net debt was £1.4m at the end of November 2009.

Management believes that there are opportunities for acquisitions in its main sectors if valuations are realistic.

ADVFN (AVN) – £30.7m@5pFinancial Services
The numbers at this premium financial website are nearly speaking for themselves- the gross margin is 95% and the interim operating loss was £160k so a mere £168k increase in turnover or just 142 UK Platinum subscribers short of break-even. In effect with amortization of £500k they are already operating profitably. Net cash generated from operations was £508,000. Operational leverage is high at this fixed cost business and top line growth is coming through to profits. Traffic growth at 20% is strong and the ADVFN financial brand can be argued to have a value.

At the current organic growth rate a £3m profit would imply turnover of around £13m which could be achieved within the next 2-3 years.

There could well be increasing opportunities to make complementary earnings enhancing add on acquisitions.

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