Last week:
Decreasing UK consumer confidence is putting the housing market under pressure, as an FT inspired Survey shows a rise in the number of instructions to sell and a fall in the numbers looking to buy. The FTSE 100 closed up 0.8% with the FTSE 250 up 1% while at 798.2 the Aim All Share Index was off slightly at 0.18%.

This week:
On Wednesday the well flagged Spending Review will set out the planned £83 billion Public expenditure cuts over the next four years. The debate is whether GDP growth can withstand the rebuilding the UKs balance sheet without double dipping into recession. Also on Wednesday the Monetary Policy Committee (MPC) minutes report may add meat to the bones of an expected £200 billion second round of Quantitative Easing (QE2). Thursday sees UK Retail Sales as well as in the US, Jobless Claims will be reported, where any sign of improvement would take the pressure off the falling dollar.

Pause for thought
Public spending is estimated to boost GDP growth by around 0.6% a year, while the private sector’s longer term growth rate is 2.5%. The Government is attempting to keep Britain AAA Credit Rating with a policy of repayment with 73% via cuts and 23% by higher taxes. It could be a bumpy ride and taxes may have to increase but it should just about work!

Company News
GGG Resources (GGG ) £29.5m at 13p
GGG Resources, the former Central China Goldfields, has extracted itself from its Chinese operations, secured a 50% stake in a major gold deposit in Australia and is looking to get its shares traded on the Australian Stock Exchange (ASX). AIM-quoted GGG plans a listing on the ASX before the end of 2010 in order to attract Australian investors. It is not certain that GGG will raise any cash at the time of the ASX listing but it will need additional cash in the future in order to finance the development of Bullabulling.

Along with its 50:50 joint venture partner Auzex Resources, GGG has acquired the Bullabulling gold mine in a recognised gold producing region of Western Australia. The mine was producing gold in the nineties – when gold was around $315/ounce – but its then owner transferred the processing plant to another of its mines in Africa. Bullabulling has nearly 2m ounces of JORC-compliant inferred gold resources and drilling during the rest of this year should turn these into measured and indicated resources. This drilling will cost A$2m.

The plan is to produce 100,000-130,000 ounces of gold each year. The average operating cost is expected to be around $600/ounce. The capital cost of the mine could be as much as $150m but acquiring second hand plant could reduce the overall cost. House broker Westhouse has set a price target for GGG – based on the valuations of its mining peers – of 26.5p a share, while Collins Stewart has calculated a net present value of 25p a share.

GGG owns 10% of ASX-listed Auzex, which in turn owns 6.2% of GGG. Each company pays an equal amount towards the development of the mine. At some point the two companies would like to amalgamate the ownership of Bullabulling.

GGG has £2.6m in the bank. Directors say that this should be enough to finance the feasibility studies for the project. These are due to be completed by the end of 2011 and 2012 will be spent raising finance and constructing the mine. The first production is not expected until 2013. The first results from the latest drilling should be released in November. There is further scope to increase resources by drilling deeper and widening the exploration to other parts of the licence area. Additional good news would make it easier for GGG to raise more cash to help finance the development of the mine.

Clearstream Technologies (CTN)£11.2m at 24.25p
The costs of increasing capacity and higher R&D spending knocked last year’s profit from ClearStream Technologies but a full year with the enlarged capacity will produce a much better return. The manufacturer of medical devices for minimally invasive surgery to clear clogged arteries and balloon catheters and stents used for heart procedures reported a rise in revenues from €13.9m to €15.1m in the year to July 2010. Stripping out one-off milestone payments from Bard the underlying product revenues grew from €12.5m to €14.7m. The makeup of revenues is changing with the majority now coming from peripheral angioplasty products instead of coronary angioplasty products. Gross margins fell because of investment in training and the building up of production. There are four production lines currently working two shifts each. Pre-tax profit fell from €1.93m to €530,000 – or from €500,000 to €150,000 excluding the one-off payments. The order book is worth €3m, which is the equivalent of two months sales. Analysts forecasts full year revenues of €19.5m.

The focus this year will be improving the gross margins of the products through greater production efficiency. ClearStream hopes to produce 1,600 units each day. A fifth production line is planned. Pre-tax profit is expected to more than double to €1.3m. The shares are trading on 9x prospective 2010-11 earnings.

Net cash was €867,000 at the end of July 2010.

Inland (INL)£32.9m at 18p
Brownfield property developer, Inland more than trebled its revenues to £16.5m – including £13m of land sales – in the year to June 2010 and there are already £20m of sales in hand for this year. Inland reported a profit of £1.05m for the year. Changes to the planning system are making things even tougher for developers. The mortgage market remains constrained. Even so, the outlook for Inland remains good. It has 1,950 plots of which 1,357 have consent.

The net asset value is 24.3p a share.

Gearing was 34% at the end of June 2010 and it has since fallen to 19%. That includes deferred consideration, which was still £5.96m at the end of June – £2m has been paid since. Inland plans to repay all its borrowings from RBS before the end of 2010 so that it does not incur any penalty.

Inland is back in the market for land but it says that on many occasions it is being outbid by new land funds backed by venture capital firms.

Walker Greenbank (WGB)£23.7m at 40.5p
Furnishings supplier, Walker Greenbank’s revenues have returned to their peak level of a couple of years ago and the furnishings supplier is paying an interim dividend for the first time in 13 years. Revenues grew 16% to £33.7m in the six months to July 2010. That is more than the first half of 2008-09, which was the previous first half peak. Operating profit was nearly doubled to £2.06m even before a £500,000 exceptional insurance gain relating to the loss of pattern books in a fire. Stripping out the exceptional, pre-tax profit improved from £604,000 to £1.81m. The manufacturing businesses were responsible for the majority of the improvement. Higher capacity utilisation enabled these businesses to swing from an operating loss of £84,000 to a profit of £1.13m. There was a higher profit contribution from the brands but investment in Sanderson’s 150th anniversary and other marketing held back the profit growth. Most of the longer-term improvement will come from this side of the business. Harlequin is increasing its licensing revenues via the sale of bedding, rugs and towels. Underlying profit is expected to jump from £2.4m to more than £4m in the full year – second half growth will be against a stronger period last year. November is the most important month. The shares are trading on 8x 2010-11 earnings.

Investment in the manufacturing business and the normal first half working capital outflow meant that net debt was £2.82m at the end of July 2010. Further investment means that this is unlikely to change significantly this year. The banking facility lasts until July 2013 and there is headroom of £9.51m. The gross pension deficit is £7.38m.

Walker Greenbank is paying an interim dividend of 0.15p a share. That is the first interim for 13 years.

Management is turning its mind to acquisitions but they are not a priority. An upmarket UK brand that fits within the existing portfolio is a possibility. Alternatively, European or US brands would be considered. There is also the possibility of acquiring a sourcing business.

Oilex (OEX)£25.3m at 11.5p
Oilex is focused on oil exploration and production in the Gujarat region of India. It has joint ventures with Gujarat State Petroleum Corporation in the Cambay Basin. Management has a background with Cairn. Oilex is operator and has 40%-45% takes in the production sharing contracts. They last for 10 years with a 10 year extension available. The maximum government take is 35% after an investment multiple of 3.5 times is attained. Oilex’s share of P90 reserves is 186bcf of gas and 8MMbbls of condensate, which includes potential government share of production. Oilex is utilising Nutech’s software expertise in US shale gas to help to extract more from its Indian tight/shale gas assets, which are thought to be similar to Eagle Ford in south Texas. Oilex has exclusive access to NuTech in India. However, the net reservoir thickness in Cambay is much wider and the porosity range is higher. A horizontal well should be drilled early in 2011 and independent reserves can then be certified. Production testing will start later in the year. That should generate small revenues for Oilex. Full scale production from a number of wells should start at the beginning of 2013. Gujarat is the on of the most industrialised state in India and the latest figures show its economy growing by around 12% a year – faster than India as a whole. There is growing consumption of electricity and there are already shortages of gas supply. Management says that eight power stations in the region are short of gas. Oilex is quoted on Aim and listed on the ASX. There are a number of UK buyers but many are buying shares in Australia. Institutions are starting to get interested in the company.

Oilex has A$16.8m in the bank and no debt. Once reserves are firmed up it may be possible to get debt finance. Ideally, Oilex wants to fund growth through cash flow but it may have to bring in a partner. Oilex also has exploration assets offshore of Australia but these will be more costly to develop.

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