“…the most serious financial crisis since the 1930’s”

Sir Mervyn King, Thursday  6th October 2011


Last week…

…the FTSE 100 rose 3.4% to 5,303 while the FTSE 250 improved a modest 1.4%. The Aim All Share at 694.4 was 0.8% lower. Larger caps companies benefited from the £75 billion QE announced by the Bank of England, who are clearly concerned by the weak GDP growth of 0.4% for the First Half of 2011. In the US, Jobless claims pleasantly reduced by 103,000 while the German Banks are reported to be raising Euro 200 billion to help recapitalise Banks  ahead of any defaulting sovereign debt.

This week…

… the concern of a double dipping UK economy may crystalize when Unemployment in reported on Wednesday  which  is anticipated to increases to its highest level for 17 years to above 2.521m.  There are plenty Balance of Trade and Production figures from UK, US and Euroland these are unlikely to be encouraging.  Markets seem unlikely to improve this week.



SciSys (SSY) – £12.8m at 44p

IT services provider SciSys was boosted by a strong recovery in its space division in the first half of 2011.

All of the company’s divisions, with the exception of environment, made progress in the first half and they are all making money. Revenues improved by 5% to £22m. Space had the smallest revenue growth in the first half but improved margins meant that the profit growth was much higher. The UK business swung from loss to profit. There is a strong order book for this business.

The media broadcast business is developing new geographic markets and this should help it to continue to grow.

The government and defence division is ahead of budget, despite cut backs in government spending, and there are a number of large contracts that could potentially be won. Support revenues continue to grow. Delays in spending on contracts have hit the environment division. SciSys wants to maintain capacity but it will use staff in this division in other areas. SciSys is cautious about the second half. Edison forecasts a full year profit of £2.2m, up from £2m in 2010 for an EPS of 5.45p and the shares are trading on 8.1x 2011 prospective earnings with a yield of 2.7%.


There was net debt of £1.4m at the end of June 2011. That was after the company spent £5m on its Chippenham head office. That will help to costs by £500,000 a year with very little loss in terms of interest. Edison expects a much smaller net debt figure at the end of 2011.The interim dividend was increased by 9% to 0.36p a share and the total dividend should improve from 1.1p a share to 1.2p a share.


Walker Greenbank (WGB) – £27m at 46.5p

Branded furnishings supplier Walker Greenbank continues to make progress despite the tough economic climate. Revenues improved from £33.7m to £37.4m in the six months to July 2011. Although pre-tax profit fell from £2.31m to £2.04m, if an exceptional loss of profits claim from last time is stripped out there was a 13% improvement. The growth is coming from the main brands – Sanderson, William Morris, Harlequin and Zoffany – and the fabric and wallcoverings manufacturing operations. All the major brands grew their revenues with Sanderson benefiting from its 150th anniversary. Although the international business in the US and France continued to lose money there are good opportunities in Russia, Japan and China. The manufacturing business had a very strong first half to the previous financial year but it still managed to increase revenues by 11% to £14.9m and operating profit by 16% to £1.31m. Several of the company’s competitors use its manufacturing operations. Utilisation rates are good and Walker Greenbank plans more capital investment in this side of the business.

Full year profit is expected to improve from £5.02m to £5.45m, which puts the shares on 7x 2011-12 prospective earnings while yielding 2.3%. Further growth will come from building on the company’s base in the contract market, growing international sales and developing additional brand licensing income.


Net debt fell from £3.11m to £1.82m in the year to July 2011. Net debt has fallen by nearly £8m over the past five years. There is still a £6.2m pension deficit.


Galileo Resources (GLR) – £24.4m at 34.5p

Galileo Resources provides investors with exposure to rare earth minerals. Galileo was previously a Plus-quoted shell called General Industries. On 4 May 2011, the company raised £3.3m at 23p a share.  It moved to Aim on 28 September At the introduction price of 23p a share, Galileo was valued at £16.3m. A deal has been signed which could eventually give Galileo an 85% shareholding in the Glenover joint venture, which has interests in a potential rare earths project on the site of a phosphates mine. There are rare earths in three stockpiles in the area. The prospecting rights include all minerals. China supplies nearly all the world’s rare earth minerals. Prices have risen substantially over the past couple of years. Galileo has also taken a 49% in the Brightwater joint venture, which has a licence to quarry aggregates. This will help to provide cash flow to invest in the rare earths opportunity. There are also potential interests in prospecting rights for iron ore and manganese.


Galileo has enough cash to pursue the development of the Glenover project with potential near term cash flow from the aggregates operation.


GGG Resources (GGG) – £30m at 18.12p

AIM-quoted and ASX-listed GGG Resources has agreed with ASX-listed Auzex Resources to form Bullabulling Gold Ltd which will take 100% ownership of the Bullabulling gold project near Kalgoorlie in Western Australia. The new company will have an independent board and float on AIM and the ASX.

It was inevitable that the project would have to simplify its ownership structure to enable it to raise the cash it requires for the development of the gold mine. GGG made a bid for Auzex but failed to win the backing of its target’s shareholders. However, this did lead to the discussions that ended with the agreement to put the Bullabulling assets into a new Australian-registered company which will be created by GGG.  A scheme of arrangement will cancel the share capital of UK-registered GGG with shareholders receiving the equivalent shares, warrants and options in Bullabulling Gold. GGG may also decide to demerge assets and excess cash as part of the scheme.

The first step for Auzex is to spin out its non-Bullabulling assets into a separate company. Auzex will also retain some of its cash. Auzex will go through its own scheme of arrangement where its shares will be swapped for shares in Bullabulling Gold. This will give Auzex shareholders 50% of the new company. Auzex may need to raise additional cash if there is any difference in its cash and that of Bullabulling Gold.GGG and Auzex shareholders will be sent separate scheme documents. Both sets of shareholders will have to agree to the proposals. It will also require regulatory and court approvals. GGG owns shares in Auzex so its shareholders are likely to end up with around 54% of Bullabulling Gold. The recently announced JORC resource estimate for the Bullabulling project was 2.6m ounces of gold at 1.03g/t Au. Further drilling is underway so that a reserve can be estimated.


The new group will have to decide how to finance the mine. Project finance from a bank is likely to come with an insistence from the bank that hedging is put in place. Understandably, given the risks of hedging gold, management is keen not to do that. There is a possibility that the mine could be purely financed through cash raised from equity but that could be a tall order. 

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