Pretty well every bit of economic data we have had recently surprised on the upside…

…. The earliest soundings on the economy are provided by surveys for example in the UK the Purchasing Managers Index survey rose from 47.7 to 49.6 in December.

Sunday Times


Last week…

…stockmarkets started 2012 positively and the FTSE 100 at 5649 improved 1.6%. In a relative way, bad news is discounted so markets are pulled-up by a short string of encouraging news, such as stronger manufacturing data from China, India and UK. As well as the US who also reported a relatively positive 200,000 increase in non-farm payroll.  Eurozone inflation fell to 2.8% in December, which is the first fall in five months and another consideration for the ECB as cuts to interest rates are considered.

Last Year World Review…

…most stockmarkets fell in 2011 and there can be no surprise that the euro’s benchmark index performed badly in 2011 with for example Germany’s Dax 30 Index down 16%. The once-hot stockmarkets of Brazil, Hong Kong, China and India did even worse. One of the world’s best performers was Venezuela’s main index.

This week…

…an auction for Spanish and Italian bonds due this week could if set above 7% led to emergency bailouts. In the UK there are Balance of Trade Figures on Wednesday with Industrial and Manufacturing Production on Thursday. Before Friday’s Producer Price Index figures there is the BOE’s interest rate decision.  A decision to leave rates unchanged is most likely but the statement will be drained for any indications for policy change. Markets are set to become lethargic.


Company Reports

VSA Capital Group (VSA) – £1.14m at 4.13p

Since the 6p placing in early December  which raised over £0.5m, the share price has drifted lower. VSA Capital  are a recently formed  international investment banking and institutional broking group providing corporate finance, broking, research, sales and capital raising capabilities to companies in the natural resources sectors; Oil & Gas, Mining, Agriculture and Timber.  The placing followed the interims to September which were the first results as a financial services business showing revenues of £0.44m and an operating loss of £0.47m.  As the business seeks to grow organically by hiring staff have tried acquisitions. Intriguingly the interim statement also eluded to a significant transaction which, should it complete, would be transformational on profits.  The team at VSA have stated a target of bringing resource deals to Asia where there is certainly some significant opportunities. Commissions on large Asian transactions are typically 2% so £100m deal would be £2m.


Currently the cash help is over £1m which is not much less than the current market cap  while the £0.3k of convertible repayment is matched by the differed repayment on the sale of the previous software business.


SkyePharma  (SKP) – £9m at 36p

The convoluted drama of drug development at SkyePharma continued as a 60-day referral has failed to yield a unanimous decision regarding EU approval of Flutiform. It will be referred to arbitration were approval will be made on a majority vote and the current consensus is that 20 or 21 of the 22 EU member states, including the reference member state, are in favour.  Although eventually approval is expected the delay could be six months while SkyePharma must also refinance its £83m of convertible debt well before the earliest put date of November 2013.

The potential for SkyePharma and Flutiform an asthma treatment   is relatively unchanged except for factoring in a delay resulting in lower than previously expected royalty revenue in 2012 and 2013. Receipt of the first part of the €15m Flutiform EU launch milestone from Mundipharma continues to be modelled in 2012, with the remainder coming over the following 12 months.  An enterprise value for SkyePharma of £207m can be generated on a discounted cash flow basis.


There is cash of around £30m but the key impact on the share price is the refinancing of the £83m convertible bonds and SkyePharma’s ability by 2013 (at the latest). This  is the elephant in the room because the investment case hinges fundamentally on the approval and launch of Flutiform.


Ilika (IKA) – £17.6m at 47p

Advanced materials developer Southampton-based Ilika has developed technology that helps speed up the development of new products. The core market is the cleantech and electronics sectors, although there is also a biomedical business base in Sheffield. Along with multinational partners, Ilika is involved in developing new battery technology and hydrogen storage materials. The latter involves transporting hydrogen in powder form rather than as a gas. This has been developed with Shell and there is a commercialisation agreement with Sigma-Aldrich. Interim figures will be published on 10 January and while still in the development stage losses are expected  to continue with a loss of  £2m forecast for the full year  and there was £1.6m cash announced in the trading update made in late November.


Cash flow forecasts suggest that the cash could come near to running out by the end of 2012. This is dependent on trading going as expected. If licences are sold then cash could be better than expected.


Evocutis (EVO) – £4.55m at 2.62p

Antimicrobial products, Evocutis is the new name for Syntopix following its purchase of Leeds Skin in May 2011.The chairman  recently brought shares at 750,000 shares at 2.625p taking his holding to  14.7m which is 8.5%. Evocutis paid £900,000 in cash (£259,000) and shares (£641,000) for Yorkshire-based Leeds Skin Centre for Applied Research. Leeds Skin runs a testing facility and provides laboratory services and it generated turnover of £514,000 in the nine months to December 2010. The operating profit was £149,000 and the acquisition should be earnings enhancing. Leeds Skin has its own LabSkin technology, which is a unique human equivalent skin which can be used to model various properties associated with human skin.  This will help Syntopix develop its antimicrobial products.

Revenues grew from £151,000 to £227,000 in the year to July 2011 but the loss rose from £1.11m to £1.22m. Three customers account for 95% of revenues. Evocutis has improved the formulation of acne treatment SYN1113 and it is collaborating with Sinclair IS Pharma on the commercialisation of its delmopinol mouth rinse.  Cash at the July Year end was £2.3m.

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