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This week: Seeing looks forwards, Avation finds new wings and echoing sounds for Eckoh

Last updated: 10:09 19 Oct 2011 BST, First published: 09:09 19 Oct 2011 BST

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 A steady rise for the FTSE 100, from 5,300 points at the beginning of last week to 5,475 at close (AIM All share similarly rose from 695 points to 715) marked a reasonable week for the financial markets in what is generally very turbulent times. This week so far has seen the markets take something of a dip, largely on the back of a warning from Moody’s that it may put a negative outlook on France’s AAA credit rating together with news of a slowdown in the rate of China’s economic growth. The ongoing debt European debt concerns continue, with EU leaders meeting again this weekend to try and flesh out proposals for resolution. The week ahead sees inflation data being announced together with minutes of the MPC’s October meeting being released, providing insight into whether there are any other policy tools being considered, apart from quantitative easing (QE2).

Delisting Companies

Through these turbulent and uncertain times one trend that has emerged has been the continuing number of companies coming off AIM through a delisting. Fuse 8 (LON:FUZ 8), which has been written on below, has confirmed its intention to do so having issued a profits warning which has ‘…compromised’ its ability to raise monies on AIM. IdaTech (LON:IDA), which manufactures fuel cells and related items, is seeking a delisting based on the difficulty it feels it has in raising money in the current economic environment. Earlier in the year, Et-China.com International Holdings, the Chinese travel specialist, left AIM largely as a result of having a tough time on AIM- it set out to raise £12.5m, but had to settle for £4.4m with flotation costs of £3m. Italian restaurant operator Individual Restaurant Company (LON:IRC) departed from the AIM market in July in which the shares lost over ninety per cent of their value. Due to the illiquid nature of its shares Baqus had struggled to attract new investors, it also estimates the annual cost of maintaining a listing was £70,000 vs PBT of £120,000 for 2010. (the annual cost of maintaining a listing of £70,000 appears not too steep to us….). China Shoto (LON:CHNS), a maker of industrial batteries and power supply systems also left  AIM blaming a lack of liquidity for a poor valuation in turn hindering takeover discussions at a reasonable level. There are also those that are finding AIM an expensive place to be. Just Car Clinics (LON:JCR) has recently indicated its intention to come off because of the considerable costs involved not justifying the benefits. Certainly there are a great number of questions companies are asking in these difficult markets, which can only be a good thing in ensuring they position their companies to reflect the best interests of their shareholders. 

Angel Biotechnology Holdings (LON:ABH)*

The biopharmaceutical contract manufacturer yesterday announced that it has agreed non-binding Heads of Terms with Materia Medica Holding (LON:MMH), to form a joint venture company (LON:JVC) 51 per cent owned by MMH and 49 per cent owned by Angel. The purpose of the JVC is to commission new product programmes and to manage their production in a dedicated GMP unit operated by Angel, on behalf of MMH. Under the proposed joint venture (JV), Angel will increase the size of the GMP facility at Cramlington that the Company is currently re-commissioning, in order to customise a new dedicated area that will be allocated to the JVC for manufacture of MMH products. This increase allows the expansion of Angel's core business to continue as planned. MMH will fund the cost of this work and provide, through the JVC, funding for capital equipment required for the manufacturing activities. The JVC will retain title to the capital equipment. The JVC will also occupy a non-GMP development laboratory where the preliminary work required before a programme enters the GMP unit will be carried out. Under the terms of the proposed JV, the dedicated facility will be managed, operated and staffed by Angel, supported by Angel's infrastructure, and covered by Angel's licences. The JVC will place orders, prioritise and manage the work carried out in the dedicated unit, paying fees to Angel for its use of the facility, staff and infrastructure, and associated overheads. MMH will provide the JVC with funds required to commission new programmes and the JVC will supply finished product to MMH. Profits retained in the JVC will be divided between Angel and MMH in proportion to their shareholdings. The arrangement will be reviewed after five years and it is understood that MMH will require a minimum of seven products to be manufactured in the first three to five years. Work will begin immediately to negotiate the agreements required to conclude a deal. 

In the meantime, MMH has indicated that it intends to commission the first three programmes under the terms of our current umbrella agreement, pending formation of the JVC after which these will transfer into the control of the JVC. Having the dedicated set up and facility to accommodate MMH projects means that all the space previously being recommissioned can be used for projects other than MMH, potentially expanding the core business. Angel will not only benefit from profits associated to the JV (equal to the 49% ownership) but also from fees paid by the JV for the use of its facility, staff and infrastructure, and associated overheads which will smooth revenues somewhat. Having made significant progress in re-commissioning the Cramlington facility, the Board expect it to be operational in early 2012. On this landmark news of a potential joint venture, the share price rose.  

Avation (LON:AVAP) 

Aircraft rental and leasing company announced the delivery of a third new ATR72- 500 aircraft, all three of which are being leased to Skywest Airlines (a growing Australian Airline) who will operate the aircraft on behalf of Virgin Australia. Under the Australian Regional Airline Network  Agreement (ARAN) with Skywest Airlines and Virgin Australia, Avation will provide up to 18 aircraft to be operated in such manner through a wet-lease (the provision of aircraft, crew, maintenance and insurance). Avation entered into a loan facility back in August for up to US$152.2m principally provided under a mandate to Crédit Agricole Corporate and Investment Bank, which will help facilitate the acquisition of aircrafts for the program. A good update for the Company, which continues to benefit from the growth of Skywest and its contract with Virgin Australia. 

Chamberlin (LON:CMH

Cast iron performance from Chamberlin, the specialist castings and engineering group, announced an update on trading in advance of the publication of first half results for the six months to 30 September 2011. The company predicts a solid set of results in line with previous management forecasts.  Order flow across core foundry activities has reflected predicted schedules and demand has continued to strengthen through the period. New business development initiatives have helped to support the positive trading momentum. As a result the Company continues to trade in line with current market expectations. The Board is continuing to consider complementary acquisitions and sees further growth opportunities in the second half. Half year results will be published at the end of November 2011 when a further update on trading will be provided.

dotDigital (LON:DOTD) 

The Company announced its final results for the year ended 30 June 2011 which included an increase in turnover by 49 per cent to £8.95m and operating profit by 68 per cent to £2.30m. Total investment this year has been £150,000 of capital expenditure in hardware and £639,000 of R&D activity in products and services. Progress has been made on the integration of Netcallidus, the search engine optimisation business acquired by dotDigital in 2010. Teams across all of the dotDigital Group have been trained in the sale of search engine optimisation (SEO) as a product, particularly with respect to cross selling to existing customers. The Board has agreed to rebrand all of the search marketing activity as dotSearch and search marketing contributed over $1.2m (2010: £.01m) this year. The staff employed in Minsk, which is the new facility opened in October 2010, has increased from 15 to 45 over the year, with the majority of the staff involved in search marketing. In the Company as a whole the staff headcount grew from 103 to 142. dotDigital has seen high levels of organic growth with new client numbers increasing by 1,470 in the year and a number of new initiatives were introduced to ensure the products and services meet and exceed customer needs. A significant number of new features and improvements for the email marketing product, dotMailer, were made, including the release of an innovative, market leading visual editor. 

Eckoh (LON:ECK)

A week for contract extensions. Eckoh, a UK provider of customer service solutions using speech recognition, announced a number of contract extensions this week. The Company, whose clients include the Ministry of Justice and ParcelForce, announced that an existing 2 year contract with Addison Lee which was due to expire in November 2012 has now been extended to 2014 for the provision of automatic speech recognition services to Addison Lee’s minicab customers in making bookings and receiving confirmation via text message. This week also saw the Company announce the extension of a contract with BT, which has been a client since 2003, for a further 3 years taking the Company up to 2014. Services for BT take the form of hosted speech recognition to a number of BT Global Services’ corporate customers. This is a good update for Eckoh, which over the last 2 months has seen the extensions of contracts with the Ministry of Justice and a leading UK logistics organisation. The Company is clearly continuing to deliver to its clients, and the strength of its services and products is reflected in the strong performance in contract renewals/extensions.

Eden Research (OFEX:EDE) 

The agrochemical and encapsulation development company announced that it has received a notice of allowance for its platform encapsulation technology patent in the People’s Republic of China, with formal grant to follow in the coming months. The patent is also in an advanced state of registration in a number of other countries. This is the fifth granting of a patent for Eden’s proprietary encapsulation technology which as per Clive Newitt ( Managing Director ) covers the significant and rapidly expanding market of China.  Clive Newitt, also said that China will be an important region for a number of Eden’s licensees in terms of both manufacturing and distribution.

Epistem (LON:EHP

The biotechnology and personalised medicine company last week announced its preliminary results for the year ended 30 June 2011. Overall, the 2010/11 financial year saw Epistem continue to build on historic performance. Sales of £5.8m were seen, with strong underlying programme growth, and a third consecutive year of growth in profit at all levels and increased EPS were recorded. Epistem announced a significant Biomarker oncology collaboration with Sanofi-Aventis in the period, estimated at $4m over three years. This deal underpins Epistem’s oncology programme in biomarkers. Epistem is actively discussing with other pharma companies regarding identifying gene biomarkers. It saw 19 per cent sales growth in the Preclinical Research Services division and completed the development of and saw first sales from the Genedrive(TM) 'Point of Care' molecular diagnostic device. Epistem continues to differentiate itself through its growth, advancing technologies and firm commitment to growing investor returns. The business model has traditionally been dependent on service and license based revenues, but with the advent of their first molecular diagnostic product (Genedrive(TM)), revenues are expected to accelerate quickly over the coming year. Epistem remains selective in considering complementary technology, acquisitions and in-licensing, with few opportunities thus far meeting expectations. Epistem remains firmly fixed on building shareholder value by providing a high margin, diverse and rapidly growing portfolio of world class technologies.

At its analyst meeting, Epistem shared that most of its clinical work is on a repeat basis. The Company may behave in some respects as a Contract Research Organisation (CRO), but its margins suggest otherwise and it has a lot more to offer besides. The US government extended its bio defence programme for a further five years, which demonstrates how well respected it is as a Company in that space. We expect further updates over the next six months of various tests it is developing for GenedriveTM and how it might partner some of those. We sensed that as regards corporate activity, Epistem is more likely to partner than acquire. 

Fuse 8 (LON:FUZ8)

Blown a fuse!  Digital marketing group Fuse 8 has confirmed it will de-list from the AIM market, having only joined – through a reverse acquisition - in July 2010. The Company recently announced the departure of its chief executive Nigel Hunter and issued a profits warning. It said this undermined investor confidence, “severely compromising” its fundraising plans on the Alternative Investment Market (AIM). On Friday it added that profits for the year to the end of March will also miss its target. Fuse 8 said it uncovered a number of unspecified issues after Mr Hunter failed to give the board a requested business update. About 81 per cent of the company’s share capital is in private hands, with the bulk held between Mr Hunter (13.5 per cent), its founders Mark Walton and Andy Hutchinson, and a staff pension scheme. The Company said it will make a matched bargain dealing facility available to allow investors to trade shares. Investors holding 77.5 per cent of its shares have already backed the de-listing, making a vote next month a formality.

Fusion IP (LON:FIP) * 

The university IP commercialisation company last week announced its Preliminary Results for the twelve months ended 31 July 2011. Revenue & portfolio return increased by 35 per cent to £5.9m (2010: £4.4m). The Company reported a profit before taxation of £1.0m (2010: £1.6m loss) and had cash balances of £2.0m (2010: £4.6m). A co-investment agreement with IP Group was implemented on three occasions; one new portfolio company was started and funded in the year (Perlemax); and six portfolio companies entered a trading phase of growth, three of which are trading profitably. The portfolio company Simcyp increased turnover by 25 per cent to £5.9m (2010: £4.7m) and profit by 35 per cent to £2.3m (2010: £1.7m). The portfolio company Magnomatics increased turnover by 62 per cent to £1.3m (2010: £0.8m). £1.6m was invested in the portfolio companies by Fusion (2010: £1.8m) and £6.1m was invested in the portfolio companies by third party investors (2010: £6.9m). 15 funding rounds were completed by portfolio companies (2010: 20). Post the year end, Diurnal, the Cardiff-based drug development company, completed a £335k funding round in August that will enable its lead product to complete the profile stage of its Phase I clinical trials. Mesuro, the Cardiff-based Radio Frequency technology company, raised a further £440k in August to support its growing sales activity. The share price rose on the results. The Group remains focused on achieving its first cash realisation. 

GGG Resources (LON:GGG)

The Company announced a resource drilling update on the Bullabulling Gold project. The phase two infill drill programme which started on 14 May 2011 is progressing well, with a total of 24,212 metres drilled in 136 holes since 15 July 2011. There are currently three drill rigs working on this programme which is infilling the historic drilling between the Phoenix and Hobbit pits to increase the confidence in the current resource base. Exploration drilling is also underway, including exploration targets to the south of the main Bullabulling Trend. Total drilling for this programme is 46,411m in 261 holes and drilling since the JV started work on the project is 82,667m from 507 holes. Drilling results continue to reconcile well with recent new resource models and include new high grade intersections. The Company commenced a detailed magnetic survey to develop a 3D geological model for targeting deep mineralisation. 

Herencia Resources (LON:HER

The Northern Chilean miner has announced very high grade assay results from the Patricia drill programme at the Paguanta Project.  For example, drill hole PTDD091 includes 5.0m of grades of 10.2 per cent zinc, 4.0 per cent lead and 248g/t silver and 2.0m of 16.3 per cent zinc, 7.4 per cent lead and 478g/t silver.  Other samples include silver grades of up to 997g/t.

Instem Life Science Systems (LON:INS

The AIM listed provider of IT applications to the global early development healthcare market announced that it has won a four year contract worth over $1m with one of the five largest pharmaceutical organisations for its Provantis solution suite; the Group’s industry leading preclinical data management system. The use of Provantis will consolidate several key application areas and harmonise the client’s sites worldwide. Provantis will be delivered via Instem’s Software-as-a-Service (SaaS) delivery model from its US-based data centre. The use of SaaS lowers the client’s infrastructure and support costs, while enabling more frequent upgrades for access to the latest features and functions. The contract has been signed for an initial four years and is worth $1,085,000 with on-line deployment starting this year. 

Imaginatik (LON:IMTK)

Imaginatik, the provider of collaborative innovation software and processes, announced the extension of a contract with a leading auto, property and casualty insurance company in the US, valued at $0.95m. The Company will continue to provide its software and services to support the client’s innovation programme, including the use of Imaginatik’s newly enhanced product platform across the client’s 140,000 employees and network of agents. Back in August the Company announced losses of £2.4m for the year to 31 March 2011 (2010: £1.4m), though having since raised £1m we look forward to seeing how the Company will develop over the course of the next year and whether it can continue to generate such contracts and renewals.

MBL Group plc (LON:MUBL

MBL announced the sale of Global Media Vault (LON:GMV), its Digital and eCommerce businesses, to Sainsbury's Supermarkets Ltd for a consideration of £1m.  The sale follows a decision previously announced within the Operating Review of the Group plc's Preliminary Announcement dated 26 August 2011 to withdraw from this business due to high development costs.  In the financial year to 31 March 2011, GMV made a loss before tax of £2.9m and had net liabilities of £3.9m. The sale proceeds will be used for working capital purposes.

Mouchel Group Plc (LON:MCHL

Another week another departure from Mouchel:  Since reporting the profits warning and subsequent departure of CEO Richard Cuthbert in last week’s SCW, Bo Leranius (Chairman) has now stepped aside too.   Grant Rumbles (ex Exova & Serco) has been appointed CEO and is leading the negotiations to try and avoid breaching the group’s banking covenents.   KPMG have also been appointed to assist the new CFO (since June) Rod Harris to get on top of the situation.  Around two thirds of Mouchel’s business is Public Sector related and consequently under growing margin pressure, however it is hoped that the underlying business can be viable, so long as the balance sheet can be restructured: Perhaps through the disposal of assets; a rights issue; or both. 

Next Fifteen Communications Group (LON:NFC

Next Fifteen, the worldwide digital communications group, this week announced its results for the year ended 31 July 2011. The Company reported revenue up 19 per cent to £86.0m (2010: £72.3m) and adjusted profits before tax up 27 per cent at £8.4m (2010: £6.6m) underpinned by its early transition to digital services in its PR businesses. Digital is giving the group access to new revenue streams and helping deliver strong growth in North America and Asia. 

Organic growth remains a strong feature of the group with revenues up 11 per cent. but the Company has also strengthened its business through targeted acquisitions and the Company continues to seek value enhancing deals.   

On the back of these results the Company is proposing a final dividend of 1.535p per share, which increases the dividend for the year by 11 per cent to 2.05p per share. The Chairman also reported an encouraging start to the new financial year and continued confidence about the prospects for the Company.  

Nighthawk (LON:HAWK

Nighthawk, the US focused oil development and production company, last week announced an update on strategy and current activities. The Company is seeking to improve production at Jolly Ranch through a work programme to improve wells and drill a number of new wells, commencing in early 2012.The directors plan that this programme will demonstrate the operational capacities of the Company, increase production and establish additional value in the Cherokee shales. In order to execute the proposed work programme, as well as support recent and ongoing costs, the Company is planning an equity fundraising, which is expected to comprise a placing to institutional investors and a pre-emptive open offer to qualifying shareholders, to be undertaken at the same price as the placing and for up to £5m.    

PhotonStar LED Group (LON:PSL) 

PhotonStar, the British designer and manufacturer of smart LED lighting solutions last week announced that it had raised approximately £1.35m from existing shareholders.  The Company’s proprietary technology integrates LEDs, sensors and controls to provide intelligent lighting for commercial and architectural applications which benefit from greater C02 reduction, lower cost of ownership and improved functionality compared to other available light sources. The net proceeds will be used to develop ChromaWhite, the next generation of LED light engines and provide further working capital to support the Company’s growth.

Sarantel Group (LON:SLG

Sarantel, a leader in the design of high-performance miniature antennas for portable wireless applications, has received production orders from General Dynamics Itronix for the GeoHelix GPS antenna.  Itronix will be using the antennas in their GD300 rugged wearable computers which are used by military and other field service personnel.  For less demanding situations, a Japanese camera manufacturer is considering the installation of the same antennas in their cameras in order to allow the recording of the geographical location of a photograph. Both applications seek to utilise the design and cost benefits of the GPS antennas’ miniature size and high performance.

Despite good progress with these products to a growing customer base, Sarantel reports in a trading update for the year ended 30 September that revenues are expected to be 24 per cent lower than the previous financial year at £2.2m.  This is largely as a result of delayed orders from two of its largest customers.

Seeing Machines (LON:SEE

Seeing Machines, a leading developer of facial image processing software for applications that rely on understanding the movement of human faces and eyes, this week announced its results for the year ended 30 June 2011. Revenue increased by 60 per cent to A$7.2m (2010: A$4.5m) but net losses increased to A$2.2m (A$1.8m). These results were driven by the increase in demand for its Driver State Solution (DSS) technology - with a growing number of blue chip mining customers either using or planning to use the DSS - and the cost of investment in the DSS in sales and marketing, customer support and research and development.  The strategy for commercialisation of the DSS technology is strongly focused on the global mining and resources sector through direct sales and channel partners. Channel partners have been appointed for Africa and South America and there are a number of significant developments underway in these regions.   A strong focus will be on growing the services side of the business particularly through its data management, analysis and reporting services made possible through the DSSi database and reporting suite.    The chairman reported that the Company was moving forward with the commercialisation of its products and technology and that the Company was confident of continued revenue growth in 2012 along with an improved financial performance.

Synchronica (LON:SYNC)

The AIM listed company which develops and provides mobile device management and synchronisation solutions provided a trading update for the quarter to 30 September 2011, in which it stated that revenues for the period are expected to be significantly higher than for the same quarter in 2010, at circa $6.6m (2010: $0.7m), largely due to the acquisition of the Operator Branded Messaging business from Nokia. The Company has made a number of acquisitions over the course of the last three years, and is working to reorganize the business such that it is more integrated and can offer more comprehensive solutions. Reorganisation is expected to bring the business savings of at least $12m annually (through the closing of several satellite offices and a reduction of overall headcount by 22 per cent), based on a $2m ‘one-off’ cost. The last few months have been particularly turbulent for the Company, which in September saw both CEO Carsten Brinkschulte and COO Nicole Meissner leaving the Company. Synchronica also announced delayed payments from a number of device manufacturers, with a good portion of the $2m it expected to receive now not expected to be collected until 2012. Interesting times for the Company, and we look forward to seeing whether the new management (led by the new CEO, Angus Dent (who was CFO for Synchronica) and business strategies work in sync. 

Zambeef Products (LON:ZAM

The fully integrated agri-business with operations in Zambia, Nigeria and Ghana, provided an update on its performance for the year ended 30 September 2011. The Company anticipates announcing its final results in November 2011 and expects turnover and net profit performance for the full year to be in line with market expectations. Trading conditions over the financial year have continued to improve, with demand for all product lines increasing, driven largely by the continued expansion of the Zambian economy, which is currently growing at more than 7 per cent. per annum. In June 2011, the Group was admitted to trading on AIM, raising $55m via a placing and simultaneous rights issue on the LSE and concurrently it successfully concluded the acquisition of the Mpongwe farms in Zambia.

*A corporate client of Hybridan LLP

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