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HB Markets Daily Smallcap Newsflash including Aminex, Caretech, Regenersis, Vialogy and others

32Red (TTR, 19.5p, £13.53m) Finals to December 2009 saw sales of £12.75m (£12.96m) with underlying PBT of £1.00m (£1.53m) and 1.43p (2.21p) EPS which were slightly ahead of expectations. The results reflected a recovery in H2 which helped net gaming wins recover to £12.8m (£13m) with a 21% increase on H1. The group added 19,117 new casino players, up 23% on 2008 and the group had 25,187 active casino players up 15% on 2008. As important the cost of acquiring each new casino customer fell to £95 (£115) – though the impact of the recession led to average casino player yield falling to £458 (£537) – but that was offset by the lower acquisition costs. Encouragingly the revenues in the first 2 months are up 10%. We see further upside and upgrade our target price for the year to 23p (up from the BUY to 20p on 18/01/10 at 16.5p). Still a BUY.
Alkane Energy (ALK, 17p, £15.82m) Final results to December 2009 saw revenues of £6.29m (£5.19m) with PBT of £2.1m (£1.95m) with underlying 2.24p (2.17p) EPS. The group successfully commissioned 13MW of capacity, taking the total to 30MW, with 3 additional sites with drilling already completed in 2010. The group delivered 95GWh (90GWh) and has secured 75% coverage of its forward electricity sales at £40/Mwh. The group has highlighted its existing coal bed methane (CBM) in addition to its existing coal mine methane (CMM) - surely sooner or later the group will recognise these hidden assets in the balance sheet more fully. Although this year will see profits under pressure from the lower electricity prices (last year the average was £56/MWh) the increased capacity (including full year contributions from that installed last year as well as that about to be installed) the group is looking increasingly attractive. With a recovery in electricity prices anticipated we see the group as still a straight BUY and believe it could easily be on of the take-over targets this year.

AMINEX (AEX.L, 15.5p, £63.9m) Likonde-1 well update, Ruvuma basin, Tanzania (37.5% Aminex). A small announcement this morning from Aminex, stating results of the well which commenced drilling in January 2010 are expected in late March 2010 which becomes a key date for the company. While a very important well for Aminex and investors may be minded to lock in some profits ahead of the event, given a strong performance from the shares. Notwithstanding the company has a relatively diverse portfolio of interests to fall back on and should remain attractive. HOLD – given impending results.

Anite (AIE, 33.25p, £99.31m) Trading update for the start of H2 from November is in-line with management expectations with Q3 and the nine months down on the previous comparable periods, though order books increased in both Travel and Wireless. Operating profits progress was achieved in Wireless while Travel was below the comparable period. The group has net cash of £23.7m but it has taken the decision to close out its currency swap exposure that will crystallise losses that were £22.9m at the end of February. At best this rates a HOLD till the Q4 trading becomes more clear, especially so now the group has burnt its cash pile.

Brady (BRY, 66.5p, £18.8m), the provider of trading, risk management and settlement solutions to the metals and commodities industries reports prelims to 31 December 2009. Revenues up 33% to £8.9m (2008: £6.2m), with recurring revenues of £2.9m. Adjusted PBT increased 14% to £1.2m (2008: £1.0m), below market expectations of £1.4m, but adjusted EPS exceeded expectations of 3.7p, reporting a 59% increase to 4.27p (2008: 2.73p).  An increase in the DPS to 1.3p (2008: 1.2p) illustrates an element of confidence going forward. The group continues to have a strong balance sheet with zero debt and net cash of £5.9m.The group continue to win new business. Brady’s exposure to the metals and mining sector remains attractive. The group is encourages by a strong customer pipeline. The strong balance sheet will allow the group to seek acquisition opportunities to enhance it product and customer base. We believe there is scope for the market to upgrade 2010 earnings estimates of 4.6p. Assuming a 30% increase on current estimates, the group trades on a prospective PER of 11x. Further contract wins and possible acquisitions should help enhance the share price. We retain our BUY recommendation with a 75p target price.
Caretech (CTH, 385p, £176.3m), reports trading continues to be in line with the Board’s expectations. Management believe the fragmented market provides the group with an opportunity to increase market share. Occupancy levels remain strong. The group continue to seek earnings enhancing acquisitions. The market forecasts 2010 EPS of 30.6p and 33.2p in 2011. The stock trades on a prospective 2010 PER of 12.6x and 11.6x in 2011. The latter combined with a yield of 1.4% and earnings enhancing acquisitions encourages us to initiate with a BUY.

Cheerful Scout (CLS, 7p, £0.56m) Interims to December 2009 saw revenues of £0.74m (£0.89m) with a loss before tax of £0.02m (profit £0.02m). The On Screen division saw stable revenues at £0.63m (£0.64m) with an increased profit of £0.11m (£0.07m) offset by increased losses at the DVD & interactive division and a maiden loss from the events operation. On Screen reports it has a healthy order pipe-line for the remainder of the year. Still a HOLD.

Dawson International (DWSN, 2.25p, £5.07m), the international textile group, reports prelims to 2 January 2010. Revenues fell by 17% to £72.9m (2009: £87.4m) and the group broke-even at adjusted PBT level (2009: -£0.5m). UK and US knitwear business improved and helped offset some of the weakness in the Home Furnishings division. The weak sterling will continue to have an adverse impact to the group. The business is debt-free and the disposal of Todd & Duncan drove net cash up to £12.3m (2009: £9.9m). However the increase in the pension deficit to £19.2m (2009: £6.7m), due to changes in corporate bond rates, needs to be addressed. While the group are seeing signs of recovery, selling conditions remain tough, particularly in the US.  Commodity price inflation is also becoming a factor in cashmere fibre and cotton, negatively impacting our Knitwear divisions and Home Furnishings division respectively. The group has entered 2010 with positive momentum, but we are cautious about the trading outlook in the UK and US. We believe trading will suffer from the weak sterling, increase in commodity prices and a possible double-dip recession. We retain our HOLD recommendation.

Metrodome Distribution (MRM, 2.25p, £4.2m)Metrodome Distribution (MRM, 2.25p, £4.2m) Argentinean production El Secreto De Sus Ojos (The Secret In Their Eyes) won best foreign film Oscar. This bodes well as aside from the accreditation and associated glamour, award recognition is usually a useful boost to film sales. Metrodome plans to release the film in summer.  HOLD

Nature Group (NGR, 33p, £13.6m) FY trading update. The support services Group which provides reception and treatment services to oily and polluted waste-waters reports that growth in revenues has continued as budgeted with the expected continuation of the growth demonstrated in the first half of 2009. H1 PBT was £0.6m, EPS of were 1.47p, simply doubling up brings us to 2.94p slightly ahead of the market’s 2.6p. The company also signalled its intention to pay a dividend for the year, of at least 0.5p suggesting a modest but encouraging 1.5% yield. The balance sheet at the interim looked robust with modest long term debt suggesting gearing of around 11% and current liabilities well covered by cash and current assets debt and. Then the very modest interest charge was covered by 143x by EBIT and the new dividend policy suggest confidence in robust cashflows. The forward looking statement is also robust with the company expecting to achieve continuing growth in revenues and profits for the year ending 31st December 2010. The 2009 rating at over 11x looks reasonably full but we see the stock becoming cheap on 2010 multiples. If for instance we consider 40% growth realistic (there is nothing in the market but the group achieved 18% in H1 over the entirety of 2008 suggesting good traction) then the rating will fall to around 9.7x. We BUY up to 42p which suggests a 2010 rating of around 11.5x that could be superseded with stronger growth.

Proventec (PROV, 37.5p, £5.79m) has stated it knows of no reason for the recent price decline, it fell 16% from Friday and there was little trade in the shares. We nervously maintain our SPECULATIVE BUY recommendation.

Regenersis (RGS, 54.5p, £24.43m) Interims to December 2009 saw revenues rise to £57.14m (£49.16m) with underlying pre-tax profits of £2.23m (£1.89m) with 4.4p (5p) EPS. Howver invesors should note the increase in revenues is more than accounted for by the first 4 month contribution from the acquisition of TRS which contributed £7.8m revenues and £0.3m profits. The repair business (“Technical Service”, that now accounts for 80% of revenues, saw volumes up 9%, boosted by a 19% growth in mobile phone volumes and 36% in notebooks. The environmental end of life business saw continued difficult trading. The group is reorganising into a customer centric organisation….. Estimates to June 2010 are for £5.5m PBT with 9.6p EPS, putting the group on a 5.7x prospective PER. Reasonable value – BUY with a price target of 63p.
Vialogy (VIY, 6.3p, £44m) has signed a contract with a renewable energy company with Enel North America, a subsidiary of the Enel Group Italy's largest power company, to characterize and de-risk geothermal prospects. Geothermal energy generation requires large commitment and exploration, drilling and extraction which entails significant risk. Under its contract Vialogy will extend its QuantumRD technology to seismic survey design and the identification of appropriate geothermal drilling locations sites in Nevada. QuantumRD's ability to assess complex subsurface stratigraphy, porosity and fluid saturation levels, utilizing seismic, magneto-telluric and other chemical tracer data is expected to reduce risk and improve the sector's investment risk profile. No news on potential commerciality of the contract and ViaLogy's core will remain upstream oil and gas but this contract broadens the business base and brings in a more than credible partner which bodes well. HOLD


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