HB Markets Daily Smallcap Newsflash including Coms, Cryptologic, Cyril Sweett, Travelzest and others

Beacon Hill (BHR, 0.28p, £17.75m) 2 announcements from BHR this morning. The first relates to the provision by Fortrend Securities of up to £5 million of funding. The agreement will enable Beacon Hill to draw down funds over the next 3 years to help develop its Arthur River Project in Tasmania and facilitate the appraisal and development of other projects. Under the drawdown agreement, Beacon Hill can issue new ordinary shares at a 10% discount to the prevailing market price, which means dilution is contained at reasonable levels, with the maximum drawdown a function of prevailing trading volume.  For every 4 shares Beacon Hill will grant 1 option exercisable at the prevailing market price for 3 years. Beacon Hill will also pay a fee and has granted options over 20.8m ordinary shares, exercisable at 0.30p per share until 2 March 2013. The second of this morning’s statements cites ‘excellent progress’ made towards satisfying the due diligence and legal requirements relating to the acquisition of the Mina’s coking coal mine in the Tete Province of Mozambique. Beacon Hill and partners will initiate a defined development plan in order to maximise the full potential of the significant coal asset to generate near-term cash flow. The company has begun discussions with potential off-take partners. The statement speaks of finalisation of feasibility study to create a large open pit mine producing 4 million tonnes per year of run of mine. The Acquisition is expected to be completed prior to the end of June 2010. RECOMMENDATION UNDER REVIEW.

Coms (COMS, 4.38p, £1.8m), the developer and commercialisation of internet telephony services and sale of associated equipment, expects to report a 33% increase in revenues to  £3.23m for the year ended 31 January 2010. The group is still expected to deliver a loss for 2010. However, the business has reported a maiden profit in January 2010. The group’s rebranding programme is now complete. According to data published by Illume in December 2009, Coms have 5% of the hosted internet telephony market in the UK. The market for Internet telephony is expected to grow worldwide. The share price has fallen since our Hold recommendation. Trading on a 2010 revenue multiple of c. 0.56x, we there is upside. We therefore upgrade our recommendation to a SPECULATIVE BUY.

Corin (CRG, 55.5p, £23.8m), the leading manufacturer and supplier of orthopaedic devices, reports prelims to 31 December are broadly in line with PBT estimates, but higher than expected tax charges led to earnings below expectations of 1.87p. Group sales increased by 2% to £40.6m (2008: £39.8m), benefitting from forex movements. On a constant currency basis, turnover fell by 10%, predominately due to lower US sales. Adjusted pre-tax profits of £1.5m (2008: £2.9m) led to adjusted EPS of 0.56p (2008: 3.0p) and DPS was maintained at 1.38p. Net debt fell to £3.7m (2008: £5.5m). The group’s strategy is to drive sustainable growth from broader portfolio of hip and knee implant solutions. The development the Trinity acetabular cup systems is a milestone for the group’s product development strategy. The orthopaedic market remains resilient and the group has made a steady start in 2010. Progress from the revised strategy should become evident throughout the year. The market forecasts 2010 PBT of £2.4m, EPS of 3.3p and DPS of 1.4p. The group trades on a prospective PER of 16.8x, which is expensive. However, when we take into consideration the historic 2009 EV/sales of 0.7x, we believe the group is fairly valued. Therefore we upgrade our sell recommendation to a HOLD.

Cryptologic (CRP, 205p, £26.30m) Revenues fell to $39.8m ($61.5m), underlying loss increased to $9.9m ($8.1m) though reported losses were $37.39m ($35.90m) post asset and goodwill impairments amongst other distortions. 2010 should see an improved performance with m=new licensees of the hosted casino, further growth in branded games (current run rate of $5m) with 74 launched an a backlog of a further 125, with profitability aided by further cost cutting.  The group ended with unrestricted cash of $23.45m, post a $20.1m outflow including $1.4m for dividends with a further $3.1m outflow relating to reorganisation already planned. Given the outlook and rate of cash usage we move the shares to a HOLD.

Cyril Sweett (CSG, 28p, £16.12m) has announced a global alliance agreement with Widnell Ltd, Chartered Surveyors and Cost Engineers, which will raise the group’s presence in Asia via Widnell’s offices in Hong King, Beijing, Shanghai, Shenzhen, Chongqing, Guangzhou, Chengdu, Wuhan and Macau. The group will form a joint venture to pursue opportunities, to be called Widnell Sweett.  We return the group to the BUY list with a price target of 32p.

EG solutions (EGS, 43.5p, £6.2m), the operations management software company announced new orders from 2 existing UK financial services’ clients worth a total of c. £0.25m. EG has built on the recent sales of an enterprise-wide software licence to Nationwide Building Society with the latter providing an additional order for support and implementation services across all back office functions. The second order is from a major UK life and pensions company - EG's operational management software will be rolled out to a further 400 staff to support improved capacity and work flow management and operational management information. The total number of users of EG's software within this client has now increased to over 2,125 with installations across four divisions and five locations. The revenue from these orders will be recognised in the current financial year to 31 January 2011. Repeat sales within the existing customer base are good news and should foster additional maintenance and renewal revenues going forward. We retain our recent HOLD recommendation.

Focus Solutions (FSG, 32.5p, £9.63m) has won a contract with AWD Chase de Vere, a UK leading wealth manager, worth £1.4m over 4 years for its software solutions. Investors are concerned that the trading environment remains tough and that is reflected in forecasts for EPS to March 2010 of 7.2p declining to 5.8p the following year. However with relatively long term contracts, increasing regulation and information requirements, we see the rating as still offering upside, recommendation maintained as a SPECULATIVE BUY.

Hydro International (HYD, 93.5p, £13.35m) Finals to December 2009 saw revenues of £27.3m (£30m) with pre-tax profits of £1.8m (£2.7m), EPS of 7.97p (12.27p) and an unchanged 3p final DPS. The group did well to maintain the order book at £7.8m (£8.8m). It was a mixed year for the group with the recession hitting the stormwater business offset by a strong performance in the wastewater operations, especially in the USA.  Although the stormwater area will remain depressed, new regulatory approvals for wastewater products in the US could help maintain that area of growth. We move the shares from a Sell to a HOLD, noting the 3.2% yield as an attraction.

IdaTech (IDA, 75.5p, £38.81m) has announced its fuel cell system was used as a power source for the illuminated Olympic rings sign that floated in Vancouver’s harbour. Still a SPECULATIVE BUY.

Jetion Solar (JHL, 74.5p, £55.29m) has announced the acquisition of the outstanding 49% in its European operation by the issue of 1.132m new shares (worth some £0.84m). In the 6 months to June 2009 the operation contributed net income of $0.486m – so the acquisition is on a low historic rating. We see Solar as a major area of growth in Europe and thus this is a goo and logical move. We move the group from a Hold to a BUY with a short term target price of 84p.

K3 Business Technology (KBT, 92.5p, £23.61m) has announced the acquisition of DigiMIS, a hosting company, for an initial consideration of £0.803m with a deferred of up to £1.325m depending on trading in the 2 years to March 2012. DigiMis already supplies hosting services to a number of K3 clients, indeed of the 14 clients 5 are already K3 customers. In the half year to December DigiMis showed an annualised run rate of £1.25m sales with £0.2m PBT. While a logical addition, hosting is a relatively low margin and price competitive arena. That said the group will see significant cross-selling opportunities, moved from a Sell to a HOLD.

Mission Marketing Group (TMMG, 27p, £10.7m), the UK marketing communications group, reports trading for the year ending 31 December 2009, is below market expectations of PBT of £4.8m and EPS of 9.8p. Despite similar trading levels to H1, margin constraint due to ongoing client constraints and an increase in headcount due to increased activity, has led to lower than expected operating profit. Group agencies are beginning to see signs of recovery and the group continue to win new business, even in a challenging environment. However, we expect market conditions to remain tough, with companies reviewing their budgets on marketing. The group is taking further steps to structure the group and strengthen the balance sheet. An annual impairment review is expected to trim the carrying value of goodwill by up to 10%. We expect the market to downgrade 2010 PBT estimates of £5.7m and EPS of 10.7p. We downgrade our speculative buy recommendation to a HOLD.

Scotty Group (SCO, 23.5p, £4.75m) In a trading statement the group expects results for the 17 months to December 2009 will see pre-tax profits of £0.2m on sales of £7m. To date revenues in the new year are slightly ahead of expectations, boosted by short term turnaround mobile unit orders. The group expects to make “further announcements of orders in the near future”. Having been long term sellers from the 67p level we took the group to a Hold at 33.5p on 22/12/09, and we return the group to the BUY list with a 32p price target.

Software Radio Technology (SRT, 13.25p, £12.96m) has entered an agreement to supply Automatic Identification Systems to Koden of Japan which will see a range of modules and OEM products supplied. Still a HOLD.

Staffline (STAF, 78p, £16.56m) Final results saw revenues of £115.0m (£120.8m) with a pre-tax profits of £3.5m (£3.4m), EPS of 11.5p (11.1p), net debt of £5m (net debt £6m) and a final DPS of 1.7p making a full year payment of 3.1p. The group made 3 acquisitions during the year. The current year is trading in-line with expectations so far and will the benefit in H2 of new Onsite openings (managing temporary staffing requirements with offices in the clients) its outsourced offices, 5 of which are slated for the first quarter which will take the number to 124 units. The group is continuing to seek acquisition opportunities. We maintain the BUY recommendation and the 90p price target.

Travelzest (TVZ, 13.5p, £19.59m) The UK & Canadian holiday maker reports good growth in overall bookings in its AGM statement. Canada is seeing growth in winter departures and the UK is seeing good advance booking for the summer. The group has cut costs by moving its HQ from Berkeley Square to Canada while maintaining an office in Chiswick, with further rationalisation under way. Sitting on 8 times to December 2010 the shares seem fairly rated, HOLD.

Win (WNN, 110p, £11.59m) has launched a range of applications for the Vodafone 360 platform, specifically pocket Doctor, Lottery (to check numbers and generate numbers) and Snow And Ski (ski information from around the world). Pocket Doctor and lottery are free while the Snow & Ski service will cost €0.99. We maintain our BUY recommendation and the 136p price target.

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