Hoodless Brennan daily smallcap newsflash including Dawson International, Timestrip, Rheochem, Works Media and others

Dawson International (DWSN, 2.125p, £4.8m), the international textiles group, reports trading for the year ended 2 January 2010 will be ahead market expectations of PBT of £0.8m and EPS of 0.3p. A strong Q4 from the UK and US knitwear business offset continued weakness in the Home Furnishings division. UK Knitwear benefitted from higher margin sales to couture customers, which improved margins in Q4. This is likely to have some negative impact in Q1 2010. The weak sterling has had an adverse impact on margins for the Branded Home Furnishings divisions – the division is anticipated to deliver a loss for the full year. The sale of Dorma brand to Dunelm, should be completed in H1 2010. We retain our HOLD recommendation.

SpiriTel (STP, 60p, £10.6m), the business communication service provider, has acquired Boucon Network Solutions, a Swansea based communications service provider, for a total consideration of £0.9m. An initial payment of £0.65m will be followed by a performance related earn-out of up to £0.25m payable in cash by December 2011. In the year to March 2009, Boucon generated revenue of £1.9m and breakeven at PBT level with net assets of £0.4m. The acquisition will be earnings accretive, expanding geographical spread and offering cross selling opportunities.  We retain our HOLD recommendation.

William Sinclair Holdings (SNCL, 99.5p, £16.5m) is the UK producer of commercial horticulture and branded garden products. It has been confirmed the Bolton Fell Moss in Cumbria has now been designated as a Special Area of Conservation (SAC). The group is now one step closer to reaching an agreement over the level of compensation. Discussions with Natural England are ongoing and a voluntary agreement could be reached in the spring of 2010. We believe there is scope for the share price to rise considerably when the compensation value is disclosed. The share price has risen 21% since our BUY recommendation. Trading on a prospective PER of 13.7x, we believe the stock is fairly priced. HOLD.

Timestrip (TIME, 1.625p, £8.07m) has announced a major contract with a toothbrush manufacturer for integration into the handle to remind of time to replace. Launch is expected in Q3 this year – through a global retailer. Although initial order values are expected to be modest there are a huge number of tooth-brushes sold each year. We maintain the group as a SPECULATIVE BUY with a 2p price target.

Toluna (TOL, 256p, £128.13m) has reported that trading in the year ending December 2009 will be ahead of market expectations with profits of at least £7m, more than 10% ahead of expectations and revenues of £49m slightly ahead. The group has generated cash during the year and will have at least £10m net cash. The group is thus expected to report EPS around 10.6p – putting the group on a soon to be historic 24x. The group made a major acquisition in July 2009 – leading to expectations around £12.5m with 16p – a prospective PER 16x. Although relatively highly rated we see the group as able to maintain a momentum using further acquisitions so move the group from a too cautious Hold to a BUY.

Rheochem (RHEP, 8.125p, £17.63m) has renewed its site services contract to supply drilling fluids and related services to Santos’ Australian operations for another year. We maintain the recommendation as a HOLD due to the high rating – though we like the technology and positioning.

Twenty Group (TWE, 1.875p, £1.03m) has announced the acquisition of The Moving Service Limited (Moveme) - for a consideration of £1. The vendors of Moveme will subscribe for £0.175m of new shares at a price of 7.2p – as a result Advent Private Equity and Local Globe III Ltd will hold a total of some 4.19% of the enlarged share capital. The vendors will also subscribe at the 0.1p nominal value dependent on certain conditions overt he next 5 years, specifically an additional 1% if Moveme revenues achieve £2m, a further 2.5% if revenues reach £3m and a further 2.31% should they reach £4m. In total the vendors are capped a maximum potential 5.81% in Twenty Group. To add even further complexity Twenty can issue a further 1% for each £1m over the £5m target Moveme revenues at 7.2p per share as well as have committed to pay £0.15m to the vendors for each £1m over the £5m target. To January 2009 Moveme lost £2.1m on revenues of £0.25m though recent cost cutting – together with the cash injection should enable Moveme to be cash neutral. Moveme works by providing potential consumer data when people move house. We see this as having few barriers to entry and not one to change our fundamental caution regarding the company. However we were sellers of the group at 3.5p with a 20 price target and so move the group to a potentially too optimistic HOLD.

Telit (TCM, 24p, 15.9m) has signed a framework agreement with Deutsche Telekom and T-Mobile to work together in the machine (M2M) communications market. The collaboration agreement will see the companies working closely on sales, marketing and development of M2M products and services. These will be aimed at integrated solutions for the networking of vehicles, machines, measurement and control modules and other objects. Whilst too early to factor in any economic benefit, the agreement with two communications giants bodes well. Maintain SPECULATIVE BUY.

Works Media (WKS, 0.275p, £0.41m), has completed a review of the business, which has involved annualised cost savings of £0.5m and a tighter strategic focus on UK film distribution and international rights sales. The business intends to aggressively develop its existing DVD partnership with Universal Pictures and has already identified 9-11 releases for the next year. A recent raising of £0.4m will provide the group with further working capital.  Milcoz Films has increased its convertible loan facility by £0.3m to £1.05m, and a non-executive director of the Group, has agreed to subscribe for 25,000,000 new ordinary shares, representing 16.9%. The share price has fallen by 65% since our Sell recommendation. The appointment of a NOMAD combined with the new funds encourages us to upgrade our SELL recommendation to a HOLD.

ReThink Group (RTG.L, 8.5p, £7.7m), the recruitment and technology services group, reports PBT for the year ended 31 December 2009 will be ahead of market expectations at £0.3m. A strong recovery in H2, was driven by a strong performance by the permanent recruitment division and the recruitment process outsourcing division, ReThink Professional Services Limited. 2010 has started well. Recovery from permanent recruitment should help improve margins. The market forecasts 2010 PBT of £1.0m and EPS of 0.66p. The share price has fallen 11% since our Sell recommendation. A strong performance in H2 encourages us to upgrade our Sell recommendation to a HOLD.

DQ Entertainment (DQE, 97p £34.9m) announced a deal for exclusive free-to-air TV rights with MediaCorp for 3 of its Animation TV properties. MediaCorp can broadcast Todd World Series 2, Maryoku Yummy Season I and The Jungle Book Season I on its okto channel in Singapore. It is unclear what the implications for the deal are at this stage but the statement speaks of exciting publishing and merchandising opportunities in South East Asia.

Ten Alps (TAL, 27.5p, £17.8m) announced the formation of a majority owned JV and the purchase of a number of assets from Reed Business Information (RBI) Asia. The JV TACA is 60% Ten Alps 40% Karay Holdings to be based in Singapore and ran by Raymond Wong former MD of RBI Asia. TACA will purchase 10 titles from RBI Asia, which enjoy prominent market positions including websites, events and publications across a number of business sectors. Ten Alps has also agreed the purchase of the trade of Interface, a specialist media and sales business, digital search and online optimisation business which should fit nicely with the RBI publication assets. The combined business will operate out of Singapore with operations in Mainland China. Ten Alps has a strong suite of factual content and communication assets in the UK. This is an interesting horizontal expansion for Ten Alps and should help elevate its profile. We hope to update on its implications for earnings at a later date. Maintain our BUY.

Catalyst Media (CMX, 69.5p, £19.56m) has announced a strategic review including the potential sale of the group. The move echoes our view that the group is substantially undervalued – and the reason it is one of our “Thoughts for 2010” share tips with a target price of 105p. BUY

Renold (RNO, 21.75p, £47.76m) Trading statement covering the start of the second half from the end of September to date confirms customer destocking has largely ended in Europe and will end in Q1 in the USA. Trading is in-line with management expectations.  While the group is expected to report losses to March 2010, investors are focussing on next year where profit forecasts range from £2m to £4.4m with EPS from 0.6p to 1.4p. The group raised £27m to reduce debt by the issue of 142.5m new shares at 20p in mid November 2009. Although highly rated this is a world class operation and we re very tempted to recommend them as a Speculative Buy we will keep then as a HOLD till the recovery in the USA is firmly sighted.

Education Development International (EDI, 144p, £82.96m) has announced the acquisition of Honey Publications Ltd, publisher of self-assessment development tools, for £1.1m with a deferred £0.15m due within 4 months on completion of transfer of operations to EDI’s head office. With no financial information one can only comment this is a sensible bolt-on which will not have to produce much profit to become EPS enhancing. We maintain the recommendation as a BUY.

Renewable Energy Holdings (REH, 20p, £13.92m) The group holds 232.6m shares in the Ceto wave power development whose majority owner, Carnegie, has updated on the development. Intensive testing is still on going and now represents many years of operation and the group is readying to deploy a full scale version, Ceto 3, in 2010. Carnegie has announced a successful grant application and funding - so ensuring the development is well funded. With the current value of REH’s holding in Ceto value far in excess of REH’s market capitalisation we maintain our SPECULATIVE BUY recommendation.

Intercede Group (IGP, 43p, £20.7m), the producer of Identity and Credential Management software, called MyID, has entered into a contract with Gemalto to supply MyID to a major Aerospace and Defence contractor. The contract will not make a material contribution in the current financial year. This is excellent news – the group now supplies three of the major global aerospace and defence contractors. We retain our HOLD recommendation.

First Derivatives (FDP, 237.5p, £34.3m) has entered into a strategic alliance with BrokerEdge, to distribute the group’s Delta products suite into the Singapore and Malaysian markets. The alliance expands the groups’ footprint into Asia Pacific. First Derivatives has a strong management team with good growth prospects. The stock is trading on a 2010 PER of 8.5x with a yield of 3.8. We believe the company is undervalued. We retain our BUY recommendation and initiate with a target price of 335p. 

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