Hoodless Brennan daily smallcap newsflash including Minco, Cyrill Sweett, Cove Energy, Xploite and others

Minco (MIO, 3.75p, £9.3m) This morning’s announcement regarding the 2010 exploration programme at Pallas Green is positive in that it reaffirms Xstrata Zinc’s commitment to the project. The JV (Xstrata Zinc 76.4% / Minco 23.6%) has agreed a €7m programme for 2010, extending in all to 150 drill holes (70,000 metres), while 16 drill rigs were mobilised in January and at least 30 drill holes totalling c.15,000 metres are planned for Q1. Minco will fund its participation through its recent placing but there is the potential for further raisings later on. The exploration is expected to confirm increased tonnage and grade of the Lead-Zinc resource at Tobermalug to at least at least 15 million tonnes (11.3m) with further potential within the greater Caherconlish area. Ultimately the goal is to establish the economic viability of the resource. There is no further update on Xtierra where the company will be diluted to 40% if it does not participate in current fund raising plans but is seeking ways of maintaining at least a 50% majority stake. SPECULATIVE BUY

Cyrill Sweett (CSG, 32p, £18.43m) has announced the acquisition of Padgham Australia & India, a quantity surveying and cost management business, for an initial consideration of AUD1.435m (£0.807m) comprising AUD0.974m (£0.54m) cash and the issue of £0.479m new shares. The number of shares to be issued will be based on the 10 day average to the closing date which is expected to be no later than 26 February 2010. The Australian Padgham operation to June 2009 turned over AUD2.1m (£1.16m) with AUD0.1m (£0.05m) profit after tax, while to March 2009 the Indian operations reported turnover of INR61.8m (£0.82m) with INR15m (£0.20m) profit after tax. This is an attractive price with a good strategic fit. However we remain concerned regarding the UK exposure so maintain our HOLD recommendation.

Rheochem (RHEP, 8.25p, £17.90m) has extended its contract for drilling fluids and related services with Contact Energy for up to a further 6 geothermal wells. We maintain the recommendation as a HOLD due to the high rating – though we like the technology and positioning.

Renewable Energy Generation (WIND, 63p, £65.05m) – Former code RWE has announced the purchase of 6 Vestas wind turbines for the Goonhilly Down site which will triple power output. The group has announced a site visit in July when the expansion project will be nearing completion. Still a SPECULATIVE BUY.

Acta (ACTA, 15p, £6.15m) Trading update reports first hydrogen generators and power generators were shipped in January 2010. The group reports the strong interest in distribution rights seen from trade shows in November and December has led to 15 distributors being selected with agreements to be concluded over the next 3 to 6 months. Demand is exceeding expectations and the group is expanding production and supply chain capacity with a monthly target of 100 units by the end of 2010. Monthly breakeven capacity is expected to be obtained by mid 2011. The group is seeking opportunities in photo-voltaic but will manage the expansion within existing facilities. Still a SPECULATIVE BUY.

Proton Power (PPS, 4.25p, £6.67m) Has signed a MOU with Smith Electric Vehicles, part of Tanfield, to develop a fuel-cell equipped range-extended electric vehicle. The demonstrator will be exhibited at the Hannover Fair in April 2010. We moved the group to a Hold on 09/11/09 at 6p when the group unexpectedly diluted existing shareholders, despite telling them previously it was fully funded just 2 months before. We return the shares to a SPECULATIVE BUY at a price 30% lower.

Adventis (ATG, 18p, £8.49m) has announced the acquisition of bChannels Ltd for an initial consideration of £0.738m, the majority in cash. bChannels turned over £2.578m with £0.43m PBT to December 2009 and had NAV of £0.306m. A further deferred consideration up to £3.76m payable over the next 4 years dependent on profits and will be met with 75% of each consideration in cash. This is a good acquisition that is being made on an attractive rating, bringing the 3 founders into the group and which will enhance EPS immediately. The group remains a BUY with a 25p price target.

E2V, E2V, 53.75p, £115.48m) Trading update fir Q3 from the end of the first half (30th September) is in-line with market expectations and reflects the weaker market conditions. The order book has been broadly held at £105m compared with the end of H1 at £108m. The group continues to consult with employees in both the UK and France regarding redundancies. The group has warned of a risk from disruption to their business from the scale of the restructuring programme. We see downside to 45p and so move the shares to a SELL.

LiDCO Group (LID, 18.25p, £31.7m) LiDCOrapid Monitor was featured in a case study from Intel, a world leader in silicon chip innovation. We stated at the interims in October we are concerned about a further cash raise and the very high valuation. We retain our SELL recommendation with a target price of 14p.

Cove Energy (COV, 25p, £67.8m) gave an operations update this morning. Drilling by the Belford Dolphin drillship on the Windjammer prospect, (the first of a 4 well fully funded drilling programme) is ongoing with information expected to be released when it reaches depth. The Company has now finalised a reduction in the royalty interest granted to Artumas from 6.4% to 4.95% of Cove's share of potential profit petroleum from Mozambique Offshore. Proposals to improve commercialisation of gas production in Mnazi Bay are being formulated by operator, Maurel & Prom, to be presented to all partners during H1. Nothing of major surprise or materiality here, the Windjammer announcement is likely to be the next major piece of newsflow. SPECULATIVE BUY

First Artist Corporation (FAN, 19p, £5.7m) disposed of the independent financial advisory firm Optimal Wealth Management to Conforto Financial Management for a total cash consideration of £1.5m. The net proceeds of sale will be used for debt reduction. A total consideration of £3m was paid for Optimal when it achieved its maximum earn out in 2007. Thus this deal represents a loss on disposal of around £1.5m but looks a sensible move in light of the group’s very high debt. Optimal was a peripheral business to the core, media, events and entertainment and sports agency sectors. In the year ended 31 August 2009 Optimal produced an EBIT of £285k on turnover of £1.8m, with net assets of £145K. At 5.2x EBIT the disposal looks neither a good sale nor a giveaway, but is clearly illustrative of the pressing need to pay down high debt. First Artist reported a strong summer, with good transfer activity. However, there is no guidance in the market and net debt of over £16m at the interims to February 2009, at which time the company also had a high net interest charge (£2.2m although underlying this was probably around the £1m mark excluding FX movements and amortisation) make us cautious. SELL

Media Square (MSQ, 13p, £4.70m) Trading update for the second half of the financial year ending February 2010 reports that although the group has traded profitably it will not be sufficient to offset the first half loss – consequently the group will report a modest loss as opposed to a previously expected profit for the year. The group remains in discussions regarding the sale of 2 non-core profitable operations, but they will result in a goodwill write-down. Forecasts for the following year – around 1p are not too demanding – we maintain the recommendation as a SPECULATIVE BUY.

MBL Group (MUBL, 190p, £32.86m) has signed a contract with WH Smiths for the supply of its DBVD and BluRay formats. With an additional 448 retail outlets to supply MUBL remains set for a stonking good year – we maintain our BUY recommendation, last iterated at 185p on 25/01/10, with a 270p price target.

Hyder Consulting (HYC, 209.5p, £37.79m) Trading update for Q3 is strong – though the order book has seen some scaling back from the end of the first half due to lower work in Dubai and from currency effect. The group expects to report revenues and operating profit slightly ahead of market expectations after absorbing £3m of redundancy and other one-off costs. Asia Pacific remains strong with China ahead of expectations. In Middle-East the group worked on the recently completed Burj Khalifa, the world’s tallest building – and the group is working hard to recoup all outstanding receipts (just £9.4m) but operating profits are lower. Europe is recovering including work for UK utilities and Crossrail projects but results will be lower due to cost cutting.  Forecasts around £14.5m will give 31.2p EPS - putting the group on a 6.7x prospective PER. We see some further upside to around 235p – so we maintain a BUY but note the price target has dropped from 300p.

Xploite (XPT, 37p, £7.9m), the operator and aggregator of strategic and high growth IT services businesses, reports prelims to 31 October 2009. The business acquires underperforming businesses, turns them around and then exits the business returning a profit to shareholders. In June 2009, the group disposed of VBHG, the subsidiary that held Anix, for a cash profit of £6.3m – a good return. The group has struggled to re-invest funds into suitable and sizeable acquisitions and has therefore decided to seek more modest sized acquisitions and return cash to shareholders. Following the sale of Anix, the group now only comprises of Storage Fusion, which reports sales of £0.14m and losses of £1.83m. The group no longer seeks to sell Storage Fusion and is now focussing on direct sales activity. Storage Fusion, the provider of Storage Analytics technology as Software as a Service (SaaS), enabling customers to manage disparate storage, has signed at least 15 new agreements this year. New customers include Abbey (Santander), Barclays, BGC Partners, Chelsea Building Society, Emirates, Merlin Entertainments Group, Nissan, RBS and O2. However, this is still very early stage. Following the £9.5m of cash returned to shareholders post 31 October 2009, we expect net cash to stand at c. £3m today. We continue to await news of a new acquisition for the group to turnaround. Given the high levels of risk, we reduce our Speculative Buy to a HOLD.

Cosalt (CSLT, 9.88p, £39.96m) Final results to November 2009 saw revenues of £107.83m (£105.01m) with flat marine sales at £63.6m (£63.16m) while Offshore showed growth to £44.23m (£41.85m). However operating profits in Marine fell to £5.32m (£8.34m) – or operating margins of 12.1% (19.9%, while in Marine operating profits rose to £4.86m (£2.09m) or operating margins of 7.6% (3.3%). Central costs rose to £1.61m (£0.93m).  Pre-tax profits of £5.49m (£7.23m) were 5% ahead of market expectations – though EPS were in line at 4.2p (7.71p). This was the first year without school-wear and the holiday homes businesses and set about winning major contracts including a 3 year contract with PSN worth £18m. Net debt fell to £18.6m (£26.8m) – thought he group did raise £17m during the period. Cost cutting delivered £1m savings during the year with annualised savings of £3m underlying improved forecasts of £7.5m with 1.3p EPS for November 2010. The group has performed well since our last Buy recommendation and we see further upside – the group is a BUY with a 11.7p price target.

Interior Services Group (ISG, 168.5p, £55.87m) The retail activities have managed to secure 208 allocations from the retail customer base with a total value of £163m – similar to last year. The result will be the same revenues (some £208m) though weighted towards the second half. We maintain the BUY recommendation withy a 190p price target.

Metrodome (MRM, 2.125p, £3.93m) has secured its first co-production film deal, an equity stake in the film world-wide as well securing the distribution in Eire and the UK. The group has also announced strong revenue growth from both DVD rental and DVD distribution during the year. Still a HOLD.

NWF Group (NWF, 96p, £45.05m) Interims to November 2009 are mixed with good profits progress from food distribution offset by weaker feeds markets due to good Autumn grazing weather while fuel traded as expected. Overall trading is in line with expectations with revenues down 11.1% to £175.5m (£198.1m) but pre-tax profits up 11.1% to £2m (£1.8m) boosted by operational efficiencies in food distribution (less repacking releasing volume) on the back of higher revenues. Underlying EPS rose to 3.0p (2.8p) and the interim dividend was maintained at 1p. Net debt fell to £12.2m (£17.5m). Forecasts around £6.5m PBT for the year with 10.2p EPS and a 4.1p DPS would put the group on a 9.4x prospective PER with a 4.3% yield. We move the shares to a HOLD – but note the yield attraction.

Lok’n’Store (LOK, 87.5p, £22.37m) Trading statement for the first half ending January 2010 is encouraging with healthy activity during the seasonally weaker part of the year and occupancy falling just 0.2%. Increased prices per sq. ft. rose 2.8% from the end of July 2009 adding to the benefits of the cost cutting programme. The group is managing to increase the ancillary sales, such as packaging and insurance. Back in November the group reported 207p NAV per share and sought permission to buy back shares. We maintain our recommendation SPECULATIVE BUY recommendation as the group is highly rated but is trading well below NAV.

SciSys (SSY, 45p, £13.05m), the supplier of bespoke software systems, IT based solutions and support services to the Media Broadcast, Space, Government & Defence, has been awarded an initial call-off contract with the BBC to provide Audio Editing and Playout (AE&P) solutions. The value of the contract ranges between £4-5m professional services and software licenses over three years. The contract further strengthens the group’s position in the market and increases revenue viability. We retain our BUY recommendation with a 12 month target price of 50p.

Maxima Holdings (MXM.L, 73.5p, £18.6m), the integrated IT solutions and managed services business, reports interims to 30 November 2009 are in line with 2010 estimates. Revenues fell 7% to £26.2m (H109: £28.3m). Recurring revenues were strong, representing 60% of total revenue. However, the group reports a large decline in product revenues, whilst a small decline in consulting revenue. The shift in the sales mix from product and consultancy sales saw gross margins decline to 68% (H109: 69%). Despite lower operating costs, adjusted PBT fall by 30% to £2.6m (H109: £3.7m) and EPS fall by 36% to 7p (H109: 11p). The group ended November with net debt of £13.5m, which encouraged them to halve the DPS to 1p (H109: 2p). Despite lower sales, the Board are reporting encouraging levels of recovery across the business. The group remain comfortable with 2010 PBT of £4.8m and EPS of 10.8p– putting the stock on a 2010 PER of 6.8x falling to 5.5x in 2011 – a discount to the software and computer services sectors. Given the tough market conditions, we reduce our Buy recommendation to a HOLD.

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