Smaller companies spotlight

EACH week, former Fleet Street City Editor Patrick Lay keeps This Is Money readers up-to-date with a neglected, but exciting sector of the stock market - smaller companies.

In-novator turns up heat

IT IS not often I get excited about a company yet to make its first profit, but I suggest you put a note in your memory bank about Inditherm, the AIM-quoted company which is involved in electrical heating technology.

The company came to market in 1999 raising £2.3m net, and it still has around £500,000 in the kitty.

?Unique‘ is a much misused word by companies these days, and is often applied to processes which are not much different from those being offered by others.

Inditherm‘s product, a carbon-based polymer which is applied to a textile base, carries uniform heat over the whole area at a fraction of the price and using a quarter, or less of the energy levels of other forms of heating used in other applications.

It is so different that only two people, chief executive Colin Tarry and founder and director Pat O‘Grady, know the formula for the polymer. The recipe is kept in the vaults of their respective solicitors, one in Nottingham and the other in Rotherham.

The polymer is so flexible it can be applied to virtually anything where a uniform heat is required, from hospital blankets and physiotherapy pads, to pizza boxes and pipes that smooth the running of liquid chocolate.

By using an Inditherm mattress, for instance, a National Health Service hospital could cut the cost of typical air warming in each of its operations theatres from £70,200 over three years to just £14,400 - a saving of £55,800.

Although some are enjoying these benefits, others are being held back by bureaucratic nonsense; Tarry says. The existing method - mainly involving the purchase of disposable blankets at £9.75p each - is funded from a consumables budget. The new, cheaper method, buying a mattress for £1,800 which lasts for three years or more, has to come from an equipment budget, the same fund that might be needed to buy a scanner.

Industry, however, is more cost aware in its overall spending and is finding savings approaching 50% in energy costs as a result of switching its heating needs.

Nearly 100 industrial customers, including Birdseye Walls, BP Chemicals, British Steel, Cadburys, Campbells, Ford,. McVities, Nestle, Proctor & Gamble, Tate & Lyle and Weetabix, to name-drop a few, have signed up.

A dozen football clubs, including Nottingham Forest, Glasgow Rangers, Derby County and Aston Villa are using the physiotherapy pads to speed up players‘ recovery from sprains and strains, and now the technology is being considered for a low-cost under-soil heating to help clubs keep their pitches free from frost.

Similarly, one luxury car company has signed up to have its steering wheels heated to a comfortable temperature on the coldest of days – some people just enjoy spoiling their chauffeurs.

Inditherm is now firing on five fronts, industrial, medical, clothing, construction - talks are going on to produce a wall cladding - and custom-designed areas. When it reports on the current financial year next March, the figures are likely to show it is now breaking even. But look for profits in 2004.

Only two things are holding back the company‘s expansion – a lack of funds to move at speed, and a dedicated marketing team. Both, I believe, are likely to be resolved in the very near future.

I would expect Inditherm to come to the City in a re-funding exercise before Christmas, and to build a strong marketing team to boost sales, which is the way ahead.

The shares, floated at 97p two years ago have been as high as 260p, but currently are trading just below the float price. They could be about to warm up a few portfolios.

Little sparkler

AS if there were not enough UK-listed gold mining companies trying to attract investment in Britain, we now have Chris Davie - listed as director, President and CEO - of Canadian company Queenstake Resources, over here seeking European buyers for shares that existing shareholders are looking to unload.

In truth, Queenstake has a better story to tell than most of the cap-in-hand fundraisers I come across. It moved into the big league in July when it bought the Jerritt Canyon operation in Nevada from the Anglogold/Meridian consortium, with nearly 600,000 ounces of proven reserves.

The mine had already produced 152,000 ounces of gold in the first half of this year but costs for a major operator like Anglo were too high to make it viable beyond 2004. The smaller, less top-heavy Queenstake believes it can produce cheaper and go on much longer than Anglo had proposed.

It is has produced 30,000 ounces a month since it took over the mines and Davie was in London and Zurich to explain why this was such a good deal.

Sadly, like many others in the mining industry, his message was hidden behind more statistics than even Chancellor Gordon Brown would have dared to hurl at us.

Queenstake shares have risen from a low of 17 cents (Canadian) to top 90 cents at one stage, although they are now back at 65 cents as some larger holders decide to take profits.

While not criticising anybody for taking a profit, I cannot help wondering why the company needs to undertake an expensive trip to Europe to widen its share base when such a good story would surely have been beneficial to local investors.

There are no plans for a London quote at this time, in fact Mr Davie says he would seek a US listing before London – why wasn‘t he talking to potential US investors, I wonder?

Morton's magic

IF there were a corporate Pop Idol programme on television, Bob Morton would be the Simon Cowell of the judging panel.

He doesn‘t waste time on no-hopers and is no slouch at picking winners. A year ago he stepped into the chair at Armour Trust, which earns its corn mainly through in-car entertainment and, putting his money where his mouth is, became the biggest shareholder in the group.

This week Armour reported a 143% leap in pre-tax profits to £1.2m and upped the dividend 40% to 0.35p a share. The shares leapt to their highest ever of 50p, before falling back to 46p as one former major shareholder, Anin Holdings, took the opportunity to further reduce his holdings, once 9%, now down to 3.4%.

Far be it for me to become a personal adviser to the Malaysian entrepreneur behind Anin, but I cannot help but believe he has jumped too soon. Armour looks to have only just started its move forward. Under the direction of chief executive George Dexter, the company is poised for even greater growth in the year ahead.

For a start, it expects to benefit from the legislation banning the use of hand-held mobile phones in cars that comes into effect on December 1, and having made a successful acquisition of Continental Technologies and Investments in March, is hungry for a new business to absorb, probably before Christmas.

Analyst Mark Watson-Mitchell says on his WatsHot website he expects group profits to grow to £1.6m in the current year, but that makes no allowance for any future purchase. My guess is that with the right sort of deal, last year‘s 143% profits jump could be beaten in the current year.

Meanwhile, Bob Morton has taken another chairmanship, his Southwind investment vehicle having fronted a £1.6m rescue re-financing of Multi Group, the tool hire group in which trading was suspended in March but now has its quote back.

Don‘t say you haven‘t been told.

Deal maker

LEE BIRKETT, chief executive of financial services company Prestbury Holdings, does not lack in confidence. But, at age 31 and having built a business in which his personal stake is worth some £8m, probably he has every reason.

He has taken a very basic idea and turned it into a winner. In essence, the company offers those sorts of everyday insurances that do not fall under the regulatory banner – for instance, term assurance – either through the internet or direct to consumers.

He ties himself in with major customer bases, such as newspapers, offering their readers or customers low-cost insurance products. The partner picks up the marketing costs and Prestbury handles the supply chain and paperwork, then splits the commission with the partner.

Its latest deal is with Severn Trent Retail Services, part of the Severn Trent Water Group. Under the arrangements the water company markets under its own brand, life assurance and protection insurance to its eight million customers, leaving Prestbury to tie up the administration 'shopping around' for the best deals available through the UK‘s top ten insurers.

David Pannell at broker Durlacher believes the company is about to move into profits, suggesting the company will make a loss of £800,000 in the year which ends on October 31, but will move to £1m profit in the next 12 months.

Prestbury shares were launched on AIM in October 2002 with the shares at 80p. A further cash raising of £500,000 took place in March with the shares still at 80p. In September, £2.5m was raised at 90p and currently the shares are trading around 100p.

Some you may have have missed

AIM-listed The Chepstow Racecourse has bought Northern Racing, bringing to nine the number of UK racecourses under its banner. Chairman Sir Stanley Clarke says: ?This creates one of the leading UK racecourse operators and will significantly enhance the company‘s commercial position and better enable it to take advantage of the opportunities that the evolution of the UK horseracing industry may present.‘

ENERGY outfit Fusion Oil & Gas is ?in play‘. Although chairman Peter Dolan says the offer from Sterling Energy ?significantly undervalues the company‘ he admits to being in discussion with several interested parties ?which we expect will develop rapidly‘.

AIM-listed Health Media Group is being taken over by Bybrook, holding company of RWS Group, in a reverse takeover.

VIDEO streaming technology developer Forbidden Technologies envisages growth of online video in the travel sector as a result of its partnership agreement with Travel Media Solutions, a producer of travel-related video.

CONNECTICUT-BASED AIM-listed Clean Diesel Technologies has been notified by the US Environmental Protection Agency of verification of emissions reduction performance of its Platinum Plus Purifier System for retro-fit to 1988-1993 diesel engines. It means transport fleets can immediately get a 40% reduction in dangerous fumes with fuel currently in use.

FINANCIAL and business management software solutions group Systems Union is buying MIS Ag, the German provider of business intelligence software. The deal gives Systems Union the opportunity to create a new business intelligence division and complement its financial and business management division, as well as provide a competitive edge over potential competitors.

COMPETER group CRC has won £55m worth of contracts in Europe from Wincor Nixdorf, Siemens Business Services and Fujitsu Siemens Computers. It plans the strategic acquisition of the German IT repair centres of Siemens Business Services, Paderborn and Wincor Nixdorf Engineering, for a total of £1.2m.

MINING and exploration group Minmet, has bought the remaining 50% of Bjorkdalsgruvan AB from International Gold Exploration, through the exercise of options.

CHEYNE Capital Management, the hedge fund run by former senior Morgan Stanley investment team members, has bought 900,000 shares in Britannia Finance Holdings through their Cayman Islands vehicle Cheyne Value Fund.

RESIDENTIAL property developer Honeygrove Group has raised £3m through the placing of 30m new ordinary shares at 10p a share. The money raised will be used to develop the 68-acre Swaylands estate in Kent.

Some to look out for

ALASTAIR GUNN, transport and logistics analyst at Arbuthnot Securities, does not hold back in his support for Forth Ports which he describes as a 'treasure trove'.

He upgrades his recommendation for the shares from ?sell‘ to ?buy‘ (more a reverse than an upgrade it would seem), based on ?a better understanding of the enormous property potential that exists on land held on the Edinburgh waterfront‘.

He values the company ?on a sum-of-the-parts basis at between 1205p and 1269p‘, which compares with the current 977p. He has included nothing for the development of 400 acres of seabed at Leith and other land assets.

Alan Millar, analyst at Arbuthnot Securities, believes LA Fitness will build financial muscle for investors. He says the shares are a ?buy‘ at 146p and that a price of 175p should be achievable as ?further newsflow confirms that recent more encouraging trading trends are continuing‘.

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