Join our community of smart investors

100-91: Silence Therapeutics to Blur Group

In the first 10-company segment of our analysis of Aim's top 100 companies, we give our verdict on Silence, Providence, Unitech, Sinclair, Accesso, Craneware, Personal, Immunodiagnostics, Mytrah and Blur
April 11, 2014

100. SILENCE THERAPEUTICS

The rapid ascension of biotechnology outfit Silence Therapeutics’s (SLN) share price remains in large part a mystery – although one partly explained by the ever-growing presence of firebrand financier Richard Griffiths on the shareholder register. Beyond his 25 per cent interest, investor appetite for the largely untapped RNA Interface (RNAi) sequencing market is gathering pace. Subsequently, SLN has said it will look to “strengthen” its balance sheet following a peak in shareholder interest at the start of 2014.

This specific genre of therapeutics is used in the detection and treatment of serious diseases, including cancer. It works by selectively ‘switching off’ or ‘silencing’ genes in those diseases, and with just under £19m in the bank, Silence Therapeutics is well-positioned to develop its market foothold.

US-listed peers raised a collective $1bn (£600m) over the last six months and SLN hopes to replicate that success in the near term. Should it proceed with a substantial financing, the money would be intended to support existing clinical projects and to expand pre-clinical capabilities, although current reserves are thought to be sufficient to see the company through its current clinical study in pancreatic cancer and an element of the planned head and neck study. The outcome is far from decided but investors would do well to keep an eye on cheap buying opportunities in the future. Hold. HR

99. PROVIDENCE RESOURCES

Irish oil and gas explorer Providence Resources (PVR) barely squeaked into the Aim 100 this year despite being the 17th largest company on the exchange last time around.

Providence rose to grace after the first well of its highly anticipated six-well drilling programme in waters offshore Ireland successfully appraised a previous discovery, Barryroe, and more than tripled the amount of oil in place to a billion barrels. Nearly two years have passed since then, however, and interest in the field has waned. Providence has not yet been able to attract a deep-pocketed partner to pay for field development – there are concerns about pressure issues and reservoir compartmentalisation – although the company says it remains in discussions with various parties.

There have been other setbacks, too. The second well in the drill programme, targeting a 1.7bn barrel prospect named Dunquin, was a duster (industry slang for a dry well). The spud dates for the remaining wells have also been pushed back; a legal problem with one licence has resulted in a delay of possibly several years, while drilling of the Spanish Point appraisal well is expected to start in the second or third quarter of this year – almost a year behind schedule. While we’d hang on to the shares in the hope of better drilling results, we wouldn’t be buying now. Hold. MA

98. UNITECH CORPORATE PARKS

Unitech Corporate Parks (UCP) is showing signs of recovering ground after the recession effectively put an end to the IT outsourcing migration to India. Total office area leased has risen from 6.43m sq ft in September 2012 to 7.13m in September last year, while the company’s share of rental income was lifted from £13.3m to £17.5m. However, the Indian rupee has fallen over 20 per cent against sterling, so the company’s net asset value (NAV) fell in the half year to last September from 58p a share to 52p. And while the group’s 60 per cent share of rental income from the 7.13m sq ft portfolio is expected to reach £21.5m, the revenue stream is not expected to be fully up and running until December 2015.

From an investment view, the shares are trading at a near 40 per cent discount to NAV, but that’s not too surprising given the fact that economic growth in India slipped to its lowest level in four years, while investor sentiment has been dampened by the Indian central bank’s efforts to support the rupee by pushing interest rates higher. Given the significant headwinds, this looks to be a risky investment, and we remain sellers. JC

97. SINCLAIR IS PHARMA

Chief executive Chris Spooner said first-half results at Sinclair IS Pharma (SPH) were marginally behind expectations simply due to timing differences. But the dermatology group saw revenues suffer from multiple short-term supply, regulatory and political problems, as well as the delay of international orders worth £1.6m, to which Mr Spooner referred.

More positively, the group now has orphan drug status for its topical product Flammacerium, treating patients with severe skin burns. The status – awarded by the US Food and Drug Administration – is crucial in protecting the product from generic copies for seven years. The status is only awarded to products targeting extremely rare conditions, usually treating fewer than 200,000 patients. Sinclair will work for full marketing approval in the US after pointing out Flammacerium’s unique role in cases where surgical excision and grafting are not possible or where facilities are unavailable or overwhelmed.

At the time of the full-year results, we noted progress was slow. But a slew of good news, including Flammacerium, has helped buoy the share price since the start of the year. Add to this the recent acquisition of the global rights to dermal filler Ellansé for £14m and growth at Sinclair isn’t so implausible. Hold. HR

96. ACCESSO TECHNOLOGY

A new entry in this year’s list, Accesso Technology (ACSO) sells online queuing and ticketing software to theme parks, museums and other venues. That market has proven lucrative – big contract wins meant that its operating profits, adjusted for acquisition costs, rose 52 per cent last year.

Previously called Lo-Q, Accesso relieves the tedium of queuing by providing each premium-paying guest with a digital countdown to when they can use an attraction. That means not having to stand in line and being able to go straight to the front when it’s their turn. Its technology seems to have caught on, with two of America’s largest water parks and an upcoming Malaysian theme park joining its client list last year.

Its ticketing and e-commerce product, Accesso Passport, has also received the stamp of approval. Ticketing volumes rose 15 per cent last year, including a 475 per cent rise in mobile demand. More recently, Caesars has adopted it for use at its High Roller observation wheel in Las Vegas, and Merlin agreed to a trial installation in England’s Thorpe Park.

Unsurprisingly, Accesso’s attractions haven’t gone unnoticed – its shares have risen nearly threefold since the start of 2012, and trade on 42 times broker Canaccord Genuity’s forecast earnings. The business has shown no sign of slowing down, but a sky-high rating means we advise holding for now. Hold. TM

95. CRANEWARE

America’s healthcare system is notoriously convoluted, with hospitals juggling payments from individuals, employers, insurers, and various levels of government. Edinburgh-based Craneware (CRW) addresses that problem, selling payment-processing and risk-assessment software to help hospitals keep track of revenues and ensure compliance. Filling that role has proven lucrative, with pre-tax profits rising 7 per cent last year to $4.8m.

Cranewear’s record isn’t spotless, though. Widespread uncertainty over US healthcare reform deterred large clients from signing deals with the company last year. It also racked up $1.2m in sales costs, a 43 per cent rise from 2012. But that investment seems to have paid off – it signed multi-year contracts with two large hospital groups this month, worth over $3m each. Although the proceeds of those agreements won’t be fully realised until 2015, they build on last year’s deals. Those included one with Aveva Health in the Midwest to supply software to 28 of its hospital organisations.

Craneware also boasts a strong outlook. Its deferred income rose 15 per cent to $18m last year, and its visible revenues rose from about $110m to $114m. But those prospects look priced in – strip out net cash, and its shares trade at a lofty 24 times forward earnings. We advise holding for now. Hold. TM

94. PERSONAL GROUP

Employee benefits specialist Personal Group (PGH) is largely focused on underwriting hospital and convalescence plans for blue-collar workers, and management has been working to better prepare the group for growth. That, however, has come at a cost – at the full-year stage, pre-tax fell 55 per cent. That was partly down to higher claims – reflecting the increased scale of the Hospital Cash plan business, as well as a goodwill writedown at its Berkeley Morgan unit, which has been hit hard by the Retail Distribution Review. But investment spending and reorganisation costs also took a toll.

But that focus on growth is paying off. New business sales jumped 18 per cent last year and the group also won big name clients such as Network Rail, 2 Sisters and Young’s Seafood. More recently, it signed up Four Seasons Health Care and management says that contracts with a number of other transport businesses are also in the pipeline. Acquisitions are set to drive growth, too, and Personal Group is spending up to £12m buying Let’s Connect IT Solutions – which helps employees buy electronic gadgets through a salary-sacrifice scheme. Management thinks that will deliver big cross-selling opportunities.

But the shares, trading on about 19 times broker Cenkos’s adjusted earnings estimate for 2014, appear to reflect that potential – although, with an attractive 4 per cent prospective dividend yield, they’re worth hanging onto for income. Hold. JA

93. IMMUNODIAGNOSTIC SYSTEMS

Immunodiagnostic Systems Holdings (IDH) had a transformational 2013. Years of mismanagement and a lack of traction in the vitamin testing market was hurting profits and impeding growth. But new leadership and a push into emerging geographies such as China and Brazil helped give revenues a 13 per cent boost at the time of the half-year results to September.

Since then, the group has penetrated the US market, having received approval from the US Food and Drug Administration for its Direct Renin immunoassay, used to determine the amount of active renin (an enzyme that regulates blood pressure) present in a blood sample. Test results – available within an hour – are used together with other clinical data to investigate hypertension-related disorders. IDH already launched the product in Europe during 2012, chasing a market in which 20 per cent of the world’s population suffer with hypertension. But moving into the US will enable the company to specifically target 67m American adults suffering from the disorder.

Full-year figures are expected to be in line with modest expectations, with analysts at finnCap expecting minimal if any growth. Sales are forecast to ultimately fall flat at £50m in 2014, giving EPS of 52.4p, up from 49.3p in 2013. Hold. HR

92. MYTRAH ENERGY

Mytrah Energy (MYT) was incorporated in India in 2009 and floated on Aim the following year, raising $80m from institutional investors such as BlackRock and Henderson. A further $500m of debt has since been raised to help fund the construction of more than 550 megawatts (MW) of onshore wind farms in India by early 2014. Mytrah’s aim is to own 1,500MW by 2016 and ultimately reach 5,000MW.

Recent full-year results demonstrated solid progress on revenues and adjusted cash profits as Mytrah’s average operational capacity jumped by almost a third. Earnings per share dropped on higher finance costs as the costs of running a larger operational portfolio hit, but the company’s broker, Investec, tips earnings per share to pick up sharply this year.

There is no doubt that uncertainties over India’s economy make this a speculative bet, but currency exposure is at least limited given that both revenue and costs are denominated in Indian rupees. And if Mytrah makes Investec’s forecasts, it is trading on only eight times forward earnings. That potentially lowly valuation, together with good earnings growth potential backed by India’s chronic power shortage and favourable tariffs for wind energy, underpin our long-standing buy tip (111p, 28 July 2011). KG

91. BLUR GROUP

Rising global demand and a fast-growing user base are paying off at Blur Group (BLUR), which owns an online exchange where businesses including NetworkRail and Danone can commission services, and designers, programmers and other professionals can bid for projects. Its revenues more than tripled in the half-year ended June to $3.4m, and it now has over 38,000 buyers and sellers on its ‘s-commerce’ platform.

Since listing about 18 months ago, Blur has focused on drawing bigger sellers with larger, more lucrative projects. Total project value on its site is over $190m, almost double September’s figure, and average project value has climbed from $1,500 to over $89,000 in the past three years. Its users also tend to stick around – chemicals specialist Momentive has run 70 projects since 2012. Moreover, the upcoming launch of Blur 4.0, accompanied by new Video and HR exchange segments, should drive further growth this year.

Still, a $3.4m operating loss last half, driven by hefty investing and a tripling of administrative costs, makes it unlikely that Blur will break even this year – analysts point to positive EPS in 2015. Although its shares are flat on our September buy advice, we’re confident they can return to January’s all-time high. Buy. TM

Back to introduction

90 to 81: Asian Citrus to CVS Group

80 to 71: Redcentric to Telford Homes

70 to 61 Vertu Motors to Highland Gold Mining

60 to 51: Utilitywise to Tungsten Corporation