Small caps worth monitoring


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The Lemming Company Focus Portfolio has had a period of stagnation for the most part. Two of our most profitable company’s, Bioprogress and London Clubs International have had a real rollercoaster ride from all time highs, and retrenchments of those highs by falling back by almost 50%. Testing times for those who advocate a rigorous stop-loss.

March 18 saw BioProgress go on the offensive by underline the significance of two key events Mentioned in the company’s maiden report for 2003. On April 2 the company announced it would be issuing 2,952,086 new ordinary shares via a combination of the company’s share option scheme and the exorcise of warrants. Graham Hind, Chief Executive announced he would exercising his warrants and options which would provided the Company with approximately £1.5 million which further strengthens BioProgress' cash position.

London Clubs continue to gain new high not seen for more than 2 years on the back of news that Malaysia’s Resorts World had increased its stake to 11% after the purchase of a further 2.67 million shares. Rumours are also circulating that MGM mirage are positioning themselves for a take-over of LCI as means of entering the UK casino industry ahead of the deregulation of the gaming industry in the UK. However, the meteoric rise from our 55p to 128p in less than six months came to an abrupt end when LCI announced a fund raising exercise via a Rights Issue of 73,692,413 New Ordinary Shares at 70p, to refinancing its debt facilities and Long Term Incentive Plan. The Issue Price represents a discount of 40% to the middle-market closing price of an Ordinary Share of 116.75p on 4 March 2004.

Ashtead looks to have fallen out of bed with its accountants, PricewaterhouseCoopers, who refused to sign off accounts that were to have formed part of the offer document in a $250m (£137m) junk bond issue designed to bail out the troubled tool-hire company, reports the Sunday Telegraph. PWC have been replaced by Citigroup and Banca of America to raise the £130m in Bonds which will be listed in London.
Ashtead has also been forced to abandon the idea of raising the debt in the US because the Securities and Exchange Commission requires three years' accounts to be included in the offer document and last March the company was forced to admit that its US arm had overstated profits.
For full story click on Telegraph.

Profit before tax, goodwill and exceptional items for the nine months to January 31 were £4.5m. That was down from £8.8m in the same period of the year before. The company said demand for industrial and commercial equipment was continuing to improve there after the deepest recession in 20 years. However, the pick up in demand was being more than offset by the recent slide in the dollar, it pointed out.

There lays the proplem for the group. While the US dollar is taking a tanking revenues are not going to pick up. Investors may want to keep an eye on the dollar. If the dollar recovers, then so will Ashteads fortunes, until such a time the share price will probably be depressed

April 2 2004

News from PlaneStation Group seems to be slowly progressing through to the market, with brief snippets of the new CEO`s strategy. As expected, there will be a round of cost cutting measures designed to plug the cash burn drain on the group as a whole.

The first and most significant cost savings were announced yesterday, when the group announced that two key non-executives would be leaving. Non-executive chairman Richard Bernays, came as no surprise as his intention to stand down was announced at the groups last AGM. John Mackay, another non-executive director whom put his hand in his pocket and bought 1 million shares a year ago, takes Richard Bernays place. Another non-executive director, Lady Rona Delves Broughton, a leading member among Lloyds of London names, was less clear. One newspaper report suggested that the Prudential was filling the groups chairs with it’s own people. This of course begged the question why Richard Bernays was not persuaded to continue in his current capacity. Nevertheless, the resignation of Lady Rona Delves Broughton merely fuelled speculation that Fairlop would be jettisoned from the groups list of property assets awaiting planning permission.

Communications with the company suggest that Fairlop is very much on track. Indeed, news is expected within the next few months.

The rather expensive group HQ at Mayfair, Berkeley Square has been jettisoned from the group. Many investors have viewed the groups HQ as a rather expensive cash drain, few will complain of its disposal. Again, according to the PlaneStation, I was informed that the cost savings would be c£1m pa. These saving include rent and head count.

There has been much speculation surrounding the failure to obtain an unrestricted passenger licence for Lahr airport in the Germany’s Black Forest region. Early indications are that the group intend to seek to challenge the decision not to allow unfettered passenger traffic through Lahr, through the EU courts. They say they have a strong case under EU regulations. This avenue always seemed likely.

The group also says they expect to progress with the Liverpool Festival Garden site, through to PP.

How views change in such a short time. Investor across many BB`s were voicing their displeasure at the ousting of Oliver Iny, many questioning the logic and the timing of such a putsch. Many feared Martin May was brought in as a hatchet man, seeking a quick fire sale of the groups assets, even before planning permission was gained for some of the groups prize assets, which could net the group c£150m if all gain PP. Now, investors are more inclined to see what Martin May has to offer.

I have been a long term holder of Wiggins/PlaneStation shares, often selling on the back of strength in the past. I am still holding at my last entry of 3.65p. My view is still one of long term organic growth once the PlaneStation concept is a viable stand alone group.

Early indications are that Martin May has the same view. Let us hope that this is the case. We can not be sure without any such statement confirming this is the case.

Talk of an imminent contract win for its NetIntelligence software sent Iomart up 6p at 72½p, a four-year high.

FFastFill, the AIM-listed developer of derivatives trading software, added ¼p at 778p after KBC Peel Hunt raised £4 million, more than half its stock market value, from a placing of new shares at 7p. It also unveiled two new contracts, one of which is from the UK arm of Archer Daniels Midland.

Biotech group Alizyme reported its first sales this morning, with revenue of £1.2m for the last six months. Losses were unchanged at £10m but net cash climbed to £22m thanks to recent share issues. Alizyme shares gained 1.5p (0.8%) to 186p.

Hit Entertainment was another small riser, putting on 2.5p (0.8%) to 310p after it announced a production and distribution agreement with The Jim Henson Company.

April 1 2004

AeroBox, which makes products for the freight and air cargo industries, posted a loss of £2.62m for the 15 months to end December in its first results since listing on AIM.

Chairman David Sebire said he is confident sales will pick up in the second half of 2004, once the company's first product -- a lighter air cargo container -- is manufactured.

'2004 will be another year of development and investment in new products, production processes, manufacturing capacity and sales channels,' he added. 'This will provide the foundation for 2005, which is expected to be the first full year of significant sales volumes.'

Its shares lost 7.3% to 25.25p just 1.25p off our initial coverage price last year. It is too early to say if this is a new negative trend developing. Hopefully, investors who bought in to the story would have been well rewarded had they sold at or activated their stop-loss c38.5p in February after our coverage.

The longer term holders will rightly point out the best is yet to come as and when the light weight cargo containers are produced in numbers.
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