Hybridan Small Cap News – Nov 24

SMALL CAP NEWS

Market Comment

The view from a Broker’s desk

Only the Strong Survive

In turbulent times, listed markets tend to take a bit of a bashing and become an easy target as the source of all our problems.  Ultimately this negative sentiment is why companies are continuing to delist.  A recent report from accountants UHY Hacker Young revealed that the number of companies on AIM has dropped below 700 for the first time since 2001, with 92 companies delisting over the past year. 

Taking a slightly Darwinian approach to our economic cycles, what if the market needs downturns to sift through companies that remain to see if they are  truly deserving of growth capital? When is it not “the market’s fault?”. 

Take Just Eat (JET.L) as an example.  It was sad to see their announcement of their intention to delist based on grounds of “…..the administrative burden, complexity and costs associated with the disclosure and regulatory requirements of maintaining the LSE listing……”.  To put these reasons in context, Just Eat shares are down c85% since their February 2020 IPO.  Their latest Q3 trading update showed sluggish performance in the US, missing market expectations and total gross transaction value also down in quite a saturated market.  The market is incredibly unforgiving right now, but I think it’s always helpful to view delistings in the context of the company performance when “administrative burden, complexity and costs” don’t quite stack up.

Look at any of the IPOs this year – would Applied Nutrition, AOTI, Raspberry Pi, or Time to ACT (AQSE: TTA) have been welcomed with open arms if their revenues weren’t growing or their respective markets weren’t on an upward trend?  Absolutely not.  The market would opine you are either too early or come back to us when the revenue growth is back on track.  So why do we apply a different slide rule to those already listed? Just because a company is listed, it shouldn’t give it preferential treatment on fundamentals when it comes to attracting growth capital. 

The market is fickle, and some companies cannot adapt quickly enough.  During Covid, raising £20m at IPO for the latest SPAC to invest in companies that had a shiny new Web3, blockchain enabled quantum computer, grew cannabis AND cured Covid wouldn’t have been sniffed at.  Boom markets unfortunately are not an effective barometer of quality or longevity of business models. 

Loungers (LGRS.L) is one of the standouts that bucked this trend of opportunism.  The owner of various café/bar/restaurants IPO’d back in April 2019 when it raised just north of £60m at 200p.  Right around the corner the inevitable happened in Covid with numerous closures during lockdown.  But what did the management do?  Sit in a dark room and cry or publicly state that they took the time to make some big strategic decisions without the distraction of a trading business (which they found to be invaluable). 

And what was the result?  On 28th November 2024, Loungers received a cash offer for 310p per share – a tasty 55% premium to the IPO price.  Whilst every acquisition has its usual criticism about it being “grossly undervalued”, it’s hard to grumble about a 55% gain on an investment made into a retail business that has not only survived, but thrived during unprecedented economic times.  Loungers is a blueprint of how management should react and adapt accordingly in turbulent times. 

For some businesses, Covid wasn’t particularly a test of resiliency – absolutely the consumer markets were tough and supply chains were put under immense pressure, but generally speaking, listed companies (especially biotechs chasing the vaccine) had generous access to capital and the retail investor volumes were there to help drive share prices. 

Despite the turbulence of 2024, there have been some great examples of what comes off the end of the growth capital assembly line – especially when looking at some of the takeouts this year in the context of their IPO price; Keyword Studios (+1,973%), Trident Royalites (+145%), Darktrace (+150%) and Alpha FMC (up 215%).  For others however, capital preservation and foresight has been a painful lesson in tough markets, but an important one.

Turbulent times are the great cleansers of the markets.  Company share liquidity has marched up the importance ladder of fund manager investment criteria – unfortunately a “cheap PE” doesn’t service fund redemptions. 

Whilst right now it is undeniably tough, it’s important to remember that tough times make great companies.  Those that make it through not only survive, but thrive, and its these companies that will be rewarded by investors in the long run. 

Merry Christmas from all the team at Hybridan and here’s to a prosperous 2025.   

By Niall Pearson

Newsflow

Our deeper reflections on recent corporate news

 

CSSG Secure Future

FDBK Bleeper Time

Croma Security Solutions Group 82.5p £11.3m (CSSG.L)

Price	Results	Largest Shareholders	Value
79-85p	Y/E June	Roberto Michele Fiorentino 28.46%	Net Cash £4.3m
Spread:  8.0%	Report November	Liontrust Investment Partners 9.90%	EBITDA/ EV 6x
52 week High/Low: 84p/54p	Report Interims Feb	Russell Long 7.44%	Buy and Build development

Source: Alpha Terminal

In June 2023, Croma sold its lower margin man guarding business for £6.5m, to be paid in stages.  At the June year-end 2024, net cash was £2.14m and since then a further £2.2m has been received so net cash is around £4.3m, with no borrowings. This is being invested in a buy and build strategy in Croma Locksmiths and Croma Fire & Security division to create the UK’s first nationwide network of branded Security Centres.

Croma designs, installs, and maintains a wide range of security systems, from Intruder Alarms, CCTV, and Access Control systems, to Biometrics, Door Entry, and Automatic Door systems, and offers 24/7 Remote Monitoring. The strategy is to acquire traditional locksmith stores at moderate valuations and transform them into modern Security Centres. These will have a wide in-store product range and a broader range of services with much greater profit potential.  The target is to acquire three to five shops per year with a target ROI of at least 15% as branded Security Centres.

Finals to June 2024 reported an 8.9% increase in revenue to £8.74m, with EBITDA on continuing operations up 13% to £1.06m, giving an EBITDA/EV  6x.   FY25 trading is reported to have started well with good demand from its commercial and retail customers increasing security, perhaps scared by the summer’s civil unrest. A £0.4m contract was won in April for the installation of a hospital’s security systems as part of a growing relationship with this NHS Trust, where there is potential for further projects.

Hybridan Comment: A branded national network of security centres with a wide range of products and services, should be worth more.  

Feedback 20p £2.7m (FDBK.L)

Price	Results	Largest Shareholder	Value
19/21p	Y/E: May	Thomas William George Charlton 22.95%	Roll-out Bleeper
Spread:  10.5%	Report Nov	Unicorn Asset Management  18.22%	GP Margins 93%
52-week High/Low:150p/ 19.5p	Interims Feb	Octopus Investments Nominees 12.75%	Net Cash c. £7m

Source: Alpha Terminal

This medical infrastructure specialist closed an oversubscribed £5.6m placing at 20p on 6^th November, which was at a surprising 55% discount to the pre-placing price. The funds are to accelerate the roll-out of its Bleepa platform technology to the NHS. Bleeper drives proven material efficiencies in service delivery while patients are spared multiple hospital attendances and an estimated 63% reduction in wait times. The significant new factor, that may have helped ease the funding, is Bleepa’s eligibility for reimbursement under the Diagnostic Enhanced Advice and Guidance (DEAG) Fund. Therefore, any Integrated Care Board (ICB) and there are 42 or Hospital Trust (219) in England will be able to use this funding to buy it.

The first MOU with an NHS Trust has been signed the week of 25 November, to implement a pilot for a novel ‘Neighbourhood Diagnostics Solution’ that combines Bleepa with its partner’s technology. The pilot is expected to go live in a hospital trust setting in Q1 2025. The Pilot will act as a reference site for national policy and provide a platform to engage with the central NHS and government with the intention of positioning a business case for wider rollout aligned to the Spring Budget.

Feedback is also in dialogue with several ICBs regarding use of Bleepa as a Diagnostic Enhanced Advice and Guidance platform under the Elective Recovery Fund. It estimates each ICB contract could generate over c. £2m per annum, which is based on the number of users. A few ICBs are said to have already expressed interest in this Bleepa/ DEAG approach. The finals to May 2024, were reported on 4 November 2024 and showed revenue of £1.2m, a marginal increased EBITDA loss of £2.73m and cash of £3.8m.

 

Hybridan Comment: Prospects have been transformed and the shares hoovering at the placing price seem worthwhile. 

House Report

News from a house stock 

Northern Bear *54.5p £7.5m  (NTBR.L)

Interims to September 2024

 

Hybridan’s Comment:

The first half is historically stronger then H2, and has already produced an 8.4p EPS, which is 83% of the full year 10.1p forecast. This gives a P/E of 5.2x, which is low compared to the UK commercial services sector average P/E of c.20x and seems to undervalue the organic growth prospects. Assuming current market and weather conditions continue and the additional investment in operations pay off, there is the potential to upgrade our forecast.

The strategic focus is on investing in people and facilities to drive core building services growth which we expect will make a growing financial contribution. The Interims to 30 September 2024 reported revenue and profitability ahead of management expectations, despite accelerating internal investment. Revenue increased 2% to £37.6m, with the gross margin up 2% to 24% due to a higher-margin business mix. Administration expenses rose by £0.8m reflecting the internal investment, although the Operating Profit was robust at £1.7m from £1.8m. Operational cash had a strong inflow at £2.2m compared to a £1.3m outflow.

Interim net bank debt is £1.4m and we expect it to reduce by the YE March 2025 due to its positive operating cashflow. The debt is after last year’s share buyback via a tender offer for 5m shares at 62p, costing £3.1m. It was a strategic decision to tighten the share capitalisation table, to be better placed for stronger share price performance when delivering sustainable growth.

Updates/Events

We consider notable updates and anticipated events

A cure for Christmas blues maybe increasing medtech investment in 2025 

 

Aptamer Group 0.285p £5.5m  (APTA.L)

The AGM Statement from the developer of novel Optimer Binders (OB) reiterated that since the £2.6m funding in July at 0.2p, there has been progress.  OBs enable innovation in the life sciences industry, in streamlining scientific production capabilities and enable the Company to deliver on its commercial  growth strategy. There are new contracts worth £471k which include multiple agreements, from two of the top 20 global pharmaceutical companies. The projects are aimed at developing Optimers critical reagents to support active clinical development programmes and facilitate the analysis of novel therapeutics.

The Unilever partnership made considerable progress towards using OBs in treating ‘smells’ in deodorant products, a market worth $21bn. A toxicity report after trials on human skin is due by Q1 25.  The management state it is advancing steadily towards the revenue and potential licensing goals for FY25, with the best part of 7 months left in the financial year.

Comment:  Worthwhile commercial traction seems likely within the existing cash runway.

Cambridge Cognition Holdings 27.5p  £11.5m (COG.L)

The brain health software group reports that Monument Therapeutics Ltd, in which it has a 22.1% stake, has secured an investment of £1m from the Forster Foundation. Its post investment valuation of £8.35m suggests a significant increase on a mark-to-market valuation of this holding. The investment by Foster, helps support the clinical development of MT1988, a novel treatment for the cognitive symptoms of schizophrenia.

COG’s Interims to August 2024 reported that the gross margin increased to 81% (79%) and despite a 7% reduction in revenue to £5.6m, its adjusted operating losses are significantly lower at £0.1m from £2m. This material reduction in R&D and Admin costs is evidence of the success of the corporate restructuring, while expanding the salesforce increases the commercial capability.

Comment: The recovery and growing trading prospects should be clear for the December Y/E Trading update expected in January 2025.

Poolbeg Pharma 7.35p £36.75m (POLB.L)

The clinical-stage biopharmaceutical Company announced that the US Patent Office has granted Poolbeg’s US Immunomodulator I patent application. This patent further strengthens Poolbeg’s robust IP portfolio on its lead development candidate, POLB001. Strong IP is the foundation of value creation in biopharma, and with each new patent, it not only protects its assets but also increase the commercial appeal to prospective partners.  management IS excited by the potential of POLB001 which addresses critical unmet medical needs as it seeks high value programmes and partnerships to develop and commercialise its assets. Further patent applications have been filed including an inhibitor for the treatment of severe influenza.  The cash balance at the June Interims was £10.1m with an Operating Loss of £2.5m.

Comment: The funding is in place for a significant advance towards monetisation.

Events

The main event is Christmas and before then there are few companies we follow announcing results

Scientific Digital Imaging Group 59p £61.7m (SDI.L)

Interim results to October 2024 are on Thursday, 5 December 2024.  SDI buys and builds companies that design and manufacture specialist lab equipment, industrial & scientific sensors and industrial & scientific products. Since October, it’s acquired InspecVision Ltd which is a designer and manufacturer of computer vision-based measurement systems for industrial applications, for a net consideration of £6.1m. This acquisition introduces new technological capabilities, including AI and machine learning, and has strong IP, which can be leveraged. The AGM update reminded the market that H2 is stronger and the full year results are in line with market expectations with turnover of £69m, PBT of £8.35m and EPS of 6p for a prospective P/E of 10x. Cash flow continues to be strong, with unaudited net debt reducing to £11.3m from £13.2m.

* A corporate client of Hybridan LLP

By Jon Levinson

Status of this Master Investor Purposed Newsletter, Disclaimer and Disclosures

1. Disclaimer for companies mentioned with whom Hybridan does not have a corporate advisory relationship

This document has been provided as a general market commentary and is prepared by Hybridan LLP for information purposes only and should not be construed in any circumstances as investment advice; a recommendation; an offer to sell; nor solicitation of any offer to buy any security or other financial instrument. Nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. The information has been provided without taking into account the investment objective, financial situation or needs of any particular person. Recipients should make their own investment decisions based upon their own financial objectives and financial resources and, if any doubt, should seek advice from an investment advisor.

As market commentary, this document is not investment research or a research recommendation for regulatory purposes as it does not constitute substantive research or analysis. It is not subject to any prohibition on dealing ahead of the dissemination of investment research although Hybridan LLP maintains related internal systems and controls in connection with such dealing.

This document should not be relied upon as being an independent or impartial view of the subject matter. The individuals who prepared this document may be involved in providing other financial services to the company or companies referenced in this document or to other companies who might be said to be competitors of the company or companies referenced in this document. As a result, both Hybridan LLP and the individual members, officers and/or employees who prepared this document may have responsibilities that conflict with the interests of the persons who receive this document. Hybridan LLP and/or connected persons may, from time to time, have positions in, make a market in and/or effect transactions in any investment or related investment mentioned herein and may provide financial services to the issuers of such investments.

This document is not intended to be an invitation or inducement to engage in investment activity. In the United Kingdom, this document is directed at and is for distribution only to persons who (i) fall within article 19(5) (persons who have professional experience in matters relating to investments) or article 49(2) (a) to (d) (high net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) (as amended) or (ii) persons who are categorised by Hybridan LLP as either a professional client or eligible counterparty (as those terms are defined in the Financial Conduct Authority’s Conduct of Business Sourcebook) (all such persons referred to in (i) and (ii) together being referred to as “relevant persons”). This document must not be acted on or relied up on by persons who are not relevant persons. For the avoidance of doubt, this document is not intended for and should not be relied upon by any person who would be classified as a retail client under the Financial Conduct Authority’s Conduct of Business Sourcebook.

The information contained in this document is based on materials and sources that are believed to be reliable; however, they have not been independently verified and are not guaranteed as being accurate. This document is not intended to be a complete statement or summary of any securities, markets, reports or developments referred to herein. The information may contain projections or other forward-looking statements regarding future events, targets or expectations. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Any and all opinions expressed are current opinions as of the date appearing on this document only. Any and all opinions expressed are subject to change without notice and Hybridan LLP is under no obligation to update the information contained herein.

References to specific securities, asset classes and financial markets are for illustrative purposes only. Past performance is no guarantee of future results.  Information and opinions presented have been obtained or derived from sources which Hybridan LLP reasonably believed to be reliable however no representation or warranty, either express or implied, is made or accepted by Hybridan LLP, its members, directors, officers, employees, agents or associated undertakings in relation to the accuracy, completeness or reliability of the information in this document nor should it be relied upon as such.

To the fullest extent permitted by law, none of Hybridan LLP, its members, directors, officers, employees, agents or associated undertakings shall have any liability whatsoever for any losses arising in any way from use of all or any part of the information in this document including, for the avoidance of doubt, direct or indirect or consequential loss or damage (including lost profits).

Neither this document nor any copy of part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of territorial and/or extra-territorial securities laws, whether in the United Kingdom or any other jurisdiction in any part of the world.

Hybridan LLP and/or its associated undertakings may from time-to-time provide investment advice or other services to, or solicit such business from, any of the companies referred to in this document. Accordingly, information may be available to Hybridan LLP that is not reflected in this material and Hybridan LLP may have acted upon or used the information prior to or immediately following its publication.

In addition, Hybridan LLP, the members, officers and/or employees thereof and/or any connected persons may have an interest in the securities, warrants, futures, options, derivatives or other financial instrument of any of the companies referred to in this document and may from time-to-time add or dispose of such interests.

1. Disclaimer for companies mentioned with whom Hybridan has a corporate advisory relationship

Where Hybridan refers to companies that it is a retained adviser to, Hybridan marks this clearly with an *

This document should not be relied upon as being an impartial or objective assessment of the subject matter and does not constitute independent investment research for the purposes of the Conduct of Business Sourcebook (“COBS”) issued by the Financial Conduct Authority (“FCA”) to reflect the requirements of the UK retained version of Regulation 600/2014/EU (the “MIFID II Regulation”) and the UK retained version of Directive 2014/65/EU (the “MIFID II Directive”) and all rules made in connection therewith (together, known as “MIFID II”). The individuals who prepared this document may be interested in shares in the company concerned and/or other companies within its sector. As a consequence, the research (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research under MIFID II; and (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research (although Hybridan does impose restrictions on personal account dealing in the run up to publishing research as set out in our Conflicts of Interest Policy).

This document has been issued by Hybridan LLP as a marketing communication for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment objectives, financial situation or needs of any specific entity. Hybridan LLP and/or connected persons may, from time to time, effect transactions in any investment or related investment mentioned herein and may provide financial services to the issuers of such investments. The information contained herein is based on materials and sources that we believe to be reliable, however, Hybridan LLP makes no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Opinions expressed are our current opinions as of the date appearing on this material only. Any opinions expressed are subject to change without notice and Hybridan LLP is under no obligation to update the information contained herein. None of Hybridan LLP, its affiliates or employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from any use of this document.

This document is not intended to be an invitation or inducement to engage in investment activity. In the United Kingdom, this report is directed at and is for distribution only to persons who (i) fall within article 19(1) (persons who have professional experience in matters relating to investments) or article 49(2) (a) to (d) (high net worth companies, unincorporated associations, etc) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (SI 2005/1529) (as amended) or (ii) persons who are categorised by Hybridan LLP as either a professional client or eligible counterparty (as those terms are defined in COBS (issued by the FCA) (all such persons together being referred to as “relevant persons”). This report must not be acted on or relied upon by persons in the United Kingdom who are not relevant persons.

Neither this report, nor any copy or part thereof may be distributed in any other jurisdictions where its distribution may be restricted by law and persons into whose possession this report comes should inform him or herself about and observe any such restrictions. Distribution of this report in any such other jurisdictions may constitute a violation of securities laws in the United Kingdom, the United States (or any part thereof) or any other jurisdiction in any other part of the world.

The methodology and underlying assumptions used to either evaluate a financial instrument or an issuer shall, where relevant, be included (with information as to where any more detailed information can be found) in the substance of this note.

Investments in general involve some degree of risk, including the risk of capital loss. The services, securities and investments discussed in this document may not be available to or suitable for all investors. Investors should make their own investment decisions based upon their own financial objectives and financial resources and, if in any doubt, should seek advice from an investment advisor. Past performance is not necessarily a guide to future performance and an investor may not get back the amount originally invested. Where investment is made in currencies other than the investor’s base currency, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Levels and bases for taxation may change. When Hybridan LLP comments on AIM or AQSE Exchange shares investors should be aware that because the rules for those markets are less demanding than the Official List of the London Stock Exchange the risks are higher. Furthermore, the marketability of these shares is often restricted.

Hybridan LLP is authorised and regulated by the FCA and is a member of the London Stock Exchange.

Issuers may be permitted to review investment analysts’ investment research prior to publication for review of factual accuracy only – all opinions expressed are our own. Investment research prepared by Hybridan LLP is monitored to ensure that it is only provided to relevant persons. Research prepared by Hybridan LLP is not intended to be received and/or used by any person who is categorised as a retail client under COBS.

Investment analyst certification: All research is issued under the regulatory oversight of Hybridan LLP. Each investment analyst of Hybridan LLP whose name appears as the author of this research hereby certifies that the opinions expressed in such research accurately reflect the investment analyst’s personal and objective views about any and all of the companies or the Company discussed herein that are within such investment analyst’s coverage universe.

The investment analyst who is responsible for the preparation of any commentary on companies that Hybridan advises is Jonathan (Jon) Levinson, who is an employee of Hybridan.

Conflicts of Interest: Hybridan LLP is involved in providing other financial services to companies it includes in this note that it is a retained adviser to and, as a result, Hybridan LLP may have responsibilities to the Company which conflict with the interests of the persons who receive this document.

Hybridan LLP and/or its associated companies may from time-to-time provide investment advice or other services to, or solicit such business from, any of the companies referred to in this document. Accordingly, information may be available to Hybridan LLP that is not reflected in this material and Hybridan LLP may have acted upon or used the information prior to or immediately following its publication.

Hybridan, its partners, officers or employees or any connected persons may at the time of publication have an interest in the equity of the Company through the holding of warrants, securities, futures, options, derivatives, and any other financial instrument of any of the companies referred to in this document. Hybridan at the time of publication currently has no interest of this nature in the Company discussed herein. If exercised such interest would not be required to be notified as it would comprise less than 3% of the Company’s issued share capital. Hybridan reserves the right to increase or dispose of this interest and/or the underlying shares resulting from exercise, without further notice. Any disposal or acquisition of warrants or shares will be undertaken under the FCA Disclosure Guidance and Transparency Rules Sourcebook.

No recommendations: In line with our conflicts of interest policy Hybridan LLP does not produce “buy” or “sell” recommendations or publish target prices on companies who are corporate clients of Hybridan LLP.

MIFID II status of Hybridan LLP research: The cost of production of our corporate research is met by retainers from our corporate broking clients. In addition, from time to time we issue further communications as market commentary (such as our daily newsletter), which we consider to constitute a minor non-monetary benefit which is capable of enhancing the quality of service provided by Hybridan LLP and which is of a scale and nature which could not be judged to impair the duty of Hybridan LLP to act in the best interest of its client falling within article 24(7)(b) of the MIFID II Regulation.

Unless otherwise stated, Hybridan LLP owns the intellectual property rights and any other rights in this document. This document may not be copied, redistributed, resent, forwarded, disclosed or duplicated in any form or by any means, whether in whole or in part other than with the prior written consent of Hybridan LLP.

Hybridan LLP is a limited liability partnership registered in England and Wales, registered number OC325178, and is authorised and regulated by the Financial Conduct Authority and is a member of the London Stock Exchange. Any reference to a partner in relation to Hybridan LLP is to a member of Hybridan LLP or an employee with equivalent standing and qualifications. A list of the members of Hybridan LLP is available for inspection at the registered office, 2 Jardine House, The Harrovian Business Village, Bessborough Road, Harrow, Middlesex HA1 3EX.