Hybridan Monthly, 2 September 2025
Market Comment
View from the Broker’s Desk
Ardent readers of our almost daily “Small Cap Feast” will be familiar with our coverage of those companies looking to IPO on the LSE or AQSE. As it stands today, we have just two contenders who have thrown their cap in the ring: B HODL, the bitcoin operator, announced plans to IPO onto AQSE; and Vulcan Two Group, the acquirer of companies in the ePharmacy market, announced plans to IPO onto AIM;.
There is lots of talk in the market around what is the catalyst needed to change the drought we are currently experiencing in UK IPOs. Equally, there have been many articles published and circulated on how to resuscitate the UK equity markets in order to make it a more attractive destination for companies to list. The catalyst cannot be fully attributed to regulatory change, as back in 2024, the FCA introduced some significant changes around ongoing prospectus rules, less stringent working capital requirements, and the acceptance of dual class share structures, amongst other changes, however it would appear this has had little contribution to increase the UK’s IPO pipeline.
Other measures recently discussed include mandating pension funds to invest more in UK equities. This one feels more farfetched given the lack of reference towards “unlisted markets” meaning AIM or AQSE. In any event, having governments “mandate” capital flows may generate short term artificial demand in UK equities, but it might not be sustainable.
We see the following key focus areas will have the most demonstrable effect in revitalising the small cap market for the long term:
Regulatory and cost burden of listing
The widely touted at least £1m AIM IPO fee is not realistic or appealing for a small cap company. Having the adviser community opine on this figure is turkeys voting for Christmas, especially in this market. The exchange could adopt an “RRP model” where IPO fees are recommended by the exchange to issuers directly. This new fee structure would be supported by listing rules and disclosure requirements which are more appropriate to the business looking to list, rather than onerous risk factors which could be used to justify eye watering IPO fees.
Showcase your winners
Entrepreneurs need success stories to visualise how an IPO would be beneficial to their business. How many CEOs contemplating an IPO have heard of the likes of Yu Group, Filtronic, Journeo, Elixirr International, Gaming Realms etc? If you are a high growth business that continues to deliver and engage frequently with investors, there is no better destination for a SME to list than the UK. More needs to be done to showcase success stories to those considering an IPO. That is down to an ongoing marketing push from the UK stock exchanges to showcase their winners and bring that success to life.
Giving power back to retail investors
Since the Retail Distribution Review (RDR) came into force in the UK back in 2012, volumes in UK small caps have steadily declined. RDR made it increasingly difficult for wealth managers to run discretionary portfolios in small caps. Onerous compliance measures were put in place making it incredibly difficult for retail investors to get shown placings and IPOs through their private client broker. Platforms such as WRAP and Bookbuild have done a great job in increasing the participation of retail investment into primary offerings.
A level playing field needs to be created between institutions and retail – especially when it comes to IPO documentation and analyst research. Risk capital needs to be accepted, instead of hiding behind vague compliance reasons why retail investors should not receive the same information as their institutional counterparts. It’s a nonsensical situation where market participants push for more retail investment at the same time as having regulation in place that precludes retail investors from receiving the exact same information as institutions.
Overhauling the Authorised Corporate Director (ACDs) framework
An ACD is a regulated entity responsible for the day-to-day management and compliance for investment funds. They have had rising prominence in the small cap market over the past months, predominantly as funds suffer from redemptions. ACDs stress test portfolio liquidity and ask the fund manager how quickly they could divest of certain holdings to service any future redemptions. This puts mounting pressure on fund managers to prioritise liquidity over the investment fundamentals of a company. Fund managers have lost some of their discretion and ultimately forced up the market cap scale where companies are more established and have higher trading volumes. This shift in sentiment has decimated the sub £100m market cap sector, leaving many companies unable to receive scale up capital for acquisitions where EIS and VCT funds are restricted from supporting.
The warnings are universally clear in any fund factsheet; including the risk of losing all money invested, unlikely to get protection if something goes wrong and uncertain timeframes of getting your money back. What more is needed? Creating complex compliance structures on top of these core tenets of small cap investing is only taking more time away from these experienced fund managers, where it could be better spent meeting with management teams and reviewing more investment opportunities. Full discretion needs to be returned to fund managers to allow them the flexibility to back the mid-caps of tomorrow. To ignore, we will continue to see an ever-increasing pool of subscale companies because they are unable to receive institutional investment.
By Niall Pearson
Company Newsflow
PCIP Secure Payments
REAT Ready to Clean up
PCI-Pal 47.70p £34.56m (PCIP.L)
|
Price |
Results |
Top 3 Shareholders |
Value |
|
46.4- 49p |
Year End June |
Canaccord Genuity Group 12.67% |
Strategic Partners |
|
Spread: 2.6% |
Finals to be reported 9 September |
Gresham House AM 10.94% |
Secure Trading Growth |
|
52 week High/Low: 72p /43.5p |
Interims to December, last Reported 4 March |
Octopus Investments 8.97% |
AI Product Development |
Source: Alpha Terminal, https://www.pcipal.com
The Trading Statement from this provider of secure cloud based payment solutions reported progress for FY June 2025 and these FY results are due on 9 September. The Annual Recurring Revenue (ARR) is expected to increase by 25% to £19.3m after expanding partnerships, and broadening existing relationships. The Total Revenue is expected to increase 23.6% to £22.2m and EBITDA of £2.5m compared to £0.9m is expected, alongside gross profit margins of around 90%.
The Company’s services enable businesses to take secure and frictionless payments from nearly any e-commerce platform, due to PCI-PAL’s knowledge of deep technology integrations for many of the Contact Centre as a Service (CCaaS) platforms. Clients include IKEA, RSPCA, DHL, Coca Cola with a wide geographical spread including the US, Europe, Middle East and Asia.
CCaaS systems allow organisations to manage all their contact centre interactions and secure payments consistently and efficiently from a single solution. This cost-effective integrated solution allows a wide range of communication channels, including voice calls, emails, text messages, chats, as well as various social media messages from one place. The Company has a strategic agreement with a billion-dollar revenue communications company which recently launched a CCaaS system. PCIP’s well-established unified product and compliant payment capabilities will be offered to the partner’s wide and established client base.
Net cash of £3.9m is down from £4.4m in FY 2024 and investment is being further stepped up in FY26. Further product innovation and product launches are planned to complement the existing PCI-PAL product suite to generate incremental ARR. This includes the launch of a new AI-powered fraud risk scoring product available across the PCI-PAL platform to help businesses combat rising card-not-present payment fraud, which was responsible for 70% of credit card fraud in 2022. The product uses AI-driven insights delivered in real-time to customer service agents and AI bots ahead of collecting customer payments.
Assuming June 2025 results are in line with market expectations, this will give an adjusted PBT of £0.8m and an EPS of 0.96p, which will put the Company, we calculate on a prospective P/E of 50x and an EBITDA/EV of 12.5x. The increased investment is being funded from available cash which supports organic ARR growth rates of 18-20% through FY27 and beyond.
Hybridan Comment: The valuation may seem up with events, but the secure business prospects of long term contracts, underpinned by the high gross margin, looks interesting. Directors, including the CEO, bought shares at the end of July.
REACT Group 50.50p £11.94m (REAT.L)
|
Price |
Results |
Top 3 Shareholders |
Value |
|
50-51p |
Year End September |
Octopus Investments Nominees Ltd 19.36% |
Acquisitive & Organic growth |
|
Spread: 1% |
Finals reported 29 January |
Dowgate Wealth 11.95% |
Momentum Building |
|
52 week High/Low: 96.5/48.5p |
Interims to March, reported 27 May |
Harwood Capital LLP 11.0%
|
Strategy on track
|
Source: Alpha Terminal, https://www.reactsc.co.uk/react-group-plc
The delayed contracts from the first half were reported to be coming through on 7th August, as a high volume of small and medium-sized contracts were closed. This will be a relief for shareholders in this acquisitive provider of support services to the Facilities Management (FM) industry. These contracts are evidential of the successful execution of the stated strategy to generate new business, increase the level of contract retention, and promote effective cross-selling of services.
The Interims to March 2025 reported a 12.4% increase in revenue to £21.1m, mainly due to a five-month contribution from the potentially business transforming acquisition of 24hr Aquaflow. The consideration for this commercial drainage and plumbing services business was for up to £7.4m and partly funded by a £1.1m placing at 81p. Payment terms are £4m in cash, with 617,285 shares, and there is a performance criterion for the remainder. The Interim EBITDA to March 2025 increased to £1.43m from £1.28m and the acquisition contributed 58% or £827k.
REACT operates with four divisions: 1) LaddersFree, a commercial window cleaning business which reported securing national retail accounts with well-known brands including The Works, BP Forecourts, and H&M. 2) Fidelis is a contract cleaning and soft facilities maintenance business and reported several new multi-year contracts with industrial and manufacturing clients including Danatrol, Flexi Coventry, and Haldex. 3) REACT Specialist Cleaning business, which primarily provides emergency and specialist cleaning situations, reported new customers including the NHS and construction firms. 4) 24hr Aquaflow performed well with contract wins including a multi-site residential agreement with Smart Managed Solutions and a CCTV inspections agreement with Homes England.
The Interim cash and cash equivalents was £2.8m compared to £1.5m at 30 March 2024, although there is now net debt of £1.9m which includes £3.2m from a new term loan. Repeat or recurring revenue accounts for more than 85% of total revenue. Operating cashflow remains strongly positive, and free cash flow was still being generated at the interims even after exceptional items mainly relating to the acquisition. The September 2025 year-end earnings forecast is for an EBITDA of £2.74m compared to £2.1m in September 2024, and an 18% increase in revenue to £24.5m. PBT is anticipated to be £2m and an EPS of 6.48p is expected, which we calculate would result in a prospective P/E of 7.7x and an EBITDA/EV of 5x.
Hybridan Comment: The business momentum and transformative acquisition should flow to earnings growth justifying a higher rating.
House Report: News from a house stock
TMT Investments $3.14 $98.8m (TMT.L)*
The Interims to June 2025 reported a 3.8% increase in NAV to $6.80 from $6.55 at 31 December 2024 and an Operating gain of $7.89m compared to a $0.19m Operating loss at 30 June 2024. Management has successfully grown the portfolio to a total of approximately 50 maturing tech companies. These companies are in impactful technologies primarily focused on Big Data/Cloud, Ecommerce, Edtech, Mobility, FinTech, and SaaS (software-as-a-service). There are decent positive revaluations on three of its investee companies: Bolt, Scale AI, and Rhino, but these have been counterbalanced by management prudently writing down the value of seven investments. TMT’s largest holding is Bolt, which is on an IPO runway, and at 30 June 2025 was held at a value of $78.1m representing 37.3% of the portfolio. There are no borrowings and a successful track record of 19 full and partial exists made since inception in 2010. The average IRR from inception to 30 June 2025 is 14.3% per annum.
Hybridan Comment: The shares trade at a current 52% discount to NAV, which seems unjustified as the largest investments move nearer to exits and the wider portfolio matures to profitability without TMT being required to make follow-on investments. The share price has improved by 25.6% since our last comment.
Last Comment in Hybridan Monthly May 2025, TMT share price was $2.50
Updates/Events
News is slow through the Summer period, but there are noteworthy updates from these Hybridan Monthly companies.
CAP-XX Limited o.39p £22.6m (CPX.L)
Since 18 July, this developer of high-performance supercapacitors and energy storage solutions, has made two significant announcements. The first is an update regarding the cooperation agreement with SCHURTER AG, the Swiss global technology company, where the project pipeline is approaching $2m of potential revenue. The partnership enables CAP-XX to accelerate its commercial expansion combining its advanced supercapacitor technology with SCHURTER’s market access.
On 5 August, a design win was announced with a leading multinational company validating CAP-XX’s innovation and deepening its penetration into high-growth sectors.
The Finals to June 2025 are due by the end of December and the last funding in November 2024 raised £2.77m at 0.11p.
Hybridan Comment: The growing distribution channels and new products are driving sales growth as the Company moves towards achieving its cashflow break-even target. The shares have improved 92.6% since our last comment.
Last Comment in Hybridan Monthly July 2025, CPX share price was 0.2025p
Krm22 45.5p £16.5m (KRM.L)
The technology and software investment Company’s focus is on risk management in the capital markets, and in August updated on Interim Trading ahead of the likely interim report to 30 June 2025, due in September. The Annual Recurring Revenue (ARR) increased 20% to £7.2m, but as around 50% is in dollars using a constant FX rate, the increase would have been lower at 15%. This growth is driven by cross selling and there is a substantial pipeline of sales opportunities, although its offset by an institutional customer cancelling their $100k subscription to a Market Surveillance application.
KRM’s Global Risk Platform reduces the cost and complexity of risk management by providing applications to help address a firm’s trading and corporate risk challenges so managing its enterprise risk profile. Regulatory pressure is driving firms to refine procedures and technology enables greater accuracy, efficiency, and compliance. The global market for risk management software is worth approximately £6bn per annum.
An unchanged EBITDA of £0.3m is expected this year, but with cash balances increasing to £1.4m from £1.0m at June 2024. The Company expects to operate within its existing cash and debt facilities, and gross margins of 83% give attractive operational leverage to increasing sales.
Hybridan Comment: The share price is up 19.8% since our last comment and there should be sufficient cash runway to close sizeable new orders which leverages the Company’s prospects further.
Last Comment in Hybridan Monthly June 2025, KRM share price was 36.50p
Ondine Biomedical Inc 15p £66.60m (OBI.L)
This life sciences Company has developed light-activated antimicrobial therapies for the prevention and treatment of infection. Last week, it raised £11m to maintain progress. The fund raise at 15p was supported by Directors and existing shareholders at a 9% discount to the mid-market price. Most of the proceeds are to be used to complete the Phase 3 clinical trials, due to complete by Spring 2026, while the cash runway is extended to H1 2026. The completed Phase 3 results for its lead product Steriwave are anticipated to lead to regulatory approval and to world-wide commercial agreements.
Steriwave photodisinfection system, which is set to start a trial in a Mexico Hospital in September, aims to reduce surgical site infections (SSIs) and healthcare-associated infections in orthopaedic and neurosurgery patients. This is a key challenge facing Mexico’s 132m population and with 3,000 private hospitals, there is a high rate of SSIs, which are nearly double those in the U.S. This could be a lucrative market for Ondine. The global market is worth approximately $5.6bn in 2025 and is expected to be $6.7bn in 2030.
Hybridan Comment: The fund raising last week should be sufficient to complete a Phase 3 clinical trial, and the 67% share price rise since our last comment suggests the market is beginning to recognise the value of the photodisinfection system’s commercial licensing opportunities.
Last Comment in Hybridan Monthly May 2025, OBI share price then 9.00p
In the news in September
Nexteq 73.5p £44m (NXQ.L)
Nexteq is a provider of technology solutions to customers in regulated industrial markets, mainly gaming, medical and broadcasting. It will be reporting Interims to 30th June on 10th September. The Group is cashflow positive and the interim net cash is expected to be $28.1m compared t0 $36.9m on 30th June 2024. Nexteq has returned $13.1m to shareholders since H1 2024 through share buy-backs and paying dividends. The strategic focus is the diversification of revenue and targeting new customers for organic growth. The Board, however, is evaluating strategic acquisitions which add leverage, IP to the supply chain and sales capability across complementary high growth niche sectors. The Company announced plans on 2 September to have the authority to buy back up to 10 per cent of its total issued share capital.
After the recent softer demand and customer de-stocking, customer demand across both divisions is starting to improve, although H1 revenues are likely to be 15.5% lower than H1 2024 at $40.7m. Quixant revenues will be approximately 73.5% of total revenue at $26.9m, which is down from $30.9m H124, while Densitron revenues are likely to be approximately 20% lower at $13.8m. For the FY to December 2025, forecast EBITDA is for $6m and we calculate that this would put the Company on an EV/ EBITDA of 5.2x and a P/E of 22x.
Hybridan Comment: Despite recent challenges, Nexteq remains profitable and with 52% of the market capitalisation in cash, it can afford to buy growth.
* A corporate client of Hybridan LLP
** Share prices, market capitalisations, and top 3 Shareholders all reported as at the close on 1 September 2025
By Jon Levinson
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