Small Cap Weekly

Akers of opportunity 

New Jersey-based Akers Biosciences (ABI) has shrugged off a reputation as an R&D business short on commercial savvy to reveal itself as an up-and-coming diagnostic testing player. Having paid off all long-term debt, signed key deals and sharpened its focus on the commercialisation of its portfolio, the company is now on course to deliver first-ever annual profits and its bombed-out shares have potential to be marked up regardless of economic conditions.

Most of ABI’s rejuvenation is down to Thomas Nicolette, who was installed as chief executive last April. A straight-talking Yank, Nicolette was first involved with ABI as a consultant in 2005, helping conduct a ‘kitchen sink job’ on the company that left only its six proprietary technology platforms remaining. All granted regulatory approval, the platforms have so far spawned 32 different products in various stages of development, all patented or pending. The common themes of these technologies are their speed and ease of use, as well as a flexibility that makes them applicable to numerous markets.

To date, ABI’s most lucrative platform has been its MicroParticle Catalyzed biosensor technology – which detects particles in the subject’s breath. The majority of revenues last year came from a disposable breathalyser test based on this platform, BreathScan, which has been sold mainly to the US military. Other products have been licensed out to partners for cash and yet more are in development.

ABI’s other main product on the market is PIFA, a low-cost test for allergy to the anticoagulant heparin, which is used to ensure free-flowing blood in many operations. Around four million tests are conducted a year and the incumbent test on the market costs hospitals around $170 each. The market is large and, priced at just $60, PIFA has already proved popular and could become ‘the gold standard’ – though it’s a long road to that end. Last year, PIFA was estimated to have generated around $1.3 million (£720,000) of sales, which should increase considerably in 2009, with additional distributors now signed up.

Last year’s major financial coup, comprising the largest portion of revenues, was the $3 million cash paid by fellow US native Pulse Health to buy ABI’s half of a joint venture called FRED (Free Radical Enzyme Device). On top of the lump sum, ABI will supply parts for three years at a fixed ‘high-margin’ price and Pulse has agreed to fund any future R&D projects that ABI undertakes on its behalf, with Nicolette adding that Pulse is pondering ‘other agreements like this’.

As for the company’s long-term future, Nicolette, who is paid almost entirely in shares, has previously mooted selling the company, but would only do so at a premium price that reflected its newly enhanced profitability and prospects. Whether he does or not, Akers’ 13.75p shares, down from 45p in the last two years, have the potential to regain previous heights.

Redhall still a winner

Backed here last June at 291p, engineering support services star Redhall is going from strength to strength in spite of a recent blip.

In a positive AGM update, the group boasted of a strong first quarter of the current year to September, with pre-tax profits coming in ahead of expectations. Management maintains that the second half will be affected by the unforeseen loss of a drilling rig contract that recently inspired some analysts to trim their forecast numbers.

In our view, fast-growing Redhall remains a long-term winner, being a leader in defensive, regulated markets ranging from nuclear to oil and gas, petrochemicals, defence and food. Compensation for the lost work is likely to come from last year’s compelling acquisition of AIM-listed Chieftain and management claims that there are ‘several’ opportunities in the pipeline for replacement work and that annual trading should meet revised expectations.

The forward order book now stands at £110 million and – after annual profits almost doubled and the dividend was lifted three-quarters to 4p – the balance sheet remains robust, with net cash of £5.6 million at the end of December.

Moreover, even the downgraded pre-tax profit forecasts show that around 50 per cent growth is expected to £6.8 million this year and significantly improved earnings of 16.5p. Still trading at an undemanding multiple, the shares, down from over 300p to 160p since last summer, should not be sold.

YouGov’s warning

Online polling pioneer YouGov put out a trading statement yesterday, containing the close proximity of words shareholders fear so much: ‘trading conditions’ and ‘more challenging’. These were followed closely by the news that, despite 20 per cent revenue growth in real terms, constant currency rates would mean actual growth was only four per cent – much less than most followers had been expecting. This means that ‘profitability for the full year will be significantly below market expectations’ and the announcement saw the shares cut in half from 70p to 35p. 

Chief executive Nadhim Zahawi made pains to explain that the group remains ‘in a strong financial position, profitable, debt free and cash generative’ and pointed out that growth remained strong in the newer markets of Germany and the US, with the UK being the cause of the problem.

House broker Numis has slashed its 2009 profit forecast from £9 million to £3.7 million – though reminding investors that £14 million of net cash equates to 14p a share and ‘provides a solid base for long-term investment’.

Tipped here in December 2007 at 142.5p, the shares have not been the best performers for us. If you’ve not escaped the loss to the current level, we think the price has dropped too low for a cash-generative company that is still growing. Hold and hope.