TIPS

Buy St Helens Capital at 11.75p
Says exclusive small cap specialist website UKMicrocap.com - 08/05/17

The Investment Case:

St Helens started life as a Plus listed broker and corporate adviser to PLUS companies, when we would have struggled to present a case for it no matter how hard we tried. The company recentlly moved its own shares up to AIM and AIM is where its operational future lies. A team from Daniel Stewart joined St Helens in 2007 and it has already made a terrific impact winning brokerships from and raising money for AIM listed companies. Though the ex-Daniel Stewart chaps may appear rather like Lord Snooty there is no doubt that they can riase money for small and mid sized AIM stocks and the fees the company can and is earning from that sort of work dwarfs what St Helen's used to earn as a PLUS adviser.

A typical PLUS company pays £10-20,000 as a retainer to its adviser. An AIM brokership should be worth £30,000 per annum. Acting as an adviser to a PLUS float might earn you £25,000-£35,000. A broker on an AIM float can pick up £100,000. Typically PLUS companies raise £100,000-£1 million in fund raisings for which the adviser may earn a 5% fee. AIM fund raisings earn the same commission but are much larger. One issue St Helens was involved in a few months ago was £115 million. St Helen's staff costs have risen with the new hires but its profits should rise by far more. That is not discounted in the share price.

Financials and Current Trading:

Interim results for the period to 30th September 2007 showed pre-tax profit of £0.99 million against a corresponding 2006 loss of £0.09 million. Earnings per share were 2.47p, up from a loss of 0.46p a year prior. Turnover grew 350% to £2.32 million and net assets equated to £3.2 million, up from £0.5 million. Net cash was £2 million. It is believed that around £1 million on that turnover came from one transaction (the Tanfield fund raising) and one suspects that St Helen's will do well to match the first half in the second half.

Since these results, the company reported that notwithstanding the current unsettled nature of the market, it has maintained the inflow of new transactions and business opportunities, which have allowed the directors to focus the efforts of the company on selected transactions, which they believe will further enhance the company’s credentials and public profile.

It is clear that the focus is on AIM. At some stage the venerable Barry Hocken who handles the PLUS side of this business must retire. And we would expect the number of (relatively lower margin) retained PLUS clients start to slip. However, correspondingly, we would expect to see St Helens increase dramatically the higher margin AIM side of the business.

*The value of investments can go down as well as up. Past performance is no guarantee of future success. Investing in equities can lose you part or all of your capital. The tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the recommendations contained here should seek independent advice. Investments in smaller company shares, by their nature, can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares.

Management:

Mark Warde-Norbury – Executive Chairman: Spent 14 years with investment bank, Robert Fleming & Co. and its subsidiary, Save & Prosper before establishing Capital Strategy in 1998.

Ruari McGirr – Chief Executive Officer – Over 13 years experience of providing corporate finance advice and corporate broking services to small cap companies. He has advised on all aspects of public company business with leading City firms.

Sebastian Wykeham – Executive Director: Started his City career in 1996 with Singer & Friedlander as a fund manager in their UK small cap team. In 2003, he joined Daniel Stewart’s small cap broking team, where he was instrumental in developing important institutional contracts and in raising funds for corporate clients.

Barry Hocken – Executive Director: Over 47 years experience in the City and one of the founders of OFEX.

There are two non-executive directors of the company: Howard Flight, who has 35 years of experience in the financial services industry, and Jonathan Pither, who brings considerable experience of public and private companies. The Lord Snooty's/ top flight people from Daniel Stewart are Ruari and Sebastian.

Bull Points:

- Credible broker now with enhanced market profile following move to AIM.

- Experienced management team and specialist workforce - senior managers heavily incentivised

- Developing client base in terms of numbers, size and quality.

- Potential for substantial increase in income from role as broker to AIM-listed companies.

- Net cash of £2 million and portfolio of legacy assets worth (in our view on a firesale basis, at least £500,000)

Bear Points:

- Challenging market conditions.- Heavy reliance on senior management.

Valuation and Price Target:

We expect pre-tax profit for the year ended March 2008 to be heavily weighted towards the first half of the year, as a result of income from an assignment related to Tanfield, which accounted for a sizable proportion of revenue. We expect profit for the full year to be around £1.5 million, but even if the company only breaks even in the second half, it will be a solid platform upon which to build. The company has cash reserves of approximately £2 million following an institutional placing in April 2007 of £1.5 million and assets which could probably be turned quickly into cash of at least £0.5 million.Stripping out the cash and near cash of (say) 6p per share leaves us with a business valued at £2.88 million or 6.625p. This is a business which should generate £1.5 million pre-tax in the year to March 31st 2008 which - on a zero tax charge - is 3.5p of earnings. Even on a normal tax charge it is 2.45p.In the current year we'd hope (despite the tough market) for something similar as St Helens wins more lucrative AIM brokerships and jettisons a few very low return PLUS advisorships.But even if St Helens makes much less who really cares what bottom of the cycle earnings are. In a "normal" year this company should achieve earnings of 4p or more. Value St Helens on 5 times normal year earnings plus net cash/near cash and we arrive at a 26p price target.

Assessment:

St Helens is in the process of transforming itself into a high income generating AIM-adviser and its new direction has seen the company return to profitability. We expect the company to continue this growth story. The senior managers are heavily incentivised to deliver. At some stage the stockmarket will pick up and this stock will race ahead. We cannot give a view on market timing but we do not expect the bad times to last more than a year at most. On that basis within two years St Helens should be at 26p or more. At 11.75p BUY.

Key Data

EPIC: SHCP
Market: AIM
Spread: 11.25p – 12p (6.25%)

The value of investments can go down as well as up. Past performance is no guarantee of future success. Investing in equities can lose you part or all of your capital although the potential returns are theoretically unlimited. The tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the recommendations contained here should seek independent advice. So, while we would not wish to reduce our liability under the FSA regulatory regime, we cannot otherwise be held liable if individuals suffer losses through following tips contained on this site. UKMicrocap.com is owned by t1ps.com Ltd which is regulated by the Financial Services Authority and can be contacted at 2/3 Floor, Henry Thomas House, 5 – 11 Worship Street, EC2A 3BH

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