As you’d expect from the name, “microcaps” are even smaller than the small cap companies that we normally write about here in Penny Sleuth. We’re talking about listed companies with market valuations of as little as hundreds of thousands of pounds.
Another success for “cash is king” investors
Last month I drew to your attention two intriguing companies that have their shares traded on the PLUS markets exchange – home to many exciting microcaps. These were the Irish miner Belmore Resources (ticker: BEL), and Hyper Entertainments (ticker: HYE), a developer of projects for the leisure industry. - Apparently, knowing your customer is big business.
- Cash rich GB Group (ticker: GBG) announces a 29% profit increase and 15% dividend hike. Pre-tax profits leapt to £1.4m from a £438,000 loss the year before. Its subsidiary that verifies personal data grew revenues by 56%.
- The company enables its users to learn more about who their customers are and how they behave as consumers.
Since I wrote about these companies, the share price of each has shot up. Belmore went from 5.5p to 9.25p. Meanwhile, Hyper has leapt from 0.85p to 3p – a gain of 252% in three weeks. Both have recently announced some significant news. So today I want to bring you right up to date, starting with Belmore.
Belmore is a mining exploration company with license acreage in County Clare and Donegal. You may remember that last year Belmore’s drill encountered a ten metre band of rock that consisted of 13.84% zinc, 5.52% lead and 62.84 grammes per tonne of silver.
Now in the mining industry figures like this are thrown around with abandon and, unless you are a real mining expert they can be very hard to interpret. But confirmation that Belmore may have struck something significant came in February. That was when Toronto-based Lundin Mining Exploration acquired a 70% stake in the County Clare licenses in return for spending £13m on a drilling and exploration program.
Excitement over Belmore’s mineral discoveries
Now we have the first results of Lundin’s efforts. It has drilled two fresh holes, the first fifty metres south of the original discovery and the second fifty metres to the west. The former intercepted only ‘minor sulphide mineralisation’ with the best grades, over a three metre band, including 1.6% zinc, 3.8% lead and 58.7 grams per tonne of silver. However, the latter was a different story. This found metal grades that were even better than the original discovery, with one four metre band containing 12.4% Zinc, 6.2% Lead, and 116.7 grams/ per tonne of silver.
This was highly encouraging and the pace of exploration is now being accelerated. An extra rig has been brought to the area and, as Lundin tries to establish the extent of this resource, it is now drilling at three additional sites to the east and the north. We should get results within a few weeks and I will keep you posted.
Now let us turn to Hyper Entertainments Inc. This is a rather more complicated story. Hyper, you may recall, was once a wholly owned subsidiary of Sony Corporation of America. It had a brief to create leisure and retail facilities that showcased Sony’s motion pictures, music, and consumer electronics. Sony still has a 20% stake but Hyper has since left the apron strings of its parent and tackled a number of high profile projects all around the world, including the redevelopment of Shakespeare’s Globe Theatre and The Deep, an advanced diving centre in California.
Visitors to these attractions have a rewarding experience but the same cannot be said for Hyper’s shareholders, who have seen their investment lose 90% of its value since flotation in December 2005. There may be more to this than meets the eye, but the main issue for Hyper seems to be the lumpy nature of its workload. It is not alone in this, of course. All sorts of people from actors to property developers have periods of feast and famine but even so Hyper is addressing a particularly narrow field and the winning of new contracts is all important.
There could be more success for this true “microcap”
Last Friday, Hyper announced its results for 2008, and the headline numbers were a 108% increase in turnover to £545,000 and a profit before tax of £20,000, to give earnings per share of 0.3p. As I pointed out in my previous article Hyper is, even by the standards of the small company market, a genuine microcap, with a market value even after the threefold rise of the share price of just £200,000. With an even smaller free float, such limited liquidity is bound to deter most investors.
But still the valuation of the shares seems fair enough for now and the annual report, if lacking in detail, is reasonably encouraging. Today Hyper’s principal project is the Ferrari World Abu Dhabi Theme Park. But, thanks to a focus on parts of the world that have side-stepped the recession, Hyper says that in 2008, it ‘secured its largest number of contracts in any one year period’ and is ‘participating in several tenders for potential clients in the United Kingdom, the Middle East and Europe’.
In short there still seems to be enough work out there and if Hyper can attract sufficient attention, its share price, like that of Belmore, could continue to move in the right direction.
Good investing,
Tom Bulford
For The Penny Sleuth
P.S. I’m not recommending investments in Belmore and Hyper right now. They’ve had a great run and I think there are more exciting opportunities for small cap investors to consider. If you’re receiving my Red Hot Penny Shares newsletter, you’re in for a treat this Saturday when my latest issue is delivered: three hot opportunities in three hot sectors, each offering potential gains of between 50% and 200%. To add your name and receive this issue, click here.
Forecasts are not a reliable indicator of future results.
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