This is only intended to be a information thread on the possible fundamentals of Dowgate Capital. I have gone through the website library of Dowgate mandates this year and was pleasantly surprised to learn that the majority of their fees are reported. Unlike most small cap stocks, it is easier to calculate a possible future valuation.

Please feel free to press me on any errors or if you think I have being over zealous with my figures. There is the potential of seeing some significant short term gains with possibly fantastic longer term returns especially if Dowgate continue to gain enough clients to pay for their fixed overheads in a thriving sector.

Please post discussions pertaininig to this thread on the following link which will have more information on DGT and their clients.

Main Dowgate Thread

Introduction to sector and Revenue Streams

Dowgate are a stockbroker and corporate financier. With a surge of new floatations in the last year on AIM, which looks set to continue this year, Dowgate are in the right sector at the right time. As well as in the U.K., foreign companies are attracted to AIM for reasons of less regulation, cheaper and easier access to raise funds.

There are 5 ways Dowgate earn fees.

1) Nominated Adviser - Annual recurring revenue fees of 15,000

2) Brokerage Fees - Annual recurring revenue fees of 5,000

3) Placing Fees for new admission - Range from 30,000 to 50,000 plus a warrant .. for a Cash Shell or 75,000 to 100,000 for a straightforward IPO.

4) Fund Raisings - 3% to 4% commission.

5) Disposals - Usually agreed at a fixed rate.

Fees Earned 2005

Dowgate have certainly been earning more then their fair share of new Broker and Nomad client wins this year. Their company website has all the prospectus listings which highlight fees earned under material contacts. So it is easy to formulate the earnings for this year as follows:

2005 H1 Fees Client MonthRetainer Fees Placing FeesFunds Raised /DisposalsComments Dinkie Heel January 22,500?Placing & Acquisition 750,000 funds raised (See Note 1)Interbulk February 45,500?Acquisition 1,500,000 funds raised (See Note 1) MediaZest February22,500 75,000NanoTech Energy March25,000 30,00024,000ArchMedia March20,000 30,000Poland Investment Fund March15,000 30,000Process Handling March15,000 30,000Red Leopard March15,000 50,000Alba Mineral Resources April21,500 50,000Intandem Films April25,000 70,000Motive Television May15,000 60,000Inca Gold May18,000 85,000SportsWinBet June22,550? 70,000?(See Note 2)InfoScreen June20,000 30,000?(See Note 2)Tellings Golden Miller June 100,000?20.4 million Disposal (See Note 3)TOTAL FEES 234,550 610,000192,000

NOTE 1

Commission for fund raisings is normally 4% - 5%. To be prudent I have used 3% as an earning fee except for Nanotech, where fees are available in the prospectus. Disposals are arranged at a fixed fee.

NOTE 2

Although we know for certain placing fees so far for H1 are 510,000 with more to follow, I spoke to Tony Rawlinson and asked him if he could tell me the fees for SportsWinBet and InfoScreen as they are not available on the prospectus. He advised me that for a large IPO such as SportsWinBet, their fees are between 50,000 - 75,000 but as InfoScreen are a Shell, fees would go down to 30,000 to 35,000. As SportWinBet is one of the biggest placings of new shares they have issued this year, I have estimated the placing fees to be worth 70,000 and the Broker/ Nomad fees to be worth 22,500. As InfoScreen is a cash shell I have estimated the placing fee to be worth 30,000.

NOTE 3

In the 2004 published results in April 2005 the outlook report stated: Based on our current prospective deal list, my current view is that sufficient transactions are likely to be completed out of our work in progress pool to achieve our fee targets over the next few months. On 7th June I contacted Tony Rawlinson and asked him if they have achieved any of the sufficient transactions that he stated in the outlook report to which he replied, Had I seen the deal for Tellings Golden Miller? This is a sizeable deal where DGT have worked two months on this disposal worth 20,400,000. I have estimated this deal to be worth 100,000, which is probably too low a fee. With Mr Rawlinson's recent share purchase, this is a shrewd move as this could be a significant deal for Dowgate.

Calculation for H1 Revenue

We already know for certain recurring retainer fees for this years mandates total 212,000. Dowgate now have a total of 31 clients and with the 12 new clients gained this year this leaves a further 19 clients where retainer fees for last year were reported as 315,000 (21 clients, but 2 were lost this year) at an average of 15,000 per client. The 11 clients we are aware of for nomad and broker annual fees of 212,000 this year means the average recurring revenue for each client has improved to 19,272.

Total recurring retainer revenue for H1 = 212,000

plus InfoScreen estimate of 22,500 (as both Nomad & Client.)

Plus last years 19 client retainers X 15,000 divided by Six months = 142,500.

So H1 retainer fees could be worth 212,000 + 22,500 + 142,500 = 377,000

Placing fees so far this year = 610,000.

Other fees on funds raised or disposed could be worth at least a further 192,000

So Im going for H1 turnover of 377,000 + 610,000 + 192,000 = 1,179,000

Costs

Since the resignation of John Shaw and Steven Barclay last year staff wages, bonus etc were 961,000. Out of that figure Former Directors were paid 579,430 during 2004 (that's 60% of the wage bill) and were paid 314,976 during 2003. Already, there is a clear indication there will be substantial salary savings during 2005 as all outstanding fees have been paid to former directors. They are only left with Warrants exercisable after a price of 1.25p so we are still left with plenty of mileage before the risk of dilution.

If you refer to Six months ended 30th June 2004 historical costs were 609,000. The six months after this period were far higher due to the pay off for Ex Directors. Tony Rawlinson reiterated to me that they have looked to save on costs across the board and there should be significant cost savings this year. Last full years report stated: In the current year, following a detailed review, overhead costs have been considerably reduced whilst maintaining and streamlining the operational capability of the business.

With only six staff I think its a reasonable assumption to make that at least 300,000 will be saved in salary costs alone during 2005. H1 interims for 2004 (609,000) less six months savings of 150,000 bring H1 2005 costs down to 459,000 plus say 10% annual increase in fixed costs to give total interim costs of around 504,900 for H1 2005.

H1 Forecast For 2005
	000
Turnover	1,179
Operating Costs	(505)
Operating Profit	674

Current Fair Valuation

The best way to illustrate a valuation guide is to produce a table with variations of earnings and P/E ratio's. It is highly likely that Dowgate have already achieved an H1 profit of over 500,000 and with a conservative PE ratio of 12, the share price should head quickly to 1p. If you don't know much about PE ratios, P/E is short for the ratio of a company's share price to its per-share earnings. As the name implies, to calculate the P/E you simply take the current stock price of a company and divide by its earnings per share (EPS). Historically, the average P/E ratio in the market has been around 15-25. This fluctuates significantly depending on economic conditions at the time. The P/E can also vary widely between different companies and industries. With projected earnings, the P/E ratio could be over 40 especially with a small AIM capital company where growth prospects are quicker and greater say over a FTSE Company.

A better interpretation of the P/E ratio is to see it as a reflection of the market's optimism concerning a firm's growth prospects and is a much better indicator of a stock's value than the market price alone.

Click on the following link to learn more about the P/E Ratio

Understanding P/E Ratio

Future Earnings Guide

Shares in Issue	619,000,000
Current Share Price	0.58p
Market Capital	3,590,200
Investment	100
Projected Profit (000)		500	750	1,000	1,250	1,500	1,750
PE Ratio		7.18	4.79	3.59	2.87	2.39	2.05
Target Price (PE Ratio of 12)Return on Investment		0.97p168	1.45p252	1.94p335	2.42p419	2.91p503	3.39p587
Target Price (PE Ratio of 20)Return on Investment		1.62p279	2.42p419	3.23p559	4.04p699	4.85p838	5.65p978
Target Price (PE Ratio of 30)Return on Investment		2.42p419	3.63p629	4.85p838	6.06p1,048	7.27p1,258	8.48p1,467

Conclusion

Having spoken to Tony Rawlinson, he reports that Dowgate are still extremely busy but will be keeping the same level of staff for the time being. Although there is an indication that the number of new listings may slow down, he hopes to concentrate on future fund raising for their clients and to continue to build up the retainer value this year. They have already increased the number of clients this year to over 50% with 33 clients. At an average recurring revenue per client of say 16,000 there should be at least 528,000 coming through the doors of Dowgate which is getting closer to paying off their fixed costs.

Any additional work this year for fund raisings or disposals should go straight down to the bottom line. He also expresses that the sector is ripe for consolidation and there is a good chance of future acquisitions being made. He also made an interesting point that due to the new rule changes of Shell companies on AIM, they would expect to be involved with a number of fund raisings especially with the fact that they currently have six Cash Shells as clients.

I am extremely confident that the share price will rise substantially this year. The proof is in the pudding where most of the fees generated are available in the public domain. To put things into perspective, it is interesting to look at a similar firm such as Daniel Stewart with a market capital of nearly 21 million but with only a few more clients (34) then Dowgate, with pre tax profit of 2 million. Even more interesting was at one point, Daniel Stewart results for the year ended March 2004 showed a profit of 5000 yet the current market cap at that time was valued at a staggering 15,751,392. In comparison Dowgate are on a tiny market capital of 3.5 million with 31 clients where it is likely they have already achieved over 600k pre tax profit for the current year. If Dowgate continue to be as busy in the 2nd half of the year then it wont be long before a similar level of profit compared to Daniel Stewart may be on the cards.

Based on current fundamentals, I am looking for a short-term share price target of 1.5p and 2p before the end of the year for a possible 300% - 400% gain.

Please bear in mind I have been cautious with a lower earning fee for the disposal of Tellings Golden Miller and have used only 3% commission against funds raised. The average P/E ratio for the sector is 22 although I have used a ratio of 12 for my target price.

Options

TR (29.7m at 0285p and 0.74p)SB + JS (17.7m at 1.25p)IC Buckley (1.5m at 1.25p)Staff (24m at ?)

Warrants

Exercisable over 15% of the issued capital from time to time at 1p any time up to 12th June 2006.SB 61%JS 30.5%ICB 6.0%TR 2.5%

SBL thanks for your very informative analysis. I am sure that you are correct and I look forward to the massive growth. Today is however, not a day to be happy with anything. I am so sad by the events in London and my heart goest to those affected and I pray for them. Cheers
Keeplosingwoman