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Dowgate Capital - Capitalising on the booming AIM market (DGT)     

overgrowth - 09 Feb 2005 20:52

Dowgate Capital (DGT) are sitting in the middle of a goldmine!

This company through their sole trading arm City Financial Associates are looking to take full advantage of the "booming" AIM market this year. Dowgate provide NOMAD (NOMinated ADvisor) services to AIM companies and also have full Corporate Broker status which means that they can fund placements on behalf of the companies they represent.

On first sight, the fact that Dowgate exist in the often veiled financial services sector makes you think twice about investing in company such as this because it would be impossible to understand what they were doing - however, think again!

DGT bring new companies to the AIM (Alternative Investment Market). For each new company "floated" on AIM, they take arrangement fees when acting as NOMAD. After the company is launched then for a nice steady earner DGT get another healthy chunk of cash every year for looking after them (note that all AIM companies must have a nominated adviser - thereby securing a ready source of recurring income).

Because DGT also act as a Corporate broker they can get a very healthy percentage for arranging placement of shares with insititutions before a new company floats. In addition, because placements come outside the sphere of yearly NOMAD work, they can also gain healthy percentages of placements which companies may need to make throughout the year when they need a quick injection of cash to speed growth.

Current NOMADships: 28 companies represented (gives recurring income of approx 480,000 per year)

Current on-going Brokerage agreements: 19 companies (income depends on placements)

For flotations, depending on the size of a company, fees charged will be anything from 50,000 to 100,000+ For placements (the real earner), DGT get anything from 3% to around 12% of the TOTAL AMOUNT RAISED - For example a new company raising 3M though a placement will earn DGT anything from 90,000 to 360,000 ! These figures are indicative as actual deals all differ due to circumstances and DGT sometimes take payment in shares - they still have a tasty chunk of Setstone shares and when this Russian exploration company comes back to AIM, predictions are that the share price will rocket. Note that the amount that this little company can earn in fees is huge and every new deal that comes through we know will contribute another healthy chunk into the bottom line. The good news with every new floatation means that it's another chunk of recurring revenue which could go on for years, with DGT having to do very little. New clients gained in 2005 are:

Mediazest (NOMAD & broker) Elite Strategies (NOMAD) Process Handling (NOMAD) Poland Investment Fund (NOMAD) Nanotech Energy (NOMAD & broker) Archimedia Ventures (NOMAD & broker) Red Leopard Holdings (NOMAD) Alba Mineral Resources (NOMAD & broker) Intandem Films (NOMAD & broker) Motive Television (NOMAD) IncaGold (NOMAD) Sportswinbet (NOMAD & Broker) Infoscreen Networks (NOMAD & Broker) Mark Kingsley (NOMAD & Broker) Croatia Ventures (NOMAD & Broker) Pantheon Leisure (NOMAD) Firenze Ventures (Ofex Advisor) FlightStore Group (NOMAD & Broker) Euro Capital Projects (NOMAD) Pearl Street Holdings (NOMAD) Worldwide Natural Resources (Ofex Advisor) Dovedale Ventures (Ofex Advisor) Other 2005 work completed:Neptune-Calculus VCT offer for subs of up to 12 million Advisory work for TGM on London Bus disposal for 20.4M Advisory work for Creightons on property disposal Advisory work for Hampton Trust on company restructuring Advisory work for Interbulk Investments on acquisition of Inbulk Advisory work for Fundamental-e Investments on two disposals Advisory work for Designer Vision re: Design Rights against Centurion Electronics

Click Here for fundamentals and profit projections.
Chart.aspx?Provider=Intra&Code=DGT&Size=Chart.aspx?Provider=EODIntra&Code=DGT&Si

ptholden - 21 Jul 2006 12:56 - 2458 of 2787

Driver

Can't say I'm at all surprised that we have seen more sells than buys today. DGT tends to attract those hoping to make a fast buck prior to Results. Unfortunately this leads to a very choppy SP performance which is not reflected by the performance of the company. I guess it is always possible to make a profit from Results announcements, but over the last two years DGT has transformed itself from a company on the brink of disaster to a sucessful business. That success is clearly reflected in the last three sets of Results, spanning 18 months. Its micro cap statuus also means that it is a company not covered by the wider press and therefore sits under most radars. However, I would not be surprised to see a follow up article in 'The Business' fairly soon, afterall the journalist who wrote the article had clearly done his research and will no doubt want to congratulate himself publicly. Hopefully, this in turn will lead to gretaer coverage. The company is now trading on a ridiculously low PE (in the region of 6) and will I am sure, be eventually noticed. There are not many AIM companies of this size generating similar profits, nor sitting on a cash pile of 1.6M (and increasing).

pth

Global Nomad - 21 Jul 2006 13:48 - 2459 of 2787

at the moment ( and over the last 18months as pth says) there is no sight of bad news and very little likely hood of bad news or shocks. Of course bad things/shocks happen but the probalities here are very small.

what feeling does anyone have that they may wish to consolidate the shares to get on a wider radar - would converting this to circa 9p (or 90p for that matter) have made any difference to the response today? and does the company as opposed to investors have any real/pressing reason to worry about the sp anyway given the performance of the company is transparent in the results.

continuing to hold and wait to (perhaps) sell half some time in the future.......

GN

ptholden - 21 Jul 2006 16:50 - 2460 of 2787

GN

Not sure I can really ask answer your question. Personally, I tend not to be in favour of consolidation for micro-caps, I always seem to suffer as a consequence! Although it would appear to make sense in this particular instance.

My summary of today's activity FWIW is that we have seen some short term holders bail out, along with no doubt some longer term holders who are growing impatient. It is also possible and likely that new investors have been attracted on the continuing good news released by the company. Unfortunately DGT is not a 'sexy' stock and does not capture the imagination in the same way as natural resources for instance. However, patience is key here and if they continue to perform the SP will eventually reflect that success.

pth

arawli - 21 Jul 2006 20:17 - 2461 of 2787

Website updated with Process Handling plc acquisition of Clyde Materials Handling Limited, change of name to Clyde Process Solutions plc and placing

we got

120k fee of which 30k can be capitilised at CFA request
30k initial admision fee
15k p/a NOMAD Fee


Nice start to the second half of the year

All the best

Andy

driver - 21 Jul 2006 22:06 - 2462 of 2787

ptholden
Cheers for your reply-interesting read continue to watch.

EWRobson - 21 Jul 2006 22:29 - 2463 of 2787

Results up to expectations. Against a cap. around 5.2m, there is cash of 1.7m leaving 3.5m or nearly 0.6p per share with profit per share of 0.064p. The cap. is derisory with such strong cash flow and profits growth. Market is in a very defensive state so it is not that surprising that there has not been a strong reaction to results. It may very well be the case that it will need investment advisor support to move to a more appropriate level. I am comforted by fact that they are sticking to the job in hand rather than spending time on new initiatives and/or acquisitions.

Eric

Paulo2 - 22 Jul 2006 09:38 - 2464 of 2787

Don't speak too soon, EW! The general consensus over in the other place is that an acquisition may not be too far off.

stockdog - 22 Jul 2006 17:57 - 2465 of 2787

I've had a quick look to see how the results compare to my projections, as a measure of how much I can rely on the model I've got.

Turnover - allowing say 125k (2005 FY 210k) rechargeable costs included in turnover, DGT did about 150k better than the actual transactions I managed to track and estimate fees for - the right side of close enough limits.

Overheads - estimating 10% increase in non-salary overheads and a new salary for half a year, DGT spent about 55k less than I estimated - again the error in the right direction.

Bonuses - these work out at 56% of trading profits (before sale of assets, interest and tax) against 62% for FY 2005. An improvement. Given that TW takes the lion's share of bonuses and the new staff member might be on a much lowlier one, this %age reduction makes sense.

Trading Profit - Prior to sale of assets, interest and tax, and after bonuses was 433k against my estimate of 312.

Net profit before tax - 485k v. my guess of 334k.

Net profit after tax - 395k v. my guess of 334k - close enough in terms of valuing the company on EPS and PE etc to have some use.

NB all the above figures can be reallocated internally to arrive at the same net position. The accounts, albeit only interims, are less than transparent on rechargeable costs and bonuses in particular, let alone on how a tax charge arises with such large losses still carried forward. Also, no analysis at all between retainer fees and transaction fees as in former reports.

Do not understand how clients have grown form 41 to 43. I make it 41 + 15 new - 3 lost = 53; perhaps a misprint?? It's important for my model to get this right, since retainer fees are paramount to the underlying business and transaction fees I estimate as a function of total retained clients.

So, in summary, great result again thank you Tony, but a little skimpy on informing your shareholders about the internal workings of the business.

My predictions for FY, extrapolated from last year and H1 2006:-
Turnover (incl. rechargeable costs) 3,795k
Salaries + Overheads + Rechargeables 1,610k
Bonuses 1,176k
Gains on sale of assets 26k
Interest earned 60k
Tax 200k
Net Profit after tax 895k v. 587k for 2005, a 52% increase
EPS (diluted) 0.1237p
PE 6.79 (enterprise PE, excluding cash on the BS est. at year end of 2,396k, 4.11)
PEG 0.13

Still dirt cheap compared to the rate of growth promised.

TR's final paragraph, "As mentioned above the pipeline of new business remains strong. Our strength lies in the fact that our team is highly skilled and experienced, our charges are competitive and we are diligent and supportive in our approach. We look forward to the challenges of the second half." was generally positive, although tinged with caution in the use of the word "challenges". My interpretation is that there is plenty of work in preparation, but the state of the market may dictate that not all of these actually come to market or otherwise complete their transactions - so wasted opportunity costs and lower turnover than my extrapolation above suggests. Still, even with no growth in net profits over H1 in H2, we're still looking at a PE of 7.7 and a PEG of 0.22, so there is scope for a quieter H2 without undermining fundamental value.

I am intrigued as to what plans TR has for his cash pile - not that I set much store by the ravings of the other site mentioned above. But the lack of dividend starts to suggest he may have other plans for it.

The only other question remains, with so much of the stock tightly held, how to create full value for the SP.

WDIK
DYOR

sd

nevgroom - 23 Jul 2006 09:45 - 2466 of 2787

sd - I have 43 clients as follows:

Alba Mineral Resources - NOMAD & Corporate Broker
Archimedia Ventures -(susp) NOMAD & Corporate Broker
Atelis PLC - NOMAD
Avid Holdings PLC - NOMAD
CEPS - NOMAD & Corporate broker
The Clarkson Hill Group plc - NOMAD & Corporate Broker
Constellation Corporation - NOMAD & Corporate Broker
Contemporary Enterprises plc - NOMAD & Corporate Broker
Corsie Group PLC - NOMAD
Creightons - NOMAD
Dovedale Ventures - OFEX Corporate Advisor
Enterprise North - NOMAD & Corporate Broker
Fairplace Consulting NOMAD
Firenze Ventures - OFEX Corporate Advisor
FlightStore Group - NOMAD & Corporate Broker
Fundamental-e Investments - NOMAD & Corporate Broker
Hill Station - NOMAD & Corporate Broker
IAF Group - NOMAD
Infoscreen Networks - NOMAD & Corporate Broker
Intandem Films - NOMAD & Corporate Broker
Interactive Digital soln's - NOMAD & Corporate Broker
Interbulk Investments - NOMAD
Lakas Investments PLC OFEX Corporate Advisor
Legendary Investments PLC - NOMAD & Corporate Broker
London Town - Corporate Broker
Mediazest - NOMAD & Corporate Broker
Mobestar Holdings - NOMAD
Motive Television - NOMAD
Oak Holdings - NOMAD
One Charter PLC - NOMAD
Pactolus Hungarian Property - NOMAD
Pantheon Leisure NOMAD
Parallel Media Group - NOMAD & Corporate Broker
Pearl Street Holdings - NOMAD
Process Handling PLC - NOMAD
Quintessentially English -(susp) NOMAD & Corporate Broker
Southern Bear plc - NOMAD & Corporate Broker
Sportswinbet - NOMAD & Corporate Broker
Strontium - NOMAD & Corporate Broker
Tellings Golden Miller - NOMAD & Corporate Broker
Venue Solutions - NOMAD
Whitestar - NOMAD
Worldwide Natural Resources OFEX Corporate Advisor

nevgroom - 23 Jul 2006 09:49 - 2467 of 2787

I think there was an allusion in the results as to what will happen with the cash - He mentioned moving into stockbroking - Nocapability at present, would take too long to establish oneself so I think acquisition is a probability - Cash + shares being most likely - Watch this space over the next few weeks.

The other thing of note was his mention of "interesting UK and overseas flotations in prospect"

stockdog - 23 Jul 2006 20:00 - 2468 of 2787

nevgroom

I also have the following which you do not list:-
Mosaique
Beaufort International Group
Ashdene Group
Documedia Solutions
Smallbone
Poland Investment Fund
Red Leopard Holdings
Incagold
Mark Kingsley
Croatia Ventures
Ashford International
Euro Investment Fund

I admit a couple may have jumped ship or otherwise disappeared, but I still have most of these as active clients.

On the other hand, I have not counted Oak Holdings, which you have, since it has been in liquidation since 13/06/05.

I also do not understand (or believe) that we started the year with 41 clients, lost 3 (Dunn Line, Elite and Ragusa) and only gained 5 new ones.

Tell me where I am going wrong.

sd

ptholden - 23 Jul 2006 20:22 - 2469 of 2787

sd

I have checked the CFA website for you, the only company on your list (2468) that appears as a retained client is Inca gold, the rest have, gawn, so to speak. Mind you, the client list may not have been updated as some are very recent placings / admissions. Many thanks for the continiuing figures / analysis, much appreciated.

pth

nevgroom - 24 Jul 2006 09:31 - 2470 of 2787

Most have gone SD however, a few (Croatia Ventures for example) have changed name

corehard - 24 Jul 2006 10:31 - 2471 of 2787

Nice to see all the constructive input back here... nothing like well considered and balanced opinions to level the playing field.
Many thanks all !
Lets widen the debate....
Although SP has remained fairly static, this was always going to be a long "termer" (IMHO), but the business has reasonable foundations to spring from compared to its mid to long history.
Would not count out consolidation to attract steady investors as sub -1p prices will always hold nervous players back; this area has the mantle for boom or bust whatever we may think. However if consolidation was to happen I believe SP will set at about 4 to 5 to attract and maintain smaller investors at this stage.
Although I've considered this a long term punt, I believe we may see some further developments over the coming months which may change the current situation of this company (Could get very attractive to US player wanting to keep a hand in, where excessive costs are moving companies accress to AIM - just a thought).

These are completely my own opinions, and are not as a result of anything other than gut feeling.

Any comments ?

markusantonius - 24 Jul 2006 11:45 - 2472 of 2787

Having "traded" this stock (long - then med - then short - term) since its Abinger/CFA days, can anyone post a 1 or 2 sentence SWOT analysis so that any potential new investors might be tempted to have a dip in? I am "spectating" ATM but this is one co. which I have never actually lost on! :o)

EWRobson - 24 Jul 2006 21:54 - 2473 of 2787

I assume the stockbroking acquisition is to give the capacity for fundraising for existing clients and an integral part of the service operated, rather than a wider range of services. Any thoughts on potential target size, characteristics? I assume not quoted so that little might be known outside the City. I agree conclusions above that this is likely and explains the building of the cash-pile and avoidance of dividends. Makes sense.

Eric

stockdog - 25 Jul 2006 07:59 - 2474 of 2787

FWIW - TR told me a the AGM he would prefer to acquire a team that received the acquiistion price themselves (i.e. can be motivated by being paid in shares rather than just cash?), rather than from a third party owner selling off a subsidiary (who would probably want nearly all cash?).

After all, what do you actually get when you buy a service operation - only the people you can persuade to stay in the team. Otherwise why not just poach them individually.

sd

EWRobson - 25 Jul 2006 13:18 - 2475 of 2787

Helpful and perspicacious comment from our wise hound. Why would such a team want to sell: (a) they would want some cash as part of the deal as their own funds are likely to be tied up in business; (b) they would see that their overheads would be diluted and therefore the profitability of their work would be improved; (c) they would be able to trade the share portion of the deal; (d) they would have none of the admin and marketing hastle; (e) DGT are small enough for them to see real gearing from their activities. So we are looking for a nice team of five people or so which is doing well and fits with the criteria. Presumably there are some such teams around.

Eric

stockdog - 25 Jul 2006 21:24 - 2476 of 2787

Wish I was a broker - I'd apply, especially the way the day job's going this month!

markusantonius - 26 Jul 2006 11:00 - 2477 of 2787

Backtracking a tad this morning - wonder if this month's increase has done its cycle and there'll be some profit-taking now? Maybe a temporary blip until the next positive part of the cycle in 4 to 5 months' time.....?
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