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.

Website: www.cityfin.co.uk

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.

SD - Can't fault that.

What to do with the residual cash is the question. I still think TR may be on the acquisition trail, looking to diversify to cover risk in certain aspects of the marketplace.
I notice with the SPE purchase he's really only bought one key member of staff who he's tied-in with a 3-year contract therefore margins I would expect to improve dramatically yet not get too unhealthy with a downturn in that oparticular line of business.
Dividend would be good, I know from communications I've had with him that once the takeover is put to bed he wants to focus efforts on attracting larger strategic investors, he feels that perhaps some of his aspirations are hampered by the huge number of small shareholders there are.

Expect a consolidation next?

Nev

Nev - agree, TR has clearly signalled further acquisition(s). What area of business would you imagine - IVA's?? lol! - seriously, what would fit, a boutique merchant bank? Could he hope to buy one with his resources?

If I were TR, and I talked to him about these two issues last AGM, I'd go for a) 10 for 1 consolidation - even that would not make this share noticeably illiquid for small holders whom he professed to be wanting to be loyal to, and b) a maiden dividend. He made me smile when he said "well, I'm a shareholder too"! Don't think the divie is quite going to reach the level of his 400k bonus!

I haven't mentioned this before, but I was thinking about it over night - his bonus, although at some level well-deserved and all that, is somewhat a slap in the face for us mortals who get no profit share. His bonus would pay a 4.9% dividend at yesterday's 0.73p SP. Were there to be a bunch of significant holders (RIL, Nev etc - anything above 25% of issued capital represented) who thought likewise, they could always bring this concern to his attention, since I do not think it sustainable as the company grows, especially as he and staff are also well bedded in with 25%(!!!) of diluted capital in options.

sd

Posted by paulo2 on the other side.........



From Citywire:

Two broking firms specialising in raising cash for smaller companies are coming together as part of the widely-expected consolidation in the sector.

City Financial Associates, part of quoted Dowgate (DGT), is taking over private client broker Seymour Pierce Ellis in what amounts to a reverse takeover.

The bulk of Seymour Pierce's business is generated by legendary deal maker Clive Mattock, a well known figure on the city scene since the mid-sixties.

CFA is paying 4.6 million for SP and part-funding the deal by placing new shares at 0.65p to raise 2.5 million. Dowgate shares edged up 0.01p to 0.735p gives it a stock market value of 4.8 million.

Both firms have strong links with the smaller end of the company market. Analysts have been predicting mergers among some of the key players for sometime.

The combined group will be valued at 7.2 million. CFA is an adviser to 39 AIM companies and six companies on PLUS, the old Ofex market. In the half year just ended it earned profits of 485,000 on turnover of 1.7 million.

Seymour Pierce, based in Crawley, Sussex, has around 1,500 clients and is broker to 49 companies - 42 on AIM and five on Plus.

Last year it was involved in 57 transactions raising a total of 32 million. It made a profit of just under 1 million on turnover of 5.5 million.

The firm's key deal maker is Clive Mattock who has entered into a three-year service contract following the merger.

Seymour Pierce has made a profit for each of the last ten years except for 2002, the bear market for smaller companies when it made a loss of 324,000.

Dowgate chairman Tony Rawlinson said: 'The acquisition of Seymour Pierce represents an important step in our plan to build a group of complementary financial service businesses offering a range of services to smaller quoted companies'.

Thanks, sd, for your excellent analysis. My own holding is somewhat down due to demands on cash, a situation that will not be corrected for a month or so. So you will understand if I keep my porder dry. However, your current and pojected pe says nearly all plus further potential acquisitions. In a way, this is all about a fundraising acquisition, one man and a line of business. Impressive!

Eric

Has everyone left this board? not a single post for 9 days.

Eric, how is that little Westie of yours growing up now i expect? we are babysitting our regular one again for a week while the owners are away up to London.

Just waiting for people to realise what a nice little earner this business is. If it doesn't take off by January, I will be looking to free up funds for a little gamble on the results.

A report on today's EGM from my good friend donaferentes on the other channel who I am sure will not mind me posting it here:-


Just back from EGM - one of TR's extra special non-events! Attended by non-exec Ian Buckley, Tony Rawlinson in the chair and about a dozen other souls in the congregation.

Both items on the agenda (the second in three parts) were carried with no opposiition form those present and a straggle of 1m or so proxies against compared to the many many more for.
1) To acquire SPE
2 a) To increase the capital
b) To authorise directors to allot shares
c) To disappply preemption rights

A question from the floor recoommending consolidation of 1 for 20 ( to make SP = ~14p) was responded to by TR. He had not wanted to cause loss of track of the SP subsequent to the above events by consolidating at the same time - somewhat spurious, we can all multiply by 20 by now. Something he will keep in mind for the future. The questioner (who recalled events from Stephen Barclay days, so obviously an experienced follower) suggested that DGT had now porved itself as a proper company and could afford to be seen to take itself more seriously (I paraphrase).


Another question about how TR saw the joint operation going forward. Again, mildly uninterested/ing reply, CFA and SPE already work closely together - this will further focus their efforts. Possibly some cost savings. Howver, CFA/DGT will have to provide additional head office resource in London to accommodated SPE, although this will be charged back as a management cost to SPE who would have paid it any way where they now are - so no net change to overall result.

No mention of current trading for either company. All over in 15 minutes flat.

Now how's the SP doing - up 0.3p on minimal volume sells slightly outweighing buys. Ah, well, patience is the game. I'm in no hurry.

df

BTW - where is everyone on this thread lately?

sd

Still here Dog ! - Not a lot to add at the mo'

watching and waiting

Still in..

I realise this share is very boring at present no action, but has this BB shut down?no regular posters for weeks now an odd one here and there but otherwise a ghost board.

No Stockdog predictions for year end like last year when he was very close.
No EW Robson for ages has he gone away?

At least the other BB keeps trying with regular posters.

WW
Here you are, something to read!


Buy Dowgate Capital/Seymour Pierce Ellis
Free Brochures on Saving and Investing
30.10.06
Monisha Varadan

From Monisha Varadan of Allnewissues.com

These recommendations do not constitute advice, please read the risk warnings

Background

The hectic M&A activity in the corporate finance sector continues. Seymour Pierce Ellis has announced its intention to reverse into Dowgate Capital (DGT) via the issue of 392,307,692 shares at 0.65p per share. The enlarged company listed on 24 October 2006 and following the admission to AIM it will have a market capitalisation of 7.24 million. Dowgate is considering raising 2.55 million before expenses, which will be used to partly fund the acquisition of Seymour Pierce Ellis Ltd. Therefore, Seymour Pierce Ellis is being bought for 4 million in cash and shares.

Operations

Based in Poutney Hill, London, Dowgate is the holding company of City Financial. Both SPE and Dowgate seem to have a business model in place that is churning out profits - not surprising, given the climate in the IPO and corporate finance sector. Dowgate was formed in order to build a group of financial services companies, catering predominantly to small cap companies. It was first admitted to AIM in June 2001. Soon afterwards, it acquired CFA, a corporate advisory business, and Galleon, a private client stockbroker. CFA has built a significant presence in the AIM market, and Dowgate, having disposed of Galleon in 2003, realised a profit after tax for the year ended 31 December 2006 of 529,000 on a turnover of 1.72 million. For the six months to 30 June 2006 the company recorded a pre-tax profit of 485,000, and at the six-month stage Dowgate had cash of 1.68 million, valuing the business at 4.48 million.

Confidence in the markets and clear synergies have resulted in the purchase of Seymour Pierce Ellis. It is a private client stockbroking firm that is regulated by FSA to conduct investment business and has the authority to deal as an agent, and also as a principal. It was founded in 1990 and has a long record of profitability. For the year to 30 September 2005, Seymour Pierce realised a profit after tax of 666,000 on a turnover of 5.56 million. For the six months to 31 March 2006, the company realised a profit after tax of 299,000 on a turnover of 2.26 million. SPE's performance in the first half has been effected by client transfers from SPE to Seymour Pierce, and turnover was reported to be down by 5% on the same period last year. However, the group continues to be profitable on a month-on-month basis. CFA is adviser to 39 AIM companies and six Plus-quoted companies. As at 30 June, Seymour Pierce Ellis was broker to 49 companies, 42 of which are listed on AIM.

Business development

The acquisition will be completed on 24 October 2006, following shareholders' approval. A significant aspect of this acquisition is based on the fact that this cooperation is already tried and tested. Seymour Pierce was appointed as the broker to Dowgate in 2001, and since then Seymour Pierce and CFA have completed a number of projects together and held advisory and consultancy positions to nine AIM companies and four Plus companies with success (admittedly, most of them Stephen Dean and Griffin-related ventures). They both operate in the small capitalisation market and have a successful track record. We believe that the trading outlook for these two companies looks very good, since they both have strong earnings power and are very cash-generative. Barclays has chosen to back this acquisition by providing a credit facility of 1 million. As the results for the two companies for the last six months show, they have made significant improvements since 2005. The directors have announced that the results for the second half of the current year will be lower than those for 2005, but the company will still be very profitable. It is expected that the competitive advantage that this acquisition creates will help Dowgate Capital to grow substantially in the future.

Management

The chairman of the group will be Tony Rawlinson, current head of Dowgate. He is a qualified chartered accountant from Ernst & Young, and after a long career in corporate advice he joined CFA in 2001 as managing director and head of corporate finance. Ian Buckley will serve the board as non-executive director. He has extensive experience in holding senior management positions in stockbroking and corporate advisory firms. The executive director of stockbroking is Neil Badger, who qualified as a stockbroker in 1989 and joined Seymour Pierce in 1998 as a research analyst. He was promoted in May 2004 to chief executive. Clive Mattock brings 40 years' experience in stockbroking. He has many admirers, but not, perhaps, the FSA, which fined SPE a number of years ago because of Mattock's undeclared share interests and conflicts of interest.

Conclusion

According to the pro-forma statements, the net assets for the enlarged group include cash of 2.9 million and a working capital position of 1.74 million. According to the interim results for Dowgate to 30 June 2006, it realised earnings per share of 0.064p. Readers must note that this includes only profits from Dowgate, without taking into account Seymour Pierce's profitability. Forecasts suggest that the combined entity could bring in earnings of 0.185p in the year to December 2007. We are aware that a target price of 2.82p has been set for this stock. Of course, the market for small companies is very dependent on general economic conditions, and the future of the company is very much dependent on the contacts and the experience of its key staff members. Therefore, if there is a general markets downturn, or managers decide to leave, the progress will be hard to predict. However, traded at such low multiples and backed by cash, we accept that Mattock and colleagues know the smaller companies game better than anyone and will deliver. Investors should buy.

kim

ww - still very much here and added 75% as much again to my holding last week, regrettably before the price fell, so overpaid considerably. However, what will 0.06p matter in a year's time.

No way I can keep up tracking individual transactions anymore - too busy on the day job and both CFA adn SPE too many to track. Still have every confidence in the management and the new ombined operation. Monisha V. is always an interesting read and seems to have some track record of knowing her stuff. See my post above where I went through the combined numbers - suggesting a PE of about 6 (or 4 v. enterprise value). Surely we should be at PE of 10 for fair value, which gives an SP of 1.24p - at that point I'll probably take my original cost off the table and still be left with ~15% of my portfolio in.

There won't be much movement here until run up to finals in January/February, I suspect. We will all need to trust that the H2 numbers (although predicted by TR to be less than 2H2005) will be good enough to sustain and even enhance the rating of the SP.

All our attentions should be turned to next year now, to see whether the synergy and underlying trading combine to make an even greater success of the numbers. Haven't herad anything to change my mind, but as ever am watching the macro-climate for a downturn in new business and general city confidence.

sd

Hi folk. Sorry to be off the radar. Real reason is that demand for funds has taken me out of the market for a while. Hence I'm not keen on giving views that just could (given my burgeoning reputation!) help the sp up. Should be back in by Xmas which I think should be early enough. I have been surprised that the price has not progressed with the merger. Monisha's comments imply, presumably clear from the offer documentation, what the sale by SPE is somewhat defensive; not that there appear to be real problems but they clearly feel that more progress will be made with CFA. TR is also cautious re the second half and that makes sense given that there must be a lot of effort involved in making sense of the merger. Can't see any downside unless the AIM market has problems; presumably SPEs client business is a steady earner in bad times. There doesn't seem to be any real growth written into the current figures. sd is right to top up but I would set my target higher, not necessarily for the next results but once the benefits of merger are seen to be coming through.

Sorry Westie not to respond to your enquiry re Tess! She is going great guns and must be the fastes Westie outside the highlands; she can beat Honey our Lab over 100m any time.

Eric

This one's getting a little tedious !

sd I know that you are a very busy woggie but it would be good to summarise the H2 figures. The AIM market appears generally out of favour so that would explain the cautious TR note but significant whether they are holding their market share.
Good bone hunting!

Eric

Eric - as I mentioned above, I can no longer devote time to tracking individual transactions. However, I am looking for pro forma (i.e. as if SPE had been part of the group for a full year) full year combined profits after tax of about 1.25m, about 100k less than my thoughts around the first announcement of the acquisition of SPE.

With market cap fully diluted for options and warrants of 0.68p X 1,120,655,000 = 7,620,454, this would be a PE of 6. Net of EOY cash an enterprise PE would be nearer 4.5.

If we can get growth next year and beyond running at 15%, that would justify a PE of at least 10 (for a PEG of 0.66), so shares are due a 66% re-rating to 1.13.

Doesn't seem too high a target. Meanwhile, I admit to being totally perplexed by the recent fall from 0.80p post acquisition to 0.68p today - especially having loaded up with a largish purchase at 0.82p recently.

I can understand that there is no ready mechanism to realise full value yet with no institutions on board, but a fall of this magnitude seems more than just slippage whilst waiting for the tide tp turn. Any ideas why?

sd

sd: Looking at the charts there doesn't appear to be anything sinister. I think it is probably just the OOSOOM syndrome; you would have thought that the acquisition would have moved DGT onto a larger scale and onto new radar's. The evidence is that this is not the case. Yet the company now has a much larger base on which to grow, including providing a fuller service to clients. My other thought above was about the AIM market itslef. So many of the AIM shares are depressed and fashion has turned back to the big beasts. I think this is a temporary phenomenon because in the end of the day it is a matter of value - and opportunity. If a company is beyond a certain size it has to work harder foir a % growth. DGT must have a terrific five-year growth potential. But the fact that the cap is still belw 10M means that institutions themselves will not yet be attracted. Those of us who know the company well, realise that risk is negligible and opportunities very significant and thus get the exciting breakthrough growth. But the AIM market problem, I think, is epitomised by the fact that the sp is still below the offer price despite the fact that the company is now a proven player.

Eric

Keep monitoring this one from time to time..... down by 35% over the past 9 months. Graph not looking good either. Not a stock to trade in the short term but must admit to being very suprised by its descendancy?

Plans for 2007 and beyond.....?

Markus, a punt just before the results could be profitable, if they continue to drift down, imo. -same thing occurred last year!