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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

stockdog - 15 Nov 2006 22:23 - 2532 of 2787

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

EWRobson - 15 Nov 2006 23:39 - 2533 of 2787

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

markusantonius - 21 Nov 2006 13:43 - 2534 of 2787

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.....?

canary9 - 21 Nov 2006 14:48 - 2535 of 2787

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

markusantonius - 21 Nov 2006 15:49 - 2536 of 2787

Do you know when are the results likely to be out, Rod?

canary9 - 21 Nov 2006 16:49 - 2537 of 2787

Mark, last years results were on 1st March 06 I believe.

markusantonius - 21 Nov 2006 18:13 - 2538 of 2787

Thanks, Rod. Doesn't bode well though if Uncle Eric has sold lots of his holding - EWR was trying to persuade me to "hold indefinitely" when they reached 0.90p earlier this year. Sorry, Eric - just had to mention this!

kimoldfield - 21 Nov 2006 20:38 - 2539 of 2787

Markusantonius............Never, and I really mean NEVER, rely on a Bulletin Board for accurate information! AIM has been under somewhat of a cloud recently as I am sure you are aware: there has been a not un-significant threat from Nasdaq recently of a takeover of the LSE, which could well put AIM under threat from an over-zelous American 'I am holier than thou' syndrome, which quite frankly is laughable and totally derisory given the history of US of A!!!! Today it looks like a defeat for Nasdaq which can, possibly, only mean that AIM will go from strength to strength and company's such as Dowgate can flourish.

markusantonius - 21 Nov 2006 23:09 - 2540 of 2787

Interesting post, Kimo. I never knew about the Nasdaq bid - been away from News Action apart from today.
Presume you are a holder of Dowgate?

kimoldfield - 22 Nov 2006 08:07 - 2541 of 2787

Yes I am, 760k - not a huge amount, I have been tempted to dump them on many occasions but now I will hold on,probably indefinitely but maybe take a bit of profit if the opportunity arises.
kim

EWRobson - 22 Nov 2006 14:30 - 2542 of 2787

You need to look at the reason for selling: taking profits? moving elsewhere? spreading the risk? (in my case) needing the cash! I agree with Kim's warning re Bulletin Boards but DGT has been particularly good - forecasts by SD and others of potential results. Such posts are missed and it is a little difficult to read trading performance of CFA. But many AIM stocks have not performed well and I suspect this is a short-term matter. Why would NASDAQ want to take over LSE - access to trading without the same level of over-control must be part of it so why wouldn't that be bullish for AIM? I do expect positive action in DGT but possibly not until well into the new year.

Eric

kimoldfield - 22 Nov 2006 16:23 - 2543 of 2787

Eric, glad to see that you still maintain an interest in DGT, if not shares! I have to say that there has been more factual reporting on this board than on most of the others and I am grateful for the contributions.

Whilst I sometimes agree that AIM is a little "loose" with it's regulations, this is nevertheless one of the reasons why the market is more exciting. The US regulations are stricter: I am posting an article from the Telegraph which explains my fears more eloquently than I! :-

"LSE fears Nasdaq will 'strangle' Aim

By James Quinn, Business Correspondent
(Filed: 16/10/2006)

The London Stock Exchange's highly successful Alternative Investment Market (Aim) could be at risk should Nasdaq make a successful bid to takeover the British bourse.
The Daily Telegraph has learned that senior officials inside the LSE fear Aim's position as the world's leading market for growth companies could be under threat because of the junior market's "light-touch" to regulation.
The fears are understood to run right to the top within the LSE's senior management team, which includes chief executive Clara Furse, in addition to its well-connected court of advisers.
It is feared that although Nasdaq is unlikely to shut down Aim altogether, it could easily choose not to support it and could scrap LSE's investment plans for the future.
Although no figures on the amount the LSE spends investing on Aim are available, it is one of the most high-profile parts of the LSE, with recent marketing trips to China and Vancouver.
According to the latest statistics, it was home to 1,590 companies at the end of September, and companies listing on it have raised 34.3bn since its launch in June 1995.
The market offers growing companies, and an increasing amount of international companies, the chance to list on a regulated exchange with less stringent regulation than those applied on the LSE's Official List.
But the LSE is understood to be increasingly fearful that were Nasdaq to successfully make a bid for the LSE, Aim's "light touch" could well turn out to be its downfall. Of particular concern are recent comments made by Nasdaq chief executive Bob Greifeld, in which he appears to disparage junior markets in general.
Speaking last month at the Boston College Chief Executives' Club, he said Nasdaq's efforts to encourage foreign companies to list had been hampered by the onerous Sarbanes-Oxley regulations.
"One of the unintended consequences of Sarbanes-Oxley is that we see a global race to the bottom with respect to regulatory standards," he said.
In the speech, he said he was aware of the appeal of exchanges like Aim but said the answer was to maintain high standards to avoid blunt new regulations. Those comments, mixed with earlier ones made by the Nasdaq chief, have sparked the current fears.
One LSE insider said: "He [Greifeld] appears to suggest the success of Aim is part of a 'race to the bottom' that he doesn't like, and that is the basis of concern."
Others within the exchange and its wider community believe Nasdaq may strangle Aim, by keeping it as it is but diverting all new business to Nasdaq. An LSE spokesman declined to comment.
The whole issue remains hypothetical until Nasdaq, which owns a 25.3pc stake in the LSE, tables a bid for the British exchange. Its initial 950p-a-share approach was rejected in March, and Mr Greifeld is understood to be more than willing to wait until early next year rather than launching a rushed bid now.

A Nasdaq spokesman declined to comment."

The threat from Nasdaq may not be over and the above comments may not, in the event of a takeover, be relevant, perhaps Nasdaq would be happy for AIM to continue as it is but I feel that companies like DGT may be suffering at present, because of the uncertainty.
kim

EWRobson - 22 Nov 2006 20:39 - 2544 of 2787

Kim; that's a very relevant article. But it may be a case of IYCBTJT (if you can't...). If someone is attracted to AIM because of lighter regulation then they are hightly likely to be switch-sold to NASDAQ. Second, AIM must be quite a significant part of LSE revenues so therefore part of the justification of the bid. OK, could be to snuff out competition but I would have thought you could view the lighter regulation arena as a separate market. NASDAQ promoting AIM could be a way of shedding the US shackles for the International market. Third, I could see that a successful bid would remove the threat and growth could be restored.

So, if DGT price is held back by these concerns, their resolution could be very positive. I remain in need of more comfort, though as to how DGT is actually doing.

Eric

kimoldfield - 22 Nov 2006 22:17 - 2545 of 2787

A trading update before the end of the year would be very acceptable!
kim

EWRobson - 23 Nov 2006 19:35 - 2546 of 2787

Interesting to see the sp back to the placing price. Should be a support level, particularly as the issue was large related to the existing shares. Would be some relatiely loose holders, perhaps including Seymour Pierce holders - don't know if there would be any restrictions on their sales.

Seems to be some caution re the second half results. Rawlinson described second half prospects as 'good' which means very good in his cautious-speak. Trading at Seymour Pierce was down but still profitable. Firsst half pbt was 1.1m (combined). You would have to deduct tax and bonuses but this suggests a profit of 1.5m. I haven't looked back at sd's figures but this would imply a pe of 5 which is faintly ridiculous. I am still wondering whether anyone has, or would undertake, an analysis of business from the website.

Eric

EWRobson - 27 Nov 2006 20:05 - 2547 of 2787

Hmm! Broken the support level although we need to give it a couple fo days - this could attract buyers in who didn't fill their boots at placing price. Needing some sd 'dog'matism.

Eric

markusantonius - 27 Nov 2006 21:47 - 2548 of 2787

So maybe a further retrace towards 0.50p (....even down to 0.40p!) in January then? As things stand ATM I tend to think 0.40p has low downside risk. But, with better short term opportunities around, I am trying to learn lessons from previous c*ck-ups and go for more liquid stocks on the market.

EWRobson - 27 Nov 2006 23:49 - 2549 of 2787

DGT is now relatively liquid with a decent daily turnover and most trades within a reasonable range. You tend to wonder whether someone knows something that yours truly doesn't. However, TR plays his cards close to his chest and it strikes me that they are a very ethical company. So most likely a share recipient from the placing or offer divesting himself of holding - quite a fair volume of shares involved.

Global Nomad - 28 Nov 2006 00:25 - 2550 of 2787

whatever the reason it is giving cause for concern to the pessimist in me and the optomist would like to second guess where the bottom or turn might be in order to top up/average down.....

nothing odd in that if perhaps extremely obvious and usual.

Agree with the ethical company observation and the good record - need some reassurance that there is still space to fill my boots - but perhaps this time come out on the right side of my average....

stockdog - 28 Nov 2006 00:41 - 2551 of 2787

eric - disagree about liquidity. the sell of 2m was down at 0.50p when the bid/offer was nominally .59/.60. don't call that liquid - for a measly 10k's worth.

Other than that observation I am lying what you might call doggo, with tail firmly between legs wondering why nobody throws sticks anymore. Hate the SP falling through support - just above my average buy price of 0.577.
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