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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 - 30 Mar 2007 16:54 - 2642 of 2787

50 mil trade gone through at 0.65 today. Will be interesting to see the RNS and determine whether Buy or Sell.

EWRobson - 30 Mar 2007 18:40 - 2643 of 2787

Reckon its employee/director(s) cashing in their well-gotten gains! Represents over 1/4 of the newly issued warrants and options. Taken up by the market quite readily, supporting my view that another push will come, though at a different timing to previous years.

Eric

stockdog - 30 Mar 2007 20:08 - 2644 of 2787

Eric
Thought I'd find you here.

50m - largest trade I've seen in this share - 4.48% of issued capital. Doubt the MMs have taken it on unhedged or un-destined. TR selling out? Nev, own up. lol!

Having been disappointed in results this morning, I've spent a little time reviewing the accounts and making some modest projections for 2007.

Juggling between the lines the bonus salaries for CFA work out at 62.5% of turnover less overhead (excl. central costs, interest, profit on disposal etc)same as last time (at least as a workable model for projections, if not 100% accurate). Nice work if you can get it! Ellis does not seem to have this structure, but it's overheads including salaries are a stonking 77% of turnover already! Ever see a broker looking gloomy? No, thought not.

Looking ahead at next year I made some simple low-high assumptions:-
CFA transactions increase by 10% or 15%
CFA clients (at 23k a pop on average)increase by 2 or 3
CFA overhead increases by 10% (NB new offices to be occupied in May)
Bonuses are 62.5% of above net
Ellis turnover (pro rata'd for full 12 months) increases by 10% or 15%
Overhead increases by 10% (NB new offices to be occupied in May)
Interest paid (33k) received (150k) and share based payments (100k) net out at plus 17k for the year either case
Tax at 30% on above profits
The above yields net profits after tax of 1,214k or 1,387k - surprisingly insensitive to variance in turnover versus fixed overhead and variable CFA bonuses.
With 1,114,310,000 shares issued at 31st December and assuming no new issue, we get undiluted EPS of 0.1089p or 0.1244p
for yr-on-yr growth of 36% or 55%
forward PE of 6.24 or 5.46 and PEG of 0.17 or 0.098
Operating Margin of 22.7% or 25%
ROCE of 28% or 31.5%

If turnover does not increase much and costs rise a little less than 10%, then EPS (albeit on larger (+57%!) number of average shares in issue, don't forget) stays flat for PE of 8.5 - still nowhere near demanding, but zero growth is less than inspiring.

Now, I have to say those are not bad numbers based on assumptions of quite modest growth. We've failed to stimulate the re-rating trigger this time (so far?), but the fundamental values do seem to make these a pretty good hold, in light of quite moderate synergy required to increase both subsidiaries' revenue, some substantial deals (Interbulk and the other McColl entity reverse takeovers, e.g.) and a steady stream of lesser ones announced so far. Then there's the promise of seeking out further acquisitions to grow the business.

So there is a reasonable expectation that the interims could confirm something like the above numbers for this year at about the time an EGM was held (at the same time as the AGM to save costs?) to consolidate the shares on a 1 for 100 basis (no premium, I doubt), eliminate the historical losses out of the share premium account and announce a debut dividend out of cash generated this year. Now that could be the re-rating trigger we're looking for.

I rest my case. Draw your own conclusions. I haven't sold any. I believe these have yet to have their day. All counter arguments welcome.

WDIK
DYOR
HAGW

EWRobson - 02 Apr 2007 21:28 - 2645 of 2787

sd Thanks for a great effort. DBAW!

Not sure you are really reflecting the client fundraising aspect which was part of teh reason for acquiring SPE, in other words, the synergy between the companies. But I do agree your logic of a rerating linked with consolidation and maiden dividend.

Eric

stockdog - 03 Apr 2007 01:02 - 2646 of 2787

Eric, not trying to predict the most likely outcome, just looking at very modest growth to see where it gets us, and it seems to get us far enough. If the true synergy values are realised we could do even better.

Quite a few PI's selling out today ~4.5m, not enough to be worried by. Someone took the op. to buy in 500k at 0.64p.

Patience wearing thin, but what can yo do. Come on TR put yourself in the PI without a bonus's position.

corehard - 03 Apr 2007 13:39 - 2647 of 2787

Still going to stick with these !

ptholden - 03 Apr 2007 13:53 - 2648 of 2787

Guys, you have huge patience!! I am sure that the SP will eventually reflect the prospects of the company, assuming that TR et al stop stripping the profits in bonuses. I can only think that it is the bonus / trust element that is now holding the SP back, because the turnover / profitability is quite impressive for a small company. Personally, I am quite happy to have eventually closed out at a reasonable profit. I stuck the proceeds into LNG for a week and realised a 35% return on my investment, reflecting roughly 50% increase on my capital had I stuck with DGT.

EWRobson - 03 Apr 2007 14:16 - 2649 of 2787

HI, Peter. How's the golf? I suspect you are like me in that you stock with some, lose patience with others - either taking profits or cutting losses. But my general experience is that you tend to do better sticking with those that you have got to know really well. With DGT, you can certainly argue that bonuses are very high in relation to earnings but a counter-argument is that they are retaining the excellent team that they have because of the bonuses. There will gradually be increased margins as they add in the fundraising aspect. They are not completely disregarding their investers with their plans for consolidation and dividends. Short-term weakness quite likely to continue as existing holders lose patience, to be replaced, quite likely, by longer term funds. TBIYTC, in my view!

Eric

EWRobson - 04 Apr 2007 12:56 - 2650 of 2787

3 Trades of 2,275,000 at 0.62p, 0.58p and 0.67p each categorise as X - 'cross at same price'. Perhaps someone can enlighten me; if they are matching trades then the prices are every different.

stockdog - 04 Apr 2007 14:43 - 2651 of 2787

Not matching - by the way there are now 4 of them - since they are each a buy and a sell between two parties who've agreed to trade at one price without an intervening MM taking any risk. Are they all coming from the same source or all going to the same destination?

It is a riddle, wrapped in a mystery, inside an enigma. WSC

kimoldfield - 04 Apr 2007 16:34 - 2652 of 2787

Are we allowed to breath a sigh of relief now?:-

The Board of Dowgate Capital plc ("Dowgate" or the "Company") is pleased to
announce that it is today posting a circular to Dowgate shareholders convening
an Extraordinary General Meeting of shareholders ("EGM") at which it will be
proposed that the Company's share premium account be reduced to eliminate
accumulated losses on the Company's reserves which existed at the end of 2006
so that the Directors will be in a position to consider the payment of
dividends out of future distributable profits generated after the effective
date of the reduction.

In addition, the Board is proposing a consolidation of the Company's existing
ordinary shares on the basis of 1 new ordinary share of 7.5 pence each for
every 30 existing ordinary shares of 0.25 pence each. This share capital
reorganisation requires a very slight increase in the authorised share capital
of the Company to arrive at a figure that is exactly divisible by 30.

The Board is also proposing that the Company be authorised to purchase in the
market up to 10 per cent of the Company's issued share capital.

stockdog - 04 Apr 2007 17:44 - 2653 of 2787

Damn - I lose half a new share on consolidation!

This is great news, imho, still can't find an RNS but I've seen the AFX report.

Anyone know a quick way to value the dilution or concentration in terms of SP re the buy back - once we know the price being offered? At least it will reduce the capital base in terms of PE and PEG, but also removes cash from the BS. Does this mean another acquisition is not in the immediate offing?

The elimination of accumulated losses paves the way for a dividend which must put us on the radar of serious investors who've so far spurned DGT. Since it has virtually zero capital requirements outside acquisitions, its net profits are almost entirely available to pay dividends. With cover of say 3 X, and a PE of 7.5, we could have a dividend of 4.4% quite easily, falling to 2.7% as the SP rises to a more realistic PE of about 12.

Keep the faith. DGT is just about to turn from ugly caterpillar to beautiful butterfly (ephemeral as that image may be!)

kimoldfield - 04 Apr 2007 19:38 - 2654 of 2787

Maybe there is a chance that the butterfly will be eaten by a predator SD!
Although it seems a little complicated I like DGT's proposals and unless I am not understanding the proposals, small shareholders are not going to be shafted, a promise that TR seems keen to keep.

EWRobson - 04 Apr 2007 23:20 - 2655 of 2787

Pleased to see the share consolidation so soon after the results - which were met with profit-taking and a danger of buyers losing interest for six months. So we are immediately talking about an sp of 19p which LOOKS more attractive and loses the stigma of being a penny share. The buy back would seem to make that 21p - I assume that buying in the market is just the same as any other buyer and investors may hold on to get a higher price. Add the attraction of a dividend to many fund managers and we appear to have a much more attractive scenario. I suspect we may have a positive response in the market and for the next week or so. May even get a mention in Shares - chance would be a fine thing!

Eric

corehard - 05 Apr 2007 12:36 - 2656 of 2787

Onward and upwards !!!

capper - 06 Apr 2007 09:19 - 2657 of 2787

Reading the EGM document it seems that the company are ready to take this to the next level. Making the shares more noticeable for institutions, removing all trace of the old regime and looking after sp value buy using some of the profit to reduce the shares in circulation. 2nd of May will see a new beginning and reward for all the patient ones amongst us.

capper - 27 Apr 2007 16:57 - 2658 of 2787

450K in fees and no comment.

EWRobson - 28 Apr 2007 21:03 - 2659 of 2787

Not a problem, capper, as I see it. Yes, they have an attractive incentive scheme but if that keeps the guys and brings in the business I would accept it. Low compared to much in the city.

Consolidation on Tuesday. Monday could be a good time to pickup a few shares as there could be some institutional buying on the consolidation (no longer a 'penny share'!)

Eric

ptholden - 28 Apr 2007 21:46 - 2660 of 2787

Eric

Not wanting to dampen your spirits, but why would DGT attract institutional buying? This is a comment often trotted out on consolidation and is rarely the case for such a small cap company. Unfortunately for holders I think the other adage may be true, that of SPs slipping on consolidation rather than rising. I also think that the size of bonuses TR and his team are awarding themselves are disproportional to the profits generated.

Personally I was very happy to sell prior to the Results and invest the proceeds in LNG for a further profit and then move the funds onwards again. Much better use of my money than playing the forever waiting game with DGT.

pth

capper - 29 Apr 2007 21:44 - 2661 of 2787

But you are still looking. I think you will soon be longing to be back in. Maybe it will be too late.
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