Small Talk: Acquisition to give health group vital synergies

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The Independent Online

Synergy Healthcare will report its first-half numbers tomorrow, and reliable sources in the City inform Small Talk that it will also reveal another acquisition – this time, the privately held Vernon-Carus, for something in the region of £25m.

Vernon-Carus is another player in the decontamination, hospital hygiene and wound treatment market, a hot sector given the spate of negative stories in the press recently about superbugs and the like. Presumably Vernon-Carus will be merged into Synergy's surgical support services unit, with further scope for growth via Synergy's Isotron Sterilisation Services division.

Synergy will hope the deal adds to its already stellar performance over the last four years – anyone lucky enough to have taken a punt on the shares in early 2003 will currently be sitting on profits of approximately 750 per cent.

Vernon-Carus had sales of approximately £30m last year. It recently won preferred bidder status on a major decontamination service order from several Merseyside NHS trusts, worth £110m over the next 15 years, to be serviced from a new decontamination "supercentre" based in Chorley, Lancashire.

Synergy is expected to report a decent set of interims tomorrow. UBS expects £12.2m in pre-tax profits for the first half on group revenue of just over £100m. Brokers are looking for more details on the company's proposed expansion into the Chinese market and the take-up on new patient care products AirCleanse and Exsudex.

The Vernon-Carus acquisition will add to a formidable range of healthcare products already in Synergy's stable. Charles Stanley has a bullish 1,050p price target on the shares, with a best case scenario valuation of 1,590p. It believes that the market has not factored in Synergy's international growth prospects, and the Vernon-Carus deal should add more weight to their case, as should a proposed move from AIM to the full market.

Norcros

It hasn't exactly been an impressive start to life on the public markets for Norcros. Shares in the shower, tile and adhesives group came to the market in July at 78p, and although the shares rallied to 87.5p on the first day of dealings, it has been downhill all the way since. But Friday's debut results should make canny investors sit up and take notice.

This is no fly-by-night small-cap punt. Norcros has been around for a long time and its primary asset is Triton showers, the UK's leading brand.

The shares have not been helped by a jittery market since the float and several early investors took the chance to get out while the stock was still above its float price. Also, investors have been concerned that the tough consumer spending environment will mean harder times ahead for Triton.

Those fears look to be misplaced as the company revealed in-line results and a confident outlook. Interim pre-tax profits rose by 49 per cent to £6.1m on a 3.8 per cent jump in revenues to £84.3m, with a strong performance from the South African tile business, which some investors believe is worth the current market capitalisation on its own.

Triton has been a leading shower brand since the company was formed in 1975 – bears believe that the pressure on sales in DIY retail will also affect Norcros but the truth is that most shower sales are for replacement units. Anyone who has had to replace a shower will know that there is nothing optional about it.

For income seekers, there is a decent dividend, rising to a forecast yield of 6.2 per cent in 2008. The company has strong cashflow, little debt and excellent growth prospects backed up by its long -term track record. Norcros looks to be worth closer inspection for small cap investors.

Atlantic Coal

Small-cap investors could do worse than look out for Atlantic Coal, which begins trading on AIM this morning, particularly given the ongoing strength of the mining sector and strong base commodity prices.

Atlantic is coming to the market via the reverse takeover of Summit Resources, announced in October. Although the company is not raising any new money, there will be an introduction of new shares, organised by HB Capital, and with the shares expected to start trading at 2.5p, the company will have a market capitalisation of just over £19m.

Atlantic Coal is not an exploration stock raising money in the hope that it will find what it is looking for in the wilds of the mineral exploration world – this is a producing company with assets that should continue to produce at current rates for at least another 10 years if its reserve estimates are accurate. The Stockton mine is an open cast project covering 900 acres in Pennsylvania, and there is a ready market for its high quality anthracite coal, which thanks to the opening of a new plant this year is now prepared on site.

Coal may seem like the poor relative of the metals market, but the coal price is sitting pretty at more than $120 a tonne. The US is in the middle of a boom in coal-fired electricity, with at least 90 new plants in construction or in the pipeline. Getting in early on Atlantic might be a shrewd move.

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