Small Talk: Close Brothers have tough task to save Johnson

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The Independent Online

Air Cargo, one of the UK's largest cargo and private jet brokers, is set to defy choppy equity markets by confirming today that it will seek a listing on Aim, raising £4m of new capital in the process.

Just two weeks ago we aired our concerns about the dry-cleaning and linen hire group Johnson Service. Investors cannot say they weren't warned: two days later the company announced a grim profit warning, and the shares have since lost more than 65 per cent of their value.

The news got even worse last week as the company revealed that it expects to breach banking covenants because it has failed to secure the sale of three non-core businesses. The futures of the chief executive, Charles Skinner, and chairman, Simon Sherrard, must now be in severe doubt – Mr Skinner only arrived in April, and the company has lost some 80 per cent of its value since he started.

Johnson told investors in Thursday's statement that it will not sell any of its businesses at a value which the board "would not consider to be in the group's interests". Given the dire straits it now finds itself in, one has to wonder what sort of price they were offered – this situation has got fire sale written all over it, and given the continued downturn in ongoing trade the company may find itself with no choice other than to take what it can get.

So what now? The investment bank Close Brothers has been appointed to advise the board on an agreement with Johnson's bankers, although how keen they will be to maintain a working relationship with the current senior board members is anyone's guess. Close has its work cut out.

Citigroup believes that Johnson has four options: debt refinancing, asset sales, a rights issue or an outright sale of the business. The first two look unlikely – there is too much debt to begin with, and no one is going to bid for any of its assets if they believe the company will fold.

The most likely outcome is either a rescue rights issue or a sale of the whole company. Following the collapse in the price it is a fair bet to assume that hedge funds and private equity bidders are taking a serious look at the company, although the chances of a bid at a significant premium to the current price looks slim. A rights issue looks to be the best way out, but it will have to be deeply discounted to the current price to get investors to back it – the company simply does not appear to have the money to underwrite an issue at the current price.

For the bravest investors, there could be some value in Johnson, and it still owns some attractive brands – Citigroup still gives it a sum-of-the-parts valuation of 200p per share. But the longer the senior board members remain in charge, the less likely a rescue looks, and anyone hanging on may find themselves digging deeper into their pockets.

Sigma Capital

Look out for another property deal coming this week from Edinburgh-based Sigma Capital, the specialist asset manager, its seventh stand-alone " property investment partnership".

The word in the City is that it has raised the funds, £40m to be precise, to buy the City Wharf development in Aberdeen. Not only is this another high-profile development deal, but the entire development is already pre-let, making it a very low risk deal in the current commercial property environment. The City Wharf will include a 25,000 sq ft casino, let to Grosvenor Casinos, and a 107-bedroom hotel, let to Ibis.

Sigma operates its investments in three key areas: sustainable energy, property and intellectual property commercialisation. The house broker, Arbuthnot Securities, has increased its price target for the share three times this year and reiterated its new targetof 80p at the beginning of last month. Expect to hear more positive analyst coverage on the back of theAberdeen deal.

Sigma has been around for a while and could well be worth a closer lookfor high-risk investors –Sir Tom Hunter owns almost 20 per cent of the stock and Vincent Tchenguiz also has a significant stake. Although the latter had a bad week thanks to Sainsbury and Mitchells & Butlers, his long-term record makes Sigma well worth watching.

Hecta Media

Bringing an internet investment company to the market might get alarm bells ringing for investors still nursing losses from the dot.com boom, even if the end of the boom is approaching its seventh anniversary. But internet companies now trade at real world valuations and can offer decent value.

Shares in Hecta Media come to the market this week, and the company's management has a record of delivering results from internet investment. The executive chairman, Frederick Kreuger, founded and sold five internet businesses, including Traffic marketplace and Santa Monica Networks.

The Santa Monica-based group, listing on aim because of the "onerous" expenses of keeping up with Sarbanes-Oxley in the US, will look to invest in niche portal websites, brand-name blogs and revenue-generating domain names in the UK, Europe and US.

The company has already raised £4.67m through the broker Beaumont Cornish, and is expected to be valued at £6m to £7m once trading begins.

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