Small Companies Notebook: Thorntons bosses face chocolate challenge

Bio breakthrough - Felix fails to excite - Bulgaria savings

Thorntons is heading for a showdown with the franchise owners of its high-street stores, in a dispute over the company's drive to sell its posh chocolates through supermarkets.

Several dozen franchisees have banded together to present a list of grievances to the company regarding the lack of support given by head office and the potential loss of sales to supermarkets.

And they are hoping to force the company to recognise and negotiate with their organisation, which was set up at a meeting in Leeds in July with 50 members. The company is resisting talks.

The unrest among franchisees comes at a difficult time for Thorntons, which has picked itself up after failed takeover talks last year but is looking for ways to improve profits amid stagnating sales from its network of 378 stores. A little more than 200 are owned by franchisees.

Thorntons' new chairman, Christopher Burnett, signalled last month that supermarket sales would no longer be a major contributor to growth, but they have already expanded to account for £10m, or 6 per cent, of sales. The strategy is being reviewed, he said, as there were fears that wider availability could cannibalise shop sales, push down prices and devalue the brand.

Bio breakthrough

It was a sunny weekend in Barcelona for Biocompatibles International, the medical technology group, which was presenting its latest successful trial results at a surgeons' conference.

The company has invented a way to coat tiny beads with a chemotherapy drug which, when implanted in the liver, can deliver more cancer-killing drug without as many of the horrible side effects. The trial data show the amount of drug in the rest of the body is reduced by 99 per cent, compared with a similar existing treatment - an impressive finding that ought to justify the run up in the Biocompatibles share price ahead of the presentation.

Unfortunately, the company is not yet able to say that it has seen a measurable improvement in the liver tumour - so any further share price performance may have to wait for additional data early next year.

Felix fails to excite

The cats don't like Felix. The City's coolest fund managers have been called in to see Felix Group, a young company with a new concept in pub games machines, whose backers include the celebrities Angus Deayton and David Baddiel. The company is asking for contributions to a £5m fundraising to set up a national roll-out of its machines, but the early responses have been negative.

It is not that potential investors don't like the idea. The Everyone's A Winner game guarantees players a prize worth at least double their £1 stake (the prizes are free drinks or vouchers for use in local shops, which the company will be able to buy at less than their face value). The trouble is that Felix is asking too high a price for new shares.

"The company has such a high valuation, I didn't have to think about it for too long," one fund manager said, adding that £5m ought to buy new shareholders a 50 per cent stake in the expanded company. That would imply the existing business is worth £5m, not the £60m at which it is valued by its current share price.

Another fund manager said: "The share price now is 52.5p. If they decide that doing the deal is more important than keeping up the share price, they will have to price the new shares at something beginning with a 3."

So there is going to be some horrible catfighting over the price in the coming weeks, as Felix's broker, Seymour Pierce, takes it round an estimated 30 potential investors. And the company may have to decide whether going ahead with its expansion plans is worth a big drop in the shares from their current level.

Bulgaria savings

Scared of a UK house price crash but still want to invest in property? Buy in Bulgaria. The former Warsaw Pact country is still a bureaucratic nightmare for the outsider, but there is a real investment opportunity in the development work and economic liberalisation that the country will undertake as it aims for European Union entry in 2007.

Residential property in the capital, Sofia, sells for less than 10 per cent of London prices and, more relevant, half the prices in Belgrade or Zagreb. Ivo Hesmondhalgh, the property entrepreneur and founder of the Cobden Club private members club in Notting Hill, reckons there is a fast buck (or lev) to be made as the difference narrows.

He has set up Bulgarian Property Developments to develop or renovate residential and commercial property in Bulgaria and is looking to raise £10m for the venture. Shares in the company will be traded on Ofex or AIM.