Proactive investors

Penny shares Europa Oil & Gas and Petroceltic strike gas!

Europa Oil & Gas up 57% compared to October lows

Europa Oil & Gas (ticker: EOG) says that it has found 50-100bn cubic feet of gas at its Voitinel field in Romania.

The find is its biggest yet in Romania, the company said. Initial exploration in September had produced disappointing results. Shares were today trading at 17.33p – up 57% on an October low of 11.06p

Meanwhile, Petroceltic (ticker: PCI) reports successful well testing in Algeria. Shares in the company were valued at 16.50p – up 112% from a July low of 7.8p

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There are clear signs of a penny share revival…

All big winners in the world of private investment have one common attribute: a hunger to succeed.

For anyone wishing to become one of these big winners, the small company end of the stock market the place to be. Because this is where you’ll find a near-constant supply of new prospects to whet your appetite.

Granted, the recession brought the new issue market to a virtual standstill, but before this, there was a regular stream of new companies.

And happily, now there are clear signs of a revival.

Small cap brokers and PR advisers are polishing up a number of stock market debutantes.

One that braved the waters last week was the estate agency Winkworth (ticker: WINK).

A second that has graduated from the PLUS trading platform to AIM is the medical support software provider Avia Health Informatics (ticker: AVIA).

Of the two, Winkworth is the more certain proposition. This estate agency can trace its history back to 1835. Its distinctive dark blue façade is a familiar sight to Londoners.

The chain has expanded fast ever since Dominic Agace, who still owns 57% of the company, spotted the attractions of a franchise model while on a trip to the United States in 1981. Of its 86 offices, 30 are outside London. These include branches in Portugal and France.

Agace receives a regular stream of applications from estate agents who see the advantages of using the Winkworth name, its advertising presence and support systems. And it has operated the franchise approach long enough to give investors confidence.

Now, with Winkworth raising just £1m on its stock market debut, investors will struggle to get their hands on any shares.

But should they be trying?

The current share price of 83p places a value of just under £10m on a business that is on course to make a pre-tax profit of around £1m this year.

Although Winkworth’s long-term growth should be delivered by increasing the number of franchisees, the company’s prospects for immediate future depend upon whether today’s upturn in the housing market carries on into next year.

So far, the revival in prices appears to be rather London-centric, where it is driven by banker’s bonuses and foreign money. But across the country the level of transactions – which is what really counts for estate agents – is subdued.

And it is likely to remain so given the squeeze on our spending power...

So whereas Winkworth’s long-term credentials look good, you’re unlikely to see much change in the near term – even if you do manage to pick up any shares.

Why Avia Health Informatics may offer more punch for your penny

A more exciting proposition is offered by Avia Health Informatics, which started trading on AIM yesterday.

Again, investors are likely to find it difficult to get hold of shares in this £3m company.

Avia’s basic proposition is to cut the cost of healthcare. It wants to exploit a suite of software products developed ten years ago ‘by doctors for doctors’.

Sold under the ‘Odyssey’ brand, these software programmes enable call-centre staff to help callers address their medical problems by checking a list of diagnostic responses.

For example, by going though a menu of questions, an operative can assess whether somebody who has a headache should take two aspirins and go back to bed, or should actually see a doctor.

Given the demands on health services around the world, this could potentially save the time of GPs.

It can also ensure that people who present themselves at hospitals can have their symptoms reviewed by a receptionist and be sent home if necessary.

To demonstrate its effectiveness, Avia quotes the example of the East Midlands Ambulance Authority. The authority has achieved annual savings of £2m through avoiding sending the ambulance to those who don’t actually need it.

Avia makes 72% of its £2m annual revenues by dealing with GP ‘Out-of-Hours’ customers and 16% from NHS Walk-in Centres. But executive chairman Barry Giddings, who built up the Highcare Group of care homes, believes that the Odyssey software has much greater potential.

First, he is convinced that pushing it deeper into the UK market could contribute to the healthcare savings that President Obama is so keen to make.

Second, it could raise the standard of healthcare in the third world. As he pointed out when I met him last week, diseases are the same around the world and the appropriate treatment is the same also.

With these ambitions in mind, Giddings has beefed up Avia’s sales team.

And if the forecasts of broker Merchant Securities are to be believed, it will be achieving £5m of annual revenues in 2010/11.

So Avia certainly offers the most punch for your penny in the shorter term.

Both Avia and Winkworth are interesting and welcome newcomers to the stock market. But will I be rushing to buy shares in either?

The answer has to be, not just yet.

I am not a big bull of the housing market. As for Avia, it does face competition and really needs to prove it can make the most of the opportunities that seem to exist.

That said, I will be keeping an eye on these two (click here and you’ll be sure to get news on these first) – and I will be looking forward to any forthcoming new issues. They all contribute to making the smaller company market the place for interest and excitement.

Good investing,

Tom Bulford
A Penny Sleuth article for Proactiveinvestors

PS. If you want to follow the insights of a small company investor, and uncover the secret gems of the stock market, you can join The Penny Sleuth for free by clicking here.

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