DividendMax small company picks for 2014

DividendMax Small Companies – Opinions for 2014.

Overall, we consider big themes and global outlook, but we look for stocks that meet the theme that are preferably quoted on the UK exchanges.

All prices and Market Capitalisations as of close of play on 31^st December 2013.

1) Cathay International Holdings.  (CTI) (Market Cap £120m)

Big Theme – Chinese Healthcare being rolled out to the masses

We like Cathay International because it is placed in the Chinese healthcare market and this is targeted for above average growth and sustained growth by the Chinese authorities. Cathay has now largely completed its Inositol project and volume ramp up and a high Inositol price mean that we can expect very high profits from this business in 2014 with sustained high profitability from 2015 onwards as increased uptake of Inositol globally keeps the price at elevated levels.

The Lansen pharmaceutical business is quoted on the Hong Kong stock exchange and this allows easy valuation of this business. The stake is currently worth approximately £50m. This business is growing very strongly and this is set to continue into the foreseeable future.

There is also an historic issue in that Cathay also owns an hotel, which at some point we would expect to be sold when certain operational conditions have been met. This would lead to a situation where Cathay would be debt free and would be considered a pure healthcare business, which would lead to a re-rating of the stock.

The stock is tightly held and building a sizeable holding will take time. A feature of this stock is that it incurs no stamp duty.

We will be meeting the management early in the New Year and will update members following that meeting.

We are expecting 2014 to be a pivotal year for Cathay as the inositol business comes fully on stream.

2) OPG Power Ventures (OPG) (Market Cap £200m)

Big Theme – Indian Power shortages need plugging

OPG has just produced exceptional half yearly results and we believe that the ramp up that is underway will lead to pre-tax profits in the region of  £17m this year to March 2014. Revenues and profits will be hit by the translation into sterling but the overall business in unaffected by this as all activities are carried out in Rupees. The rise of the dollar against the Rupee does affect the business, but because this affects the entire power industry in India, this will lead to higher tariffs allowed by the authorities.

Our estimates for the business are below:

On these numbers the stock looks very attractive. They have proven time and again that they can manage their development projects ahead of schedule and within budget. They have an MOU with the government of Gujurat to take capacity up to 5000mw, which will drive profits for years to come.

3) Toumaz (TMZ) (Market Cap £65 million)

Big Theme – Explosion of Wireless healthcare monitoring

Toumaz, like Imagination below is a UK based technology firm operating in two main areas:

1) DAB radio technology where it is the world leader

2) Healthcare vitals monitoring where it is one of the leading firms in the world, already having FDA approval in the U.S. for its Sensium vitals plaster.

Having been through what essentially was a strong R&D phase, the company is now poised for the commercial success of its Intellectual Property. It recently raised cash via a placing at 4p to leading institutions and we are seeing the fact that Imagination Technologies fully participated in the placing as a very good sign. This one is going to take time to realize its full commercial potential, but we expect the building blocks to be put in place during 2014 with the results showing up in subsequent years.

4) Imagination Technologies (IMG)(Market Cap £464 million)

Big Theme – Continued growth of mobile markets and the need for low powered graphics capability

Imagination is a well-covered stock that has disappointed the market in 2014 and its shares have plunged. We believe that they remain a world leader in their main field of GPU development and that they have invested strongly in the future. They have the likes of Intel and Apple on their share register, accounting for about a quarter of the companies stock between them.

We expect the acquisition of MIPS to be successful and we believe that they can emerge as a serious contender to ARM in the CPU area, especially when power consumption is a major factor for the OEM that licences their technology.

Following their recent placing, Imagination now holds about 11% of Toumaz and buying Imagination could be a less risky way of gaining good exposure to Toumaz.

At current depressed levels a takeover cannot be ruled out and all in all, it makes for a very interesting year for Imagination.

5) Graphene Nanochem (GRPH)(Market Cap £137 million)

Big Theme – Graphene

Graphene is a relatively newly developed super substance that will have a wide range of uses. The shares took off towards the end of 2013 as they signed an agreement with the Malaysian Government to develop a Graphene hub in Malaysia to exploit this new technology.

There is a lot of hype surrounding Graphene and some unscrupulous operators have tried to lure investors into trading it as a commodity. Graphene Nanochem is a legitimate way to gain exposure to the success of Graphene and it sits below the price of 140p at which they raised $50 million on AIM last year.

Another very sound long-term investment proposition.