Diary: aff, kio, opts

First two stocks listed below are "buy" recommendations by Faraday Research on a video dated 10-Nov-2011.

AFF - Afferro Mining - Industrial Metals and Mining - 47.70p/£49.6m

Notes from video: west africa. contrary to popular belief, there is a lot of iron ore there, with big deposits being found (not just by aff). china has a big deposit in cameroon. they're building a 530km rail track to the coast. it runs 30km from aff's deposit in cameroon, so it's an easy way to piggyback when it's built. short-term catalysts expected: plenty of cash, mining feasibility studies in cameroon expected soon, potential expansion of 40% ownership of a mine in liberia.

I currently hold this stock - it's been a bumpy ride so far, I'll tell you that for nowt.

KIO - Kiotech Intl - Pharma and biotech - 88.5p/£16.5m

Notes from video: makes fish feed but going into other animal products. half of world's fish in china. china love carp. kio have discovered a food additive that naturally boosts a fish's appetite, so they grow faster. designed forfarmed fish, clearly.  kio is just breaking into the market. it's a play on global food demand. fish from sea is unsustainable.

Newsflow

11-Nov-2011 Will change its name to Anpario on 01-Dec-2011, EPIC ANP. This will ensure a clear distinction between the name of the holding company and those of the trading companies and product brands.

12-Apr-2011 Dividend up 74%

Financials

KIO is on a PER of 10.7, and has net cash of £3.4m. Analysts estimate 2011 EPS growth of 21%, and for a further 15% growth in 2012. Looks good. Director shareholdings are minimal, which is off-putting.


OPTS - Optos - Health care equip and services - 222.80p/£158.9m

This first came to my attention on at thread by AdamB1978 at Motley Fool. It was 186p at the time he suggested it, so it's since gone up in value by about 20%. He was the one who suggested CTN - so he's got my ear.


Background

It makes retinal imaging devices that create optomap images. The optomap is the only image that provides an ultra-wide 82% view of the retina. A simple optomap scan is an important tool for the screening, early detection and diagnosis of eye problems such as retinal detachment, glaucoma, cataracts, retinal holes/retinal tears and age-related macular degeneration. It can also indicate evidence of non-eye diseases such as diabetes, hypertension and certain cancers. Many of these conditions can be seen in the periphery of the retina as well as in the central pole which is why widefield imaging is so important. Optos believes that its technology provides an unequalled combination of widefield retinal imaging, speed and convenience for both the practitioner and patient.

There are a lot of IP barriers to entry. Their long-term target is to grow by 20%pa. They are entering new markets and launching new products so there should be plenty of growth left. Gross margins have been 60%-67% over the past several years.  WBIT has grown from $4.4m in 2005 to $18.1m in 2010.

Somewhat capital intensive, and the majority of their sales are in US. Their international sales are growing quicker.

Newsflow has been uniformly positive, and you get a sense of a company going somewhere.

BBS

What the bulletin boards have been saying

The company are looking at using the retinal maps as a marker for Alzheimer's disease. If this proved to be the case then the market for their products becomes vast. Unlikley to be a single test for AD but part of various other tests. The disease is associated with plaques in the brain. It is possible the vascular changes could be picked up from the Optimap that may indicate the onset of the disease . Might not be the case but if it was you could have one in every Doctors surgery.

I managed to speak at the weekend with a doctor I know who has had significant involvement in retinal imaging. His view was that Optos' wide angle views of the retina were incredibly clever (conventional camera based imaging cannot achieve those angles because the pupil is too narrow) but of limited use until the resolution can be improved. The resolution of the laser imaging is years behind that of conventional imaging, which is important because laser imaging's current resolution levels are too low for the majority of promising medical applications for retinal imaging, in contrast to conventional imaging.  However, if Optos can improve the resolution of their imaging then it would be a big breakthrough - the speed and, most importantly, the wide angle, would set this technology apart from conventional retinal screening. The doctor is convinced that retinal imaging has a huge amount of potential for diagnosing conditions - one area of medical industry where the hype is in his view justified as the retina is a unique window on the state of the body (he conceded that not all doctors share his view to the same degree). The more of the retina that can be imaged, the better. The million dollar question - how likely is it that Optos will be able to improve the resolution in a commercially viable way - "it's a punt". There is no certainty, or even likelihood, that Optos will be able to develop a successful laser imaging solution which has sufficient resolution for the many likely future applications, or even for many of retinal imaging's current applications. The "punt" comment relates to the possibility of technological breakthrough, not to investment in the company, about which the good doc said he didn't know enough to have an opinion.


Newsflow

02-Nov-2011 received CE mark clearance for its Daytona device. Remains on track to commence first product sales of its next generation, desk-top imaging device, Daytona, in the first calendar quarter of 2012 in its key markets of the US and Europe.


04-May-2011 Study revealed a highly significant association between AD (Alzheimer's Disease) and peripheral small hard drusen formation, suggesting that monitoring the peripheral part of the retina might become a valuable tool in the detection and monitoring of the progression of AD. Further work is being planned to investigate whether peripheral small hard drusen can be shown to act as a surrogate marker for plaque development in the central nervous system.

06-May-2010 In two clinical studies, results show that image-assisted examination using the Optos ultra-wide field P200C had a greater capability to detect retinal lesions compared to traditional ophthalmoscopy by approximately 30%. The study confirmed that there are wide ranging pathological retinal changes in the periphery even in those who have no central pathologies.

Financials

Beta 0.34. One director owns £11.4m of shares, which is pretty respectable. None of the other director holdings is significant. There have been no director deals in the last year.

Trades at a PER if 13.4, gearing 37%, interest cover 3.65, net debt 18.7m, and z-score of 3.14. These figures look fine. PFCF 11.3, which is very good for a growth company.