small caps to watch for big returns, page-3

Foresight’s

EMT Corporation (ETC - $1.80): On Monday mgt announced the company had received payments for Nexbis bringing its cash balance to +$10m, an important milestone given the market’s scepticism as to whether its contracts with Asian governments would actually result in cash being received. We understand the makeup of this cash balance is partially due to continued Sapio mobile application earnings, receipt of a small (~$3m) cash payment for the China Gas Tank contract invoiced in Dec 09 and ~$5-$6m for April printing for Malaysia Immigration. It is important to note that 1) this cash balance also factors in the $5.8m bond ETC paid for the China Gas Tank contract (i.e. a cash outflow), 2) mgt expect the invoice for Malaysia Immigration’s May printing to be paid before the end of the financial year, and 3) the China Gas Tank payment cycle is 90 days thus the first cash payment for its Nexcode printing that commenced in May is scheduled for August. Indeed, we had forecast a net cash balance of $13.7m at end FY09 and so we see this announcement as containing nothing but positive news. On the other hand the Friday issue of 30m options exercisable at 50c came as a less pleasant surprise given the size and timing, with our FY10 and FY11 EPS forecasts downgraded by 6% assuming full dilution. We understand that these options are not going to directors but to key employees within Nexbis which is understandable given the need to attract and retain key personnel who provide considerable support for new contract wins, however the size and issuance before a material positive announcement will do little to improve investor sentiment towards the company. We still see new Nexbis contract awards before the end of CY09 as likely with Malaysia and Vietnam the most promising countries, offering upside more so to our FY11 forecasts given the long lead times demonstrated thus far between contract signing and printing. Mgt reconfirmed $48m guidance which implies a +$80m profit base for FY10, and with Nexbis cash generation commencing the stock’s valuation metrics appear considerably more “real” with the FY10 PER of 2.4x appearing ripe for ongoing expansion as the market’s comfort with ETC’s cash generation attributes improves. BUY retained