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12 Jul 19

LIBERUM: Burford Capital* - ROIC lessons

Burford is off 22% relative since the recent peak. Much has been written about returns, in some cases valuing the business excluding the big wins, but including all losses, which makes no sense, or putting the core business on 10x and its opex on 15x (same), or entirely ignoring the extra returns from the sovereign wealth fund deal (same).

Companies: Burford Capital

18 Jul 19

FY results; acquisitions to fully benefit FY 2020

Full-year results to 30 April 2019 were in line at the revenue line but 5% (£0.1m) better than expected at the adjusted pre-tax profit level. Underpinned by c.5.5% organic growth, the 20% and 26% increases in revenue and adjusted EBITDA were driven by full-year contributions from ATC and QSI, acquired in FY 2018, as well as five acquisitions in FY 2019. Notable was the 35% increase in free cashflow. Additional investments into Sentek, Atik, Graticules and Astles and the integration of ATC with Thermal Exchange in FY 2020 should benefit the businesses in FY 2021. We upgrade our FY 2020 adjusted EPS by 7% as well as introduce FY 2021 forecasts, which indicate 13% EPS growth. The company indicates that it expects to add at least one new business in FY 2020, which will be incremental to these forecasts. We are raising our target price by 9% to 60p, reflecting the improved gross margins and stronger underlying cashflow.

Companies: Scientific Digital Imaging

12 Jul 19

SP Angel – Oil & Gas View

Hurricane Energy (HUR): Capital Markets Day

Companies: Hurricane Energy

16 Jul 19

Cenkos: CloudCall Group Plc - 30% Growth

CloudCall is expected to deliver revenue growth of +30% YoY in the six months to June. The company is making good headway into large enterprise accounts although sales cycles are somewhat elongated in this market segment. This growth performance continues the strong trajectory seen last year but is slightly below our run rate projections for 2019E and we are revising our forecasts accordingly.

Companies: Cloudcall Group

18 Jul 19

Strong position in high-growth core market

Strong secular drivers are supporting rapid growth in Kape’s core Virtual Private Network (‘VPN’) market with rising user-data awareness underpinning high market growth forecasts. Kape’s paid VPN has strong brand reputation, a features set which screens well versus competition, and is forecast to deliver 19% group sales CAGR (underlying: 15%) and EPS CAGR of 46% to FY’21E. Near-term cash is expected to be reinvested into customer acquisition to grow the SaaS user base, but cash conversion should improve rapidly by FY’20E/FY’21E as renewals begin to outpace additions. Our SOTP generates an implicit value of 115p/share, although DCF and peer-based approaches imply 130p/share is achievable.

Companies: Kape Technologies

18 Jul 19

Solid trading in H1 underpins confidence in FY19 estimates

Strix confirms that it has traded in line with FY19 profit expectations in the first half of the year. Interim profit after tax will be ahead yoy and underlying cash generation strong leading to good performance in terms of net debt, considering investment in the new manufacturing site, the acquisition of HaloSource in Q1 and the increased dividend. We leave forecasts unchanged on today’s statement despite the apparent progress in terms of cash generation as Capex relating to the factory move is expected to ramp up in H2 as part of the two year £20.0m investment. Important for profitability, the underlying Controls market remains solid and continues to grow, albeit at a marginally slower rate than reported in FY18. Strix Global market share by volume is broadly stable and it has increased share in China, as predicted at the end of last year. AO has also maintained market share but in a market that has declined in H119. The shares trade on 11.4x current year earnings falling to c. 10.5x in FY20. The 4.8% yield is attractive on a conservative balance sheet with less than one times Net debt/ EBITDA.

Companies: Strix Group

16 Jul 19

LIBERUM: Staffline* - Dilution results in EPS reduction

We expect an H1 FD EPS weighting of 27%, vs 43% in FY18. The significant H2 weighting leaves a lot of work to do in a difficult trading environment.

Companies: Staffline Group

19 Jul 19

ASOS warning highlights boohoo’s strengths

ASOS Plc released a trading statement yesterday, with operational issues in both its European and US warehouses resulting in weaker than anticipated P3 performance and a downgrade to the outlook for the full year to 31 August 2019. The ASOS update serves to highlight the relative strengths of boohoo Group model, in our view, and reaffirms our belief that it deserves to trade at a premium to its peer. Boohoo has repeatedly proven its ability to invest ahead of growth and manage significant operational change with minimal disruption to trading. By owning all of its brands outright, boohoo also has full control of its own destiny. In addition, the diverging financial positions of the two companies is in stark contrast as boohoo continues to build its cash pile with £194m on its balance sheet, whilst ASOS has seen debt rise to c.1.0x EBITDA in a matter of months. We believe boohoo presents a compelling opportunity to invest in a fast-growing ecommerce business that is both profitable and cash generative. Trading on an FY20 PER of 44.3x, falling to 35.2x in FY21, we believe this rating is more than justified given the Group’s strong and consistent track record of profitable growth.

Companies: Boohoo.Com

12 Jul 19

LIBERUM: Miton Group* - Net outflows experienced but market movement strong

Miton’s Q2 AuM update shows £4.7bn under management, 2.7% up from the last disclosed number at the end of March. Over the quarter, Miton has experienced net outflows of £87m, while performance recovered strongly, adding £211m to AUM.

Companies: Miton Group

12 Jul 19

Half-year end trading update

The half-year trading update was satisfactory, indicating trading in line with expectations. A new revenue split between components and services was previously flagged and highlights revenue growth of 5.7%, of which 2.9% is organic. The net debt position at £18.8m is better than expected and points to good underlying cash generation from trading, with a further debt reduction in H2. No change to forecasts. We retain our 200p price target, with the shares currently trading at very attractive levels and at a significant discount to its peer group. The dividend yield remains attractive at 4.9%.

Companies: Flowtech Fluidpower

16 Jul 19

Upgrading forecasts after strong H1

“Don’t fight the Fed” is a tried and tested Wall Street strategy that has worked a treat over the past decade. Basically it states that when US interest rates fall, global equities should rise thanks to lower borrowing costs for consumers and corporates alike. Similarly after last week’s dovish testimony to Congress by FOMC Chair, Jerome Powell, we believe this bias towards more monetary easing should keep the economy ticking along, and places a ‘Put’ under valuations

Companies: Mpac

16 Jul 19

H1’19 trading: Good progress, est. trim on timing

CloudCall published a trading update for H1’19, reporting strong commercial progress and reiterated management guidance on net user addition run-rate of >1,000/month for the year. A confluence of factors has led us to rebase our FY19E-FY20E nos for slight delays from: (1) a staggered rollout of the group’s recent enterprise contract win; and (2) time taken to implement SMS within MS Dynamics; alongside (3) additional headcount to smooth enterprise onboarding. However, with liquidity robust post the refinancing of the group’s revolving facility, we continue to view our thesis as intact. We reiterate our Buy rating on the shares as one of our top picks of 2019, seeing substantial upside potential to our revised 260p PT.

Companies: Cloudcall Group

17 Jul 19

Cenkos: XLMedia Plc - Tender Offer

XLMedia has announced a Tender Offer to buy back 9.5% of the current issued share capital at 80p per share. If passed at the forthcoming EGM and fully tendered, then the earnings accretion in 2020E will amount to a 12% increase in fully diluted EPS. The company has also confirmed that current trading is in line.

Companies: XLMedia

16 Jul 19

Small Cap Feast

Voyager AIR The Company will focus on the acquisition, leasing and management of primarily widebody aircraft, with asset management services to be provided by Amedeo Limited the IPO will comprise a Placing and Offer for Subscription of Shares to raise up to approximately US$200m. Uniphar, a diversified healthcare services business with a workforce of over 2,000, is looking to join AIM. Raising EUR135m with market cap on admission of EUR309.6m, expected 17 July 2019. Roxi Music UK music streaming service plans London IPO as it goes up against Spotify. They have appointed investment bank Arden Partners for an initial public offering (IPO) on the London Stock Exchange later this year.

Companies: CALL BIRD ABC KDR EMAN BST SCE ZEG SAG FUL

09 Jul 19

Petersen appeals to investors

Burford has made a double announcement about the Petersen case. Argentina had appealed to the US Supreme Court over the decision about where the case will be heard. The Court has declined to hear the appeal, so proceedings will take place in the US. Burford has also sold another 10% of its entitlement in the case for $100m; implying a market price of $1bn, ca.25% above the value implied by the smaller July 2018 transaction. Additional disclosure is that the sale took place to 11 institutional investors, with 40 having participated in the market now. This adds credibility to the valuation generated by the transactions to date.

Companies: Burford Capital

19 Jul 19

Bad times continue

Subdued order-intake continues for Wärtsilä in Q2 FY19, as both the businesses are facing near-term demand uncertainties. No wonder, management has downgraded its FY19 outlook from ‘solid’ to ‘soft’. We do not see any short-term respite for the company, and will revise our financial estimates downwards.

Companies: Wartsila Oyj

19 Jul 19

Weak organic net revenue growth

Organic net revenue growth was disappointing in Q2 19 (+0.1%). Publicis continued to be affected by the attrition of revenue in traditional advertising in the US. The short-term outlook is less favourable so that organic net revenue should be stable in 2019 (vs +0.8% at least previously). Conversely, the operating margin improvement, excluding the Epsilon-related transaction cost, was of good quality in H1 19 (15% of net revenue, +0.6pt) thanks to significant cost savings partly reinvested in the business transformation.

Companies: Publicis Groupe

19 Jul 19

Q2 19: down a tick more than expected

SSAB’s Q2 results were decent, albeit lower than expectations Iron-ore prices and a weakening European demand were the key factors The Q3 outlook is rather cautious Valuation ratios look rather cheap, but investors will be happy to wait until visibility improves

Companies: SSAB

19 Jul 19

Euromoney Institutional Investor - Q3 in line

Euromoney’s Q3 trading update indicated overall trading performance in line with management expectations and we have not changed our FY19 estimates. The recent capital markets day took a deeper dive into the Investment Research and Fastmarkets operations and how management is working on transforming them into ‘3.0’ B2B information service businesses, built into clients’ workflows. Given the group’s earnings resilience, subscription base and attractive cash conversion, the rating disparity with peers still appears excessive.

Companies: Euromoney Institutional Investor

19 Jul 19

LIBERUM: CEO Video: Ronnie George - Volution Group*

In these three short videos, Volution Group CEO, Ronnie George discusses the new Reading site, some of the operational difficulties and how the site can deliver in the future.

Companies: Volution Group

19 Jul 19

H1 19: narrowing of the guidance, Europe wage inflation a hot issue

Key information from this earnings release are: the narrowing of the guidance range; Chinese developments stable to positive; and the increase in Europe wage inflation, which in our opinion is becoming a threat. Hence, we will keep our €1,200m EBIT forecast for FY19 unchanged, as it lies almost inbetween the low and high end of the guidance range. We will keep our recommendation unchanged, as well as our forecasts, which implies an almost unchanged target price.

Companies: KONE Corporation

19 Jul 19

Encouraging Q2 figures

After weak Q1 figures, Fortum released a solid set of results for Q2, beating our estimates and the market’s expectations. Results increased in all divisions and higher achieved prices and good hydro and nuclear volumes were the two major growth contributors. Thanks to strong cash flow generation, the group was able to reduce its debt ratio and to reiterate its ambitions to strengthen its balance sheet.

Companies: FORTUM OYJ

19 Jul 19

Cenkos: Record Plc - A positive, if unspectacular, update

Record's Q1 update reports a 1.7% increase in the $ value of AUME (4.0% in £ terms) to $58.3bn, with a net client inflow of +$0.3bn and exchange rate movements of +$0.7bn. The uncertain economic backdrop and associated volatility in FX is creating a welcome backdrop for Record, with 3 new mandates added in Q1. Given flattish AUME and fee rates, we leave FY20E forecasts unchanged, which produce a yield of 7% before specials.

Companies: Record

19 Jul 19

Some cracks around the City of Paris, but the latter is safe

Confirming market information, the Offices segment of the City of Paris signed another good half, including a slight yield compression of 14bp. The trend weakened clearly in La Défense where we can worry about the coming over-supply and was negative in both the 1st and 2nd rings around Paris (rental values are now in negative territory).

Companies: Gecina

19 Jul 19

BioPorto Diagnostics - Paediatric AKI application pulled, Q4 resubmission

In July 2019 BioPorto announced that the FDA had requested additional information for The NGAL Test’s 510(k) application for paediatric acute kidney injury (AKI), although few other details were disclosed. Unfortunately, the existing clinical data set does not include the requested information, so the company will need to withdraw its current application and collect additional samples, which carries additional risk (probability of success lowered to 50% from 60%). The company forecasts that it will be able to refile an application in Q419 if sample collection goes smoothly.

Companies: BioPorto

19 Jul 19

Morning Note – 19 July 2019

Companies: Cambridge Cognition

19 Jul 19

LIBERUM: Volution Group* - Reading resolution raising returns

A recent visit to Reading persuaded us that its production issues have been resolved. This should help reverse the recent margin decline as Reading’s production costs fall once again and better service levels restore pricing power.

Companies: Volution Group

19 Jul 19

LIBERUM: XPS Pensions Group* - Investment case remains intact

Although the recent resetting of FY20 estimates was disappointing, we believe that the core investment case remains intact. As the leading independent provider of pension advisory and administration services, XPS is uniquely position within an industry with a growing end market and high barriers to entry.

Companies: XPS Pensions

19 Jul 19

Another stellar quarter

Novartis reported a strong performance in Q2 with struggling Sandoz (+3% vs -2% on Q1 19) coming as a positive surprise. The innovative pharma business also continued to grow at a healthy pace, driven by the new drugs. Pricing relief stood out in all the businesses, with a bigger impact at Sandoz. FX had a negative impact of 4ppts. The good trajectory continued on the profitability side as well, prompting another outlook upgrade.

Companies: Novartis