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19 Nov 19

Substantial deal both transformational and significantly earnings enhancing

In a deal which will have a profound effect on the prospects for the group, Kape has announced the proposed acquisition of LTMI Holdings, the holding company for virtual private network provider Private Internet Access (PIA). PIA is a Denver-based security software business, the addition of which will transform the size of Kape by doubling group revenues (including a stronger recurring revenue base) and increasing adjusted EBITDA by around 2.5 times in FY 2020E. Reflecting that, our earnings estimates increase by around 90% for FY 2020E while our new FY 2021E estimates build strongly on that much larger base. Total consideration is c. US$95.5 million with an enterprise value of c. US$127.6 million. The deal is expected to complete within 45 days and is anticipated to be immediately earnings enhancing. The transaction will create a significant player in the digital privacy market and will enable Kape to expand its footprint in North America with a broader product offering.

Companies: Kape Technologies

15 Nov 19

FY’19 organic Media sales up 31% y/y

Future Plc’s FY results revealed the better than consensus growth noted in the trading update last week. Underlying group revenues grew 11% y/y, and 70% on a reported basis to reach £221.5m (FY’18: £130.1m), with organic Media revenue growth of 31% (reported: 134%) to £154.9m (FY’18: £66.3m). EBTIDA margins were 24.6% (FY’18: 15.9%) supported by increased scale and improving product mix. Regionally, US sales grew an organic 40% y/y with US ARPU still at a 38% discount to the UK (FY’18: 48%). EPS growth rose 95% y/y to 47.5p/share, whilst FCF rose >200% to £53.7m. Alongside FY results, management have announced the acquisition of Barcroft Studios (‘Barcroft’), a small independent studio that creates original video content for distribution across owned and operated social sites as well as mass media channels. Total consideration is £23.5m (9.4x LTM EBITDA), of which 40% will be satisfied in shares. Finally, management have also noted that, after a strong Q1, the Group now expects to be materially ahead of full year expectations. As joint broker to Future, we are restricted and can therefore provide factual comment only up to the conclusion of the General Meeting.

Companies: Future

18 Nov 19

Acquisition of Team Internet

CentralNic has announced the acquisition of Team Internet for a total consideration of $48m. The acquisition will be financed in part by a further €40m bond issue under identical terms to the €50m issue announced on 23 May 2019. Team Internet operates a ‘domain monetisation’ platform, allowing domain name owners to monetise dormant domains to generate recurring income to offset renewal fees and earn a profit. This provides a complimentary service to existing CNIC services: clients currently pay CentralNic subscription fees to register and renew domain names. Team Internet had revenues of $66.7m in the 12 months to June 2019, with EBITDA of $10.6m. We expect this transaction to have an immaterial impact to 2019E due to timing and be 43.8% accretive to 2020E earnings. Post completion, we estimate net debt:EBITDA will be 2.1x in 2020E falling to 1.6x in 2021E.

Companies: Centralnic Group

19 Nov 19

IQE - Continued impact from supply chain disruption

IQE’s reduced guidance for FY19 revenues of £136–142m (vs £140–160m previously) reflects primarily the greater than anticipated disruption to its major US wireless customers as a result of the US/China trade war. There is good evidence to support a recovery in the medium term: the qualification of products and tools in the Asian supply chain for both 3D sensing and wireless RF is encouraging, while exposure to 5G remains attractive. However, the timing of a recovery is difficult to gauge and with Q120 expected to be seasonally quiet we downgrade our FY19 and FY20 revenue estimates by 5.3% and 15% respectively, with FY19 EPS reduced from a 0.5p profit to a 0.8p loss and FY20 EPS reduced from 2.3p to 0.3p.

Companies: IQE

15 Nov 19

DCB for YouTube in the USA

Bango has announced the launch of Direct Carrier Billing (“DCB”) payment services for Google’s YouTube TV Service, with the initial launch via a “leading” but unnamed US Mobile Network Operator (“MNO”). With the ongoing growth in US Over The Top (“OTT) video services continuing to cannibalise the Cable TV operators, we believe DCB for YouTube TV is a strong offering in a large market. The release is light on detail as to the potential value to Bango, and we make no revisions to forecasts. Nevertheless, the launch represents a further win in an area of strategic focus for the group. It also confirms the integration of a major new merchant service into the Bango Platform.

Companies: Bango

15 Nov 19

LIBERUM: Frontier Developments* - Trading update, future games, CMD

Frontier has provided a trading update which highlights that the strong sales of recent launch Planet Zoo underpins FY20 forecasts and in the same statement provides a number of positive updates on existing and future games. The main takeaways for us are the strategically important expansion of Planet Coaster onto console (FY21), the confirmation of a major paid-for release for Elite Dangerous (FY21), and news of two major releases coming in FY22 including the licensed IP launch in FY22 which will be multi-platform. The update drives changes in some of our game release assumptions but we leave headline revenue and profit forecasts unchanged. We retain our Target Price of £18 and our view that Frontier is a core holding in a UK SMID fund.

Companies: Frontier Developments

19 Nov 19

Record H2 expected from Systems milestones

As noted in the October trading update, SRT’s big Systems project milestones will be booked in H2, leaving just the growing Transceivers revenue in H1. This business jumped 15% YoY and drove an overall 10% YoY growth in group revenue. Management is comfortable in delivering major milestones on the Philippines MDA deployment, which will see SRT achieve record H2 results and we therefore reiterate our FY forecasts and TP of 75p.

Companies: SRT Marine Systems

19 Nov 19

Significant earnings accretive acquisition

Kape is set to acquire Private Internet Access (“PIA”) for a cash-free/ debt-free total consideration of $127.6m, representing an EV/FY’18 EBITDA multiple of 8.7x (presynergies). The strategic rationale is compelling, immediately doubling Kape’s paying subscriber base, creating an estimated $4.5m cost synergy – resulting in pro-forma sales and EBITDA of $110m and $27m respectively - and further, improving Kape’s Data Privacy geographic footprint and functionality stack. PIA is cash-generative (FY’18 CFO: $16.3), growing sales +5% pa. and is expected to quickly benefit from Kape’s digital marketing capabilities. Revenue is expected to be 57% higher for both FY’20E and FY’21E, with the deal forecast to be 13% EPS accretive in FY’21.

Companies: Kape Technologies

19 Nov 19

How to have your cake and eat it

Often investors are faced with the difficult decision of having to choose between growth and value. Rarely is it possible to get the best of both worlds, but we think Watkin Jones is one such stock. Not only do the shares trade on a FY20 adjusted PER (ex cash) of 12.0x and pay a 3.6% dividend yield. But also the firm is benefiting from long term tailwinds in its 2 key markets of Build to Rent (BtR) & student accommodation (PBSA). In turn, offering opportunities much larger than we’d previously thought.

Companies: Watkin Jones

20 Nov 19

We remain selective; Buy Consumer Tech

We continue to take a selective stance on stocks within the small cap Technology space. The sector’s equity performance was lacklustre over 2019, rising 4% and keeping pace with the All-Share index (relative to multi-year periods of outperformance) as investors took a cautious stance on geopolitical and macro risk. We believe cautious sentiment is likely to dominate trade during the first half of 2020 and maintain our preference for consumeroriented players, consistent with our Arden Thematic Technology framework. Our top picks for 2020 are CDM, EVRH*, SUMO and VNET.

Companies: CALL CDM FDEV KWS SUMO TM17

21 Nov 19

LIBERUM: NewRiver* - H1 in line; progress made on restoring dividend cover

NewRiver’s H1 results are in line with our expectations. Underlying FFO increased 3% y/y to £26.4m, or 8.6p.

Companies: Newriver Reit

20 Nov 19

All tied in with the UK Life division

Aviva presented its strategy for 2019-22. The insurer will continue to simplify its structure, reduce costs (£300m by 2022) and debts (£1.5bn) and pay a progressively increasing dividend. The insurer aims to generate operating cash of £7.5bn over 2019-22 with remitted cash to the group by different business units of £8.5-9bn, of which 50% by the UK Life division. FY 19 will benefit from lower longevity reserves with a positive impact within the range £300-400m. No convincing strategy.

Companies: Aviva

20 Nov 19

Focusrite - A warm tone

Focusrite has delivered strong FY19 results, highlighting improved revenue momentum with a favourable reception of new product releases, better-than-expected margin delivery and encouraging trading on its first major acquisition since IPO, ADAM Audio. We increase our underlying assumptions for FY20 to reflect the improved trading and gross margin benefits from a shift in sourcing, but forex translation (notably strengthening sterling versus the euro) tempers the upgrade to c 4% for FY20. Our DCF-based valuation increases to 618p from 544p.

Companies: Focusrite

19 Nov 19

H1 20 interims – on track to meet FY20 earnings; good progress at Hudson Quarter

Palace’s H1 20 interims reported net rental income of £7.9m (broadly flat y/y vs. our FY20e estimate of £15.2m; implied H1/H2 split of 52%/48%). Adj. PBT (excl. surrender premium, share-based payments and revaluation/impairments/other exceptionals) of £3.9m was down ~9% y/y due to lower management fees, higher property costs and admin expenses, but compares to our FY20e estimate of £7.8m (which we leave unchanged, implied H1/H2 split of 50%/50%). Adj. EPS of 8.5p was up 6.8% y/y due to favourable tax movements. The company has also declared an interim dividend of 9.5p (4.75 per quarter), in line with expectations. EPRA NAV fell to 391p from 407p (Mar 19) which we understand reflects a more conservative stance taken by the valuers on Palace’s refurbishment & development activity. Net debt as at Sept 19 amounted to £94m (34% LTV, unchanged since Mar 19). We make no significant changes to our core earnings, but adjust our CAPEX and EPRA NAV assumptions (detailed below). We lower our PT to 390p (from 415p) to reflect these changes, but maintain our Buy rec, seeing 37% upside at current levels.

Companies: Palace Capital

15 Nov 19

Planet Coaster moves to console

Frontier Developments issued a trading update this morning which included several developments from its portfolio of games. Planet Coaster which has been PC exclusive since its launch in November 2016 will come to consoles (Xbox One and PS4) in Summer 2020.

Companies: Frontier Developments

22 Nov 19

GrandVision's surge fuels NAV spurt in Q3

The eye-raising announcement of the sale of HAL’s stake in GrandVision to EssilorLuxottica led to the solid NAV progression in Q3. An improved outlook for oil and dredging assets point to a more supportive FY20. Still, the uncertainty on the deployment of the proceeds from the deal with EssilorLuxottica continues to loom over HAL’s post-GrandVision future.

Companies: HAL Trust

22 Nov 19

City of London Group - Harvest time

There is at present a significant opportunity to gain a share of the UK SME banking market as the ‘Big Four’, which have historically dominated this market, increasingly struggle to meet SMEs’ service demands and generate sufficient profitability from their SME operations. City of London Group (COLG) has spent time, money and effort over recent years to set up a focused, licensed UK SME bank, Recognise, to target the UK SME market. Key regulatory and operational hurdles have now been cleared, the application has been sent and Recognise looks set to start operations in 2020. All indications point to a high return on the capital in the bank, supporting future capital raises. We initiate coverage of COLG with a 300p target price.

Companies: City Of London Group

22 Nov 19

Southern Gold active on the ground in South Korea with multiple rigs and field crews

22 Nov 19

VolitionRx - Data with product-grade assays expected soon

According to the latest Q319 update, VolitionRx has made progress with proof-of-concept studies with its upgraded Nu.Q assays and expects to start publishing the data in the coming weeks. After that, it plans to continue working on its lead indications, including colorectal and lung cancers. VolitionRx also reported progress with its newer programmes. Its agreement with the Texas A&M University has been executed to develop cancer tests for animal health. The innovative Nu.Q Capture programme made a breakthrough this summer and could eventually speed up biomarker discovery or potentially bring in licensing revenues from liquid biopsy players. Our valuation is $223m or $5.42/share.

Companies: VOLITIONRX

22 Nov 19

Actinogen Medical - Executive interview

Actinogen Medical is an ASX-listed biotech developing its lead asset Xanamem, a specific 11β-HSD1 inhibitor designed to treat cognitive impairment that occurs in chronic neurodegenerative and metabolic diseases. In this video, the company’s chief executive officer Bill Ketelbey provides an update on recent developments, R&D progress and expected newsflow.

Companies: Actinogen Medical

22 Nov 19

Digbee's data and research platform to launch next week in London

22 Nov 19

Bahamas Petroleum makes first big purchase order ahead of drill programme next year

22 Nov 19

Aftermath Silver looking for advanced stage assets with resources in South America

22 Nov 19

LIBERUM: CEO Video: Mark Dorman, SThree*

At yesterday’s Capital Markets Day, SThree’s CEO Mark Dorman discusses his initial impressions of the business since joining, the overriding focus on STEM markets and flexible working, the geographies that SThree are prioritising, the ambitions for the next five years and the key takeaways from the CMD.

Companies: SThree

22 Nov 19

Eco Atlantic chief remains upbeat over Orinduik and buys shares to prove it

22 Nov 19

Coro Energy - Positive Mako appraisal, Tambak non-commercial

Subsequent to our initiation on Coro Energy yesterday, the company has announced the results of its Tambak-1 well. The well was designed to appraise the Mako gas field and test the underlying Tambak exploration prospect. Coro has confirmed the deliverability of the Mako reservoir with a maximum flow rate of 11.4mmscfd achieved on test. Meanwhile, the Lower Gabus reservoirs in the underlying Tambak prospect were found to have low gas saturations and poor reservoir characteristics and the well is now being plugged and abandoned. Our RENAV of 3.79p/share included 0.41p/share for the Tambak prospect; the updated RENAV is 3.37p/share.

Companies: Coro Energy

22 Nov 19

Digbee's independent mining research 'long overdue' - Mining Capital's Alastair Ford

22 Nov 19

All change

Xpediator has issued several announcements relating to Board changes during November: two Non-Executive Directors and a CFO have been appointed. In addition, the interim CFO will stay on as Group Commercial Director once the period of handover completes. We view the appointments favourably, adding significant UK and international industry experience to the Board. It is also worth noting the subsequent purchase of shares by both new NEDs, suggesting confidence in XPD’s outlook. With no trading update traditionally anticipated until the third week of February, the adjustment to our fair value assumption reflects the movement in the valuation of Xpediator’s peer group. At 48p/share, our fair value stands well above the level of the stock price. Furthermore, the recent preliminary approach for competitor Clipper Logistics seems to underpin the inherent strategic value of Xpediator plc.

Companies: Xpediator

22 Nov 19

Material Colombian acquisition

 Pending further visibility on GeoPark’s plans for Amerisur assets and quantification of synergies, we are taking a first stab at looking at Geopark, post-Amerisur acquisition.  The £242 mm/US$315 mm acquisition (c. US$270 mm, net of Amerisur’s c.US$45mm cash) adds 21.8 mmbbl light oil 2P reserves and 6.9 mbbl/d production from two producing assets, located in close proximity to GeoPark’s Colombia and Ecuador assets. Overall, we estimate GeoPark’s FY20 and FY21 production at c. 49 mboe/d and 52 mboe/d (+12% vs previously), respectively.  The acquisition provides multiple synergistic areas. Light oil production from CPO-5 will provide some diluent to Llanos 34. The OBA pipeline in the Putumayo basin, owned by Amerisur with 50-70 mbbl/d capacity, together with the Putumayo producing asset in the south of Colombia would offer synergies with any discoveries at the recently acquired assets in north Ecuador. The OBA pipeline also offers opportunities for third party production tolling.

Companies: Geopark

22 Nov 19

La Doria - Steady performance

9M19 results were in line with expectations. Consolidated revenues were up 4% on the prior year, with good performances from pulses and vegetables and ready-made sauces, while the red line and the fruit line were broadly stable. Q3 revenues were up an impressive 7%. The outlook for FY19 remains unchanged and management is forging ahead with its four-year investment plan. We leave our forecasts and fair value of €14.00/share unchanged.

Companies: La Doria