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17 May 19

LIBERUM: Staffline* - Unscheduled statement: estimates reduced

We are reducing 2019 and 2020 FD EPS by 46% and 17%. We increase FY net debt from £52m to £85m (net debt /EBITDA of 3.0x) for FY 2019.

Companies: Staffline Group

14 May 19

Cenkos: Duke Royalty Ltd - Capitalising on more favourable terms

Duke has agreed modifications to the terms of three royalty agreements from the Capital Step acquisition. The effect is to unlock a minimum of £3.7m in additional revenues over the next 5 years. As a result, Capital Step's future revenue is expected to increase by 25%+ at no additional cost. This realises a key synergy from the Capital Step deal.

Companies: Duke Royalty

17 May 19

Interim results – another beat

H1 Revenue is ahead of our not long ago increased expectation driving a better profit result. Cash is also £10m ahead. The business has good momentum and despite the ever present spectre of Brexit there is still significant scope for us to prudently raise revenue, EBITDA and EPS estimates. Acquisitions integrations and performances are on plan and the online advertising technology changes in place to benefit. The shares have re-rated again in line with the changing fundamentals. We see a path to 20x EBITDA leaving significant upside potential without the need for further upgrades.

Companies: Future

15 May 19

Strategic acquisition expands software strategy

Elektron Technology has announced the acquisition of Next Control Systems Ltd (“Next”), a leader in high-end service based temperature monitoring in healthcare and life-sciences with customers including the NHS. The net £8.8m (gross: £10.5m) cash acquisition adds significant scale to the technology segment, and is strategically important for Checkit, diversifying the customer base, offering access to new verticals, and extending Checkit’s service range with complementary IP. The transaction was undertaken at a net multiple of 6.6x EV/EBITDA, and adds over £10m of revenues, 57% of which are annual repeating (Next FY’18 sales: £10.7m; Checkit: £0.5m). The deal is earnings accretive from the acquisition date, with Next having generated £1.2m of operating profit during FY’18 (December YE). The acquisition announcement has been issued alongside a Q1 trading update highlighting strong 17% y/y revenue growth for the group. Whilst management expect sales growth to moderate in Q2, H1 sales are still expected to be “significantly ahead of last year’s comparable”. As a function of the acquisition, we raise our FY’20 group revenue forecast by 18% to incorporate 8.5 months of Next, with adjusted operating profit rising 13% (ex. restructuring costs).

Companies: Elektron Technology

15 May 19

Strong H1 performance, underlying upgrade

Sanderson has delivered interim results in line with the 15 April update, with group revenue increasing 18% and adjusted operating profit up 34%. While there is still a note of caution in the outlook, good revenue visibility and healthy sales prospects underpin management’s confidence in further progress in H2. We have revisited our forecasts to reflect further improvement in underlying performance, the acquisition of Gould Hall and potential IFRS 15 impact. This results in unchanged earnings expectations in FY19 and 2% enhancement in FY20/FY21. A FY 2019 EV/EBITDA of 10.2x and P/E of 14.2x suggests further upside given positive underlying momentum.

Companies: Sanderson Group

17 May 19

Upgrades to forecasts, release of FY22E numbers

Following FY19A results last week, we upgrade FY20E and FY21E forecasts to reflect an increase in business momentum. We increase FY20E revenues by 3.0% to £48.6m, and adjusted PBT 6.7% to £5.6m. For FY21E we nudge up revenues by 1.3% albeit keep earnings broadly flat. Our newly released FY22E forecasts expect £62.3m of revenues and £7.2m Adj. PBT. We increase our PT to 520p from 460p (set by DCF) on updated forecasts, yet remain Neutral.

Companies: Keystone Law

20 May 19

Cenkos: Falcon Oil & Gas Ltd - Full Steam Ahead

Falcon Oil & Gas is an international oil and gas company focussed on the acquisition, exploration and appraisal of unconventional oil and gas assets. Falcon has a 30% interest in three exploration permits in the Beetaloo Sub-basin, in the Northern Territories (NT), Australia - covering 4.6million gross acres and estimated to contain 496 trillion cubic feet (TCF) of original gas in place (OGIP) within the Middle Velkerri B dry gas shale play. As part of a transformational farm out to Origin Energy in 2014, the Company carries up to A$113m (US$80m) for the costs of the upcoming Stage 2 and 3 work programme to drill and hydraulically fracture stimulate four further horizontal wells and evaluate the potential of the Kyalla and Velkerri liquid plays before confirming commercial production flow rates in the most prospective play(s). On Friday, the Company conditionally raised gross proceeds of cUS$9m (c£7m) to primarily fund Falcon's share of the next cUS$100m of capital expenditure on the Beetaloo work programme and its ongoing G&A. By the end of the Stage 3 work programme, a total of US$300m would have been spent by Falcon and its partners in determining the commerciality of the Beetaloo. Through its transformational farm-out deals with Hess and Origin, we estimate Falcon's share of this gross cost to be approximately US$15m, or 5% of the total capex to date for its 30% working interest. Prior to development we would expect Falcon to monetise its interest and exit the play. Given the multi-TCF potential, strategic location and multiple commercialisation options, we believe Falcon offers early entry to a world-class play with potential upside far greater than any of its peers. We initiate coverage with a price target of 41p and a BUY recommendation.

Companies: Falcon Oil & Gas

03 May 19

Burford Capital - Time to Top Up

We believe recent share price weakness presents an opportunity to enter the market leading litigation funder at an attractive valuation. Current market concerns surrounding an overstated ROIC and aggressive fair value accounting are unfounded, in our view. We reiterate our Buy rating and 2,300p price target.

Companies: Burford Capital

15 May 19

Taking Checkit to the ‘Next’ level

Disruption may be the most over-hyped word in the Tech lexicon, yet it is reshaping almost every walk of life. Even routine tasks - from cleaning restaurants, hospitals, food factories and public toilets, to maintaining schools, shops and leisure facilities - have been transformed by the ‘digital revolution’.

Companies: Elektron Technology

21 May 19

Upbeat H1 & in line with FY19 estimates

One of the most reliable gauges of a company’s ‘competitive moat’, is (not surprisingly) the amount of money it generates. Not solely profits, but the return on invested capital after adjusting for financial gearing. On this measure Watkin Jones ranks as the industry’s #1 player (see below), delivering an anticipated FY19 unlevered Return on Equity of 44.2%.

Companies: Watkin Jones

11 Apr 19

Quarterly Research Outlook

We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.

Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE DTG DEMG EMR FPO FST GTLY GENL GOR GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR PARK PGM PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF

20 May 19

Earnings accretive acquisition

CentralNic has announced this morning the acquisition of TPP Wholesale, the leading Australian and New Zealand domain name and hosting reseller business for a consideration of $24m AUD, subject to financing. This acquisition is a good example of CNIC’s strategy to acquire high recurring revenue businesses, with potential synergies that exist in new markets. We leave forecasts unchanged for now, preferring to wait until the financing condition is satisfied, but management have stated that they believe this transaction will be immediately earnings accretive for 2019E with double digit earnings accretion in 2020E. This is the group’s third acquisition in 12 months as they continue to execute their consolidation strategy.

Companies: Centralnic Group

20 May 19

Cenkos: Collagen Solutions Plc - Strategic investor vote of confidence

Collagen Solutions has announced it has received a strategic investment of £4.2m from the private US company, Rosen's Diversified Inc (RDI). The company will increase the raise to ~£6.0m through a proposed equity placing and open offer. The associated shares will be issued at a price of 5.0p. We believe this investment supports the growth we see developing in the company and significantly de-risks the near-term cash position. Following the recent positive trading statement, we have upgraded our FY19E forecasts and introduce new numbers out to FY21E. The momentum we see in the company supports our forecasts and Buy recommendation.

Companies: Collagen Solutions

21 May 19

Forecast upgrades

GYG has released a trading update this morning confirming that they have seen a positive uplift in trading at the start of the year and expect full year results to be ahead of current market expectations. The core refit business has seen continued improvements in the trading environment in the first four months of the year and further progress in the New Build segment has also contributed positively to the group’s performance. We are upgrading our forecasts as a result, and now expect adj. EBITDA in 2019E of €3.3m (vs. €3.0m previously) with adj. PBT of €1.6m (vs. €1.3m previously). In our view, this is an encouraging update and is further evidence that the trading environment in refit continues to improve as demand begins to normalise. Even on upgraded forecasts, our 2021E expectations remain 21% below the 2017 outturn at the adjusted PBT level highlighting the extent of a geared recovery on offer.

Companies: GYG

28 Mar 19

Litigation, litigation, litigation

Within this note we look to build upon our existing legal sector coverage of Anexo*, Gordon Dadds*, Gateley, Knights, Keystone, Rosenblatt and NAHL to include the litigation funders Burford Capital, Manolete Partners and Litigation Capital Management.

Companies: ANX BUR IMF JIL LIT MANO RBGP

22 May 19

Bitesize briefing - ADMIE Holding

22 May 19

Seneca Global Income & Growth Trust - Significant contribution from holding in AJ Bell

Seneca Global Income & Growth Trust (SIGT) has a value-biased, multi-asset investment strategy. It aims to generate average total returns of at least CPI +6% pa over the course of a typical investment cycle. Recent performance has been significantly enhanced by the holding in financial platform AJ Bell, whose shares have nearly trebled since listing in December 2018. This has more than offset the negative effects from SIGT’s lack of exposure to US equities and safe-haven government bonds, which have performed relatively well. SIGT has a positive medium- and long-term track record versus its benchmark, despite growth rather than value stocks leading the markets in recent years. Performance has been helped by its c 30% exposure to specialist assets, which offer the potential for enhanced total returns, including high yields, supported by stable, inflation-linked income streams, along with lower volatility.

Companies: Seneca Global Income & Growth Trust

22 May 19

Attica Bank - Ready for growth

After cleaning up the balance sheet and cutting costs, Attica Bank’s key aim now is to grow into its cost base with normalised impairments while refocusing on the SME sector. Attica will have to be mindful of capital (fully loaded end-2018 CET1 is 8.9%, statutory is 13.5%), but liquidity looks comfortable (loan/deposit 69% and no more ELA) and unlikely to slow it down. We have reduced forecasts due to weaker than expected 2018 results and now expect ROTE 2020 of 3.2% (4.2% before). Attica is trading on a 2018 P/NTA of 0.2x, and our valuation remains at 0.28x (€0.27/share).

22 May 19

Formycon - FY18 results: FYB201 launch on track for 2021

Formycon's partner Bioeq IP AG (Bioeq) plans to file FYB201, its Lucentis biosimilar, to treat neovascular age-related macular degeneration (nAMD) with the FDA in early Q419. The Phase III met its key primary endpoint. The US launch could be in 2021 and the EU in 2022. FY18 revenues were €43m, which includes €34.5m in payments from partnered projects. Bioeq is the partner on FYB201, Santo on FYB203 (an Eylea biosimilar) and there is a joint venture with Aristo Pharma on FYB202 (a Stelara biosimilar). FYB202 could enter a Phase I trial in mid-2019. Formycon guides for FY19 revenues of about €34m. Liquid cash at end-FY18 was €12.31m. There was a private placing of €17.3m in March 2019, implying Q119 cash of about €29m.

Companies: Formycon

22 May 19

No surprises in Q2; hopes pinned on the new CEO

Q2 performance was in line with our expectations. Despite the lfl decline, the negative calendar impact and a 50bp slump in the gross margin, the adjusted EBIT margin (even after excluding the Fnac Darty contribution) remained flat. While new management needs to focus more on the Netherlands, the Spanish issue seems non-structural. The launch of initiatives like a centralised pricing strategy is also a step in the right direction. No change to our stock recommendation.

Companies: METRO

22 May 19

InMed Pharmaceuticals - Fiscal Q319 results

InMed recently reported results for the third quarter of FY19 and is on track to be in the clinic to treat epidermolysis bullosa (EB) in the second half of this year (consistent with prior guidance for a CTA filing in H219 with entrance into clinic by year-end 2019). In March, it announced that instead of developing a combination cannabinoid product for EB, it would go with a single agent (INM-755) as it discovered in its testing that by increasing the dose of one of the components, efficacy was the same as the combination. This greatly simplified the regulatory process as there are extra hurdles for a combination of two investigational drugs in one product.

Companies: INMED PHARMACEUTICALS

22 May 19

Cenkos: IXICO Plc - Revenue growth & improved margin

IXICO has reported results for H1/19A which clearly demonstrate the growth potential of its market along with the ability to deliver future profitability. For the 6-months to March 2019 the company delivered revenue growth of 22%, a gross margin of 66.3% and a maiden operating profit. IXICO closed the period well capitalised with cash of £7.5m and expects to accelerate investment in the business to maximise its potential. We maintain our Buy recommendation.

Companies: IXICO

22 May 19

Acarix - Strong medical support

Acarix has gained strong support from clinical users, one comments that CADScor will ‘shorten waiting lists and add value for both patients and healthcare system’. The CADScor medical device helps doctors rule out coronary artery disease, avoiding complex and costly further testing in 50% of cases. Q119 sales were SEK299k with a gross profit of SEK209k, a 70% margin. Acarix sells to the German and Austrian private markets (about 10% of the population) and the Scandinavian public sector. The process for German public reimbursement is underway. A 2,000-patient outcomes trial starts in 2019. Our valuation remains at SEK369m.

22 May 19

Cranswick

Cranswick had a year of consolidation in FY19, showing resilience against an uncertain and intensely competitive market backdrop. Management has continued to invest in the business to strengthen its asset base. Revenues were broadly flat on an underlying, like-for-like basis, and adjusted PBT was slightly ahead on the same basis, despite the tough trading environment. Capital investment behind the business continues apace: the Continental meats facility was completed in FY19 and the construction of the new state-of-the-art poultry processing facility is well underway.

22 May 19

Executive interview - CGI

22 May 19

Cenkos: Marlowe Plc - Strategic acquisition

The prospective acquisition of Clearwater (£11m EV) significantly strengthens Marlowe's core Water division, creating a c£75m revenue leading player in the Water Treatment & Hygiene market. The acquisition and associated restructuring costs will be funded from a £20m capital raise. Relative to existing market forecasts, earnings accretion exceeding 10% is likely by FY21E as synergies are unlocked.

Companies: Marlowe

22 May 19

EQS Group - Building recurring income

Q119 revenue growth of 9% was a little less than expected due to the lack of IPOs and corporate announcements, but the good pace of corporate sign-ups leaves full year revenue guidance unchanged. EBITDA guidance is also unchanged, but now includes the uplift arising from the application of IFRS 16. As in previous years, meeting the full year expectations will rely on a strong Q4 performance. EQS’s positioning as a provider of cloud-based IR and compliance services for corporates, with growing (recurring) SaaS revenues, remains attractive.

Companies: EQS Group

22 May 19

Morning Note – 22 May 2019

Companies: Dotdigital Group Omega Diagnostics Group

22 May 19

LIBERUM: U+I* - Challenging backdrop limits gains

U+I’s full year results were below our forecast, with £42.8m of development and trading gains just below the group's £45-50m target. A valuation decline in the investment portfolio further weighed on returns with NAV -4% to 289p and 4% below our forecast.

Companies: U&I Group

22 May 19

LIBERUM: Codemasters* - F1 and GRID trailers released

This week Codemasters has given trailer glimpses of key games F1 2019 and GRID both planned for release in coming months. The visual uplift, earlier release date and the Legends Edition could deliver record revenue for the F1 franchise, while the first new release of GRID for 5 years is backed by expected innovative game-play and a helpful launch window.

Companies: Codemasters