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05 Oct 17

Conviction List Q4 2017

Since its inception in 2010, the Panmure Gordon Conviction List has outperformed the market, returning 278% against a Small Companies index that would have returned 232% over the same period. Our Q4 portfolio reflects our view that the UK equity market stands to benefit from a coordinated upturn in global growth. Low nominal fixed income spreads continue to provide a valuation underpin for global equities. There are increasing signs that the world’s central bankers are making a concerted effort to wean markets off near zero interest rates. However with global debt exceeding 200% of GDP and unfavorable demographic trends, we think their chances of rapid progress are slim.

Companies: CPI CTH CINE JE MJW NOG RPC VM/ XAR

11 Oct 17

Highly prudent view of turbulent short-term backdrop = FY18 PBTe -28%

An already difficult trading backdrop in recent weeks, materially exacerbated by Toys “R” Us (accounting for c8% of CCT’s total sales) falling into Chapter 11 bankruptcy protection on September 18th, has caused our FY18 PBT expectations to fall by 28% to £10.5m (£14.5m), with a base knock-on effect to our FY19 PBT forecasts which are reduced by 19% to £12.5m (£15.5m). The deleverage effect of lower sales with little cost mitigation that can be implemented in the short-term gives rise to the pressure on profitability. Looking ahead, our model assumes that FY19 PBT sees a return to profit growth, reflecting CCT’s recently significantly boosted growth opportunities. With tougher market conditions having persisted and indeed worsened into the key-for-profits October-December period, CCT is taking a highly prudent view on the difficult environment likely to continue from now until the end of the first half of calendar year 2018. We are therefore also lowering our TP to 550p.

Companies: Character Group

16 Oct 17

Shopping Trolley

We examine wet-led and food-led capacity across the regions and conclude that excess capacity remains in the food-led segment (although Central, Welsh and Yorkshire regions lag the national average). Despite recent profit warnings, an increasing divergence in reported performance between pubs and restaurants, and a recent reduction in eating out frequency and spend, existing food-led operators remain too focused, in our view, on trimming estate tails and slowing rollout rather than substantial capacity reduction – and combined with smaller PE-backed concepts scaling up and landlord pragmatism, net new capacity continues to enter the market. Given the severe cost and competitive pressures, as well as downside macro risks, we foresee more pain across the sector – in the near term expect aggressive menu price discounting to continue, leading subsequently to margin pressure and forecasting risk for listed operators and financing risk for smaller, highly leveraged private operators. While rightsizing will happen (it did with pubs), the process may be protracted. We run the finnCap Slide Rule over the casual dining space, with our preferred pick (BUY, 19p PT) scoring highest on QVGM metrics. While not immune to sector woes, lacks an estate tail, should be a beneficiary of trading down, and has a number of self-help levers, as well as a management team that has seen the movie (many times) before.

Companies: BOTB FUL HOTC IDP JOUL CAKE PHTM RGD RBG SCS SHOE

10 Oct 17

UK Housebuilding Sector: Q3 2017

‘The $64,000 Question’

Companies: ABBY BDEV BWY BKG BVS CRN CSP CRST GLE INL MCS PSN RDW TW/ TEF WJG

16 Oct 17

FY 2017 results – a year of transition ahead

Full-year adjusted EPS was 7% above our expectations, driven by higher revenues, gross margins and a lower tax charge. FY 2018 is a year of transition; the need to replace revenues from the loss of its second-largest licence income stream (c.£1.0m) with existing product growth and the introduction of troponin by Siemens. We reintroduce a target price of 2,600p implying 2018 P/E of 30x falling to 26x for 2019. Despite an 11% decline in EPS in FY 2018 as it transitions the licence loss, the shares should be underpinned by free cash flow (+11%), which supports a 3.5% yield, 3.4% free cash flow yield, 46% free cash flow/capital employed and 56% ROCE. Bioventix remains a top quartile investment in the finnCap Slide Rule.

Companies: Bioventix

10 Oct 17

Outgrown its valuation and deserves a re-rating

While iomart’s share price is roughly where it was in 2013, it has since then doubled revenue and profits through a combination of organic growth and bolt-on acquisitions. Including potential future acquisitions (not in forecasts), we think it should maintain mid-teens growth in revenue and EBITDA consistent with the past few years making the shares attractively priced at 9.4x FY’18 EBITDA. This compares to other UK Technology midcaps at 16.0x on the same expectation of 15% EBITDA growth p.a. We initiate with a buy rating and price target of 430p.

Companies: Iomart Group

11 Oct 17

Prelims on track; strong pace of deal synergies

Solid prelims pre-acquisition FY17 (July) show ongoing development of visibility and consequent quality of earnings; increasing number of customers, and ensuing cross-sales potential; margin development; and success in identification and execution of complementary acquisitions. Results are in line with the August trading update, forecasts unchanged, which include dramatic uplift from the August completion of the Perfect Commerce acquisition, more than doubling revenue and EBITDA – and significantly expanding the corporate opportunities in the position as sixth-largest global pure play in spend control. Synergy delivery has already reached an annualised £2.5m in just over two months, well on track for annualised full-year synergies of £5m by year-end. 250p target reiterated.

Companies: Proactis

10 Oct 17

World of Warpaint

Warpaint London is a creative design-focused cosmetic brand proposition delivering high-quality cosmetics at affordable prices. Its focus is to develop its flagship brand, W7, while capitalising on the growth potential of e-commerce and international expansion. Consensus forecast revenue growth is underpinned by the implementation of the e-commerce strategy and broadening of international operations.

Companies: Warpaint London

12 Oct 17

Further acquisition drives growth of PMC division

Flowtech has announced its fifth major acquisition and sixth in total this year. Group HES Ltd has been acquired to continue the build out the PMC division adding c. £10.0m in revenue. This follows the recent addition to the division of Hydraulic Group BV, the first acquisition by the current management team in mainland Europe. On a normalised basis, Flowtech has paid c.6x trailing EBITDA, in line with its stated strategy and other completed deals. The £4.1m consideration is being settled with £3.1m in cash and £1.0m in shares, equating to the issue of c.670k new shares. Forecasts increase reflecting the addition of HES with revenue increasing c.12% and PBT c.7% in both FY18 and FY19. Flowtech continues to trade at a discount to other UK listed distributors at sub 10x FY18 earnings, the first year the full earnings impact of today’s acquisition will be felt. Should the valuation discrepancy continue as the business grows Flowtech could become an attractive acquisition target for a larger distributor.

Companies: Flowtech Fluidpower

12 Oct 17

Trading update

Elegant has this morning released an encouraging trading update essentially confirming the company continues to trade in line with market expectations. The company has also confirmed that the Treasure Beach Hotel is on track to reopen for business at the start of the peak tourist season and that bookings for the current financial year are tracking ahead of last year. The Company intends to announce its full year results for the year ended 30 September 2017 on Tuesday 9 January 2018. We remain comfortable with our FY expectations and are therefore leaving these unchanged. We believe the shares represent good long-term value trading at a c.54% discount to NAV (175p).

Companies: Elegant Hotels Group

13 Oct 17

Visibility underpins forecasts

Telford Homes’ trading update is a timely reminder that house building can’t always fall into neat six months tranches. Is also serves to remind us that demand for affordable housing in the London market remains strong and, combined with build to rent, provides excellent visibility through its strong forward order book, supported by a robust balance sheet. We expect continued growth over the next three years.

Companies: Telford Homes

12 Oct 17

Setting the Stage

Full year results confirm PROACTIS’ healthy financial performance continues. Against a backdrop of excellent deal volumes, gross margins improved sharply and underlying cash generation was strong. More importantly these results set the stage for the next act in the story. The Perfect acquisition transforms the company into a global player, doubling its size, expanding the product portfolio and broadening the customer base. It is this deal that will drive financial performance in FY18 and beyond. The company confirms its synergy targets and we leave our FY2018E forecast largely unchanged.

Companies: Proactis

11 Oct 17

N+1 Singer - PROACTIS Holdings - Full year results reassuring, integration of Perfect Commerce on track

While this latest set results is overshadowed somewhat by the post period end reverse takeover of Perfect Commerce, they nevertheless provide reassuring evidence that the core PROACTIS business continues to trade well. Full year revenues and profits were in line with expectations, with 9% organic revenue growth driven by 54 new name deals and 110 upsell and cross sell deals. Management is currently focused on integration, but it is encouraging to hear that cost synergies are being realised (£2.5m so far of the £5m targeted) and trading in the first months post acquisition is in line with expectations. We will revisit our forecasts and target price once we have a fuller update on progress. In the meantime, we remain excited by the increased commercial opportunities open to the enlarged group.

Companies: Proactis

13 Oct 17

N+1 Singer - BCA Marketplace - Share price fall presents a buying opportunity

We note yesterday's fall in the share price, which pulled back close to the levels at the time of the AGM. The AGM update was very upbeat and potentially signalled overly conservative forecast assumptions. In our view the fall is overdone given significant strategic advances at the company over 2 years, and unassailable barriers to entry in terms of its physical remarketing and data platform. Market nerves around residual pricing risk are misplaced; BCA is price agnostic and historically defensive. Indeed movements in residual price can, and recently did, drive additional remarketing volumes to which BCA’s success is actually linked. As detailed in earlier research, there are several structural forces at play which are increasing volumes through exchanges, especially the market leader BCA. We expect the interims on 30 Nov to vindicate the key points of our Buy stance which we presented in our preview note dated 15 Sept. In essence several variables could facilitate stronger growth than the market currently forecasts, e.g. higher volumes, take-up of add-on services and related profits, and benefits of operational leverage. The move to a Premium listing on Monday will also mark a key milestone and pave the way to FTSE250 inclusion in Dec. Having fallen 30% below our recently increased target price, we argue the fall offers an excellent entry point.

Companies: BCA Marketplace

02 Oct 17

The Monthly October 2017

In the October edition of the Hardman Monthly newsletter, Chief Executive, Keith Hiscock analyses the much misunderstood – but highly important – issue of stock liquidity. In particular, he focuses on the lower echelons of the Main Market and of AIM.

Companies: OPM ABZA AVO AGY APH ARBB AVCT BUR CMH CLIG COS DNL EVG GTLY MCL MUR NSF OBT ODX OXB NIPT PHP PURP RE/ RGD SCLP SPH SCE TRX VAL

17 Oct 17

N+1 Singer - RhythmOne - H1 Trading update

The Company has provided an update for H1. Revenues ($112-114m guidance) are tracking slightly lower than we had been looking for with gross margin higher by 1% point (at 38%) and OPEX lower resulting in EBITDA being not far adrift from our expectation ($1.5m to $2.0m guidance). The Company is guiding to meeting our full year $16m EBITDA expectation, in part because OPEX is expected to continue to be materially lower (US$87m for the full year). In order to meet our forecast the Company will need to still achieve our revenue objective although we flag there is still some scope for OPEX to surprise given the continuing consolidation of the operations and acquisitions. More cash has had to be invested in working capital (an issue in the industry at the moment) and there are some YUME acquisition related expenses (we estimate c$3m) also impacting cash (guidance of $37m rising to $50m at year end). The Company expects some recovery in working capital in H2. The shares have been drifting off during the YUME acquisition process. We expect the shares to recover as the process nears completion (due early 2018) and investors get confirmation the Company is tracking towards the delivery of the critical leap in profitability this year.

Companies: Rhythmone

17 Oct 17

Lufthansa intends to take parts of restructured Alitalia

Similar to its takeover of parts of bankrupt Air Berlin, it intends to take over some of the Italian carrier’s global net work traffic and European and domestic point-to-point business. Management has asked the commissioners to maintain confidentiality regarding the details of the offer.

Companies: Deutsche Lufthansa

17 Oct 17

- Microsoft relationship deepens

Two new product integrations with Microsoft Azure, together with the recently released Amazon AWS hybrid solution, add up to a meaningful strengthening of WANdisco’s credentials and platform for growth. We see scope for a significant acceleration in operationally geared growth, especially if the company can progress one or two of its tier one relationships into a strategic relationship akin to the one with IBM.

Companies: Wandisco

17 Oct 17

N+1 Singer - Anpario - Strategic initiatives paying off

Anpario’s interim results highlighted a period of impressive growth with exceptionally strong performances from key target regions Asia, the Americas and Middle East. The group’s transformation of sales and distribution channels is still in its early stages and we expect the group to continue its strong growth over our forecast horizon (12% 3-year CAGR). We upgrade our Target Price from 354p to 432p. We note the strong share price performance (+52% since our initiation in Feb) and move to Hold.

Companies: Anpario

17 Oct 17

Executive interview - WANdisco

17 Oct 17

N+1 Singer - dotdigital Group - H2 growth acceleration; M&A in focus

With its exposure to a structural growth market, a highly recurring business model, consistent strong execution, healthy balance sheet and potential new avenues for growth, we believe dotdigital remains a core holding in the sector. It offers investors an attractive compounding growth stock with the potential for accelerated growth as it expands internationally and increasing prospects for M&A. The FY results (19% sales growth, 27% EBITDA growth and 32% EPS growth) showed another year of strong execution, with the H2 growth acceleration particularly pleasing. We remain confident of the group’s prospects.

Companies: Dotdigital Group

17 Oct 17

Flowtech - 2017 Q3 Trading update

17 Oct 17

Growth story continues

Since 2013, Fulcrum’s share price has risen from 5p, peaked at 66p in February 2017 before falling back to its current level. The latest trading statement highlights two new areas for potential upgrades 1) acceleration in the rate of investment in the ownership of gas assets and 2) the imminent award of an Ofgem licence to own and operate electricity assets. We calculate the EBITDA in FY20 could be increased by as much as 5% as a result of these initiatives implying a PE rating of 14x and dividend yield of 5%. Given the recent underperformance and potential for upgrades we maintain our buy recommendation with the price target unchanged at 66p.

Companies: Fulcrum Utility Services

17 Oct 17

Q3 Trading Update

Today’s Q3 trading update details a continuing strong performance for the nine months ended 30 September 2017, with trading since the last market update (interim results 12th September) described as solid. Group revenue of £54.5m is up 34.4% YoY, with growth across all three operating divisions boosted by contribution from new subsidiaries. Of particular note is impressive Q3 organic growth of 12.4%, reflecting soft prior year comparatives following the June Brexit vote, as well as contribution from price increases and strong volume gains. This growth has been achieved at stable gross margins, reflecting the benefit of the Group’s multi-channel proposition. Trading for the full year remains in line with market expectations. On FY17 forecasts the Group trades on a PER of 12.1x, a discount of 40% versus its UK peer Group, offering a prospective dividend yield of 3.4%.

Companies: Flowtech Fluidpower

17 Oct 17

Interim results – £88.8m of NAV and no luck involved

B.P. Marsh has delivered another strong interim performance with the key NAV at 31 July increasing to £88.8m or 304p/share (31 Jan 2017: 273p, 31 July 2016: 253p). The company has been busy making attractive investments yet there is a current uncommitted cash balance of £8.6m available for investment opportunities. The shares trade at a current 15% discount to NAV which we view as too wide despite the recent share price rally (28% YTD, 16% in the last month). We believe that the shares should trade at a small (5%) discount to NAV and as such have raised our target price to 289p/share from 238p previously. Buy.

Companies: B.P. Marsh & Partners

17 Oct 17

Breakfast Today

Cora Gold (CORA.L)

17 Oct 17

The Macro View

UK CPI set to hold steady in September, peak in October, as GBP impact wanes. | Inflation expectations suggest the MPC will be “one and done” in November. | Builders merchants sales up 5.8% YoY amid stable demand within UK construction.

Macros: Economic Data

17 Oct 17

Panmure Morning Note 17-10-2017

The World Conference on Lung Cancer (WCLC) this week has allowed Chi-Med to present new data on combination therapies based on fruquintinib (RNS release yesterday) and savolitinib (today). In our view the quality of the data, particularly with respect to the savolitinib combination studies, potentially sets up pathways towards dialogue with the FDA on Breakthrough Therapy Designation (BTD) and Phase III programmes. We upgrade our target price to 5200p (3840p) and repeat our Buy recommendation.

Companies: Hutchison China Meditech

17 Oct 17

Panmure Morning Note 17-10-2017

Virgin Money 3Q17 net lending is up 15.1% YoY to £35.8bn (2% ahead of our forecasts) with mortgages up 13.9% to £32.9bn and credit card balances increasing by 31.3% to £2.9bn. Gross mortgage lending at end of 3Q17 was £6.5bn (flat YoY), although equivalent to a market share of 3.5% (and at top end of management guidance 3.5%). Net interest margin (NIM) is in line with FY2017 guidance of c1.57%. Costs are in line with management expectation with cost income ratio having improved further. Credit quality has remained stable with cost of risk and consistent with full year guidance (of c15bp) which should help allay recent market concerns regarding growth in consumer credit. FY2017E CET1 ratio is expected to be c13.5% which is 20bp better than our forecasts. Overall, Virgin Money continues to maintain a solid double digit 2017E RoTE. At FY2017E PE and P/TBV of 8.0 and 1.0 for RoTE of 13.4%, we maintain our BUY rating with TP of 400p.

Companies: Virgin Money

17 Oct 17

Weak peak summer trading

Summer trading weaker than expected, not helped by external events. A 3% downgrade is not ideal, but non disastrous and capex rebalancing will support continued NBD momentum, as will new IP initiatives and the proposed LLP New York. We would regard a sharp share price reaction (>5%) as a good entry point to one of the highest quality portfolios in the sector. BUY.

Companies: Merlin Entertainments