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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

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

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

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

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

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

14 May 19

Well positioned for growth

Beeks Financial Cloud Group (“Beeks”) provides scalable, cloudbased ultra-low latency connectivity and infrastructure services for the automated trading of all key financial asset classes. Founded in 2010, in our view the business has a strong track record of growth and profitability and enjoys a solid financial position with high levels of recurring revenue and positive monthly cash generation. This has all been delivered while investing in the platform - the benefits of which have been demonstrated in the impressive revenue growth reported over recent periods. The experienced management team has positioned the Group well to benefit from the growth in its chosen markets.

Companies: Beeks Financial Cloud

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

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

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

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

14 May 19

Understanding the deepest discounts

At Hardman and Co, we try to answer the questions of why to invest in a company and what the risks are in doing so. For many investors, simply having a deep discount to NAV is a good enough answer to the first question. However, investors need to appreciate the risks and, in particular, the reasons why the shares are at a discount. Having understood those risks, investors need to be convinced that there is a catalyst for change on the part of the manager and how long (if at all) it will take for market sentiment to reflect this in a lower discount. In this report, we examine the companies with the largest discounts and review those very issues.

Companies: ADAM BC12 BGHL CGI HAN JZCP LMS MPO MVI MHN NSI NAS OCI PSHD RSE SIHL TFG TPOU UTL VIN ELTA ELX

14 May 19

Is the dividend cut a buy signal?

Vodafone has released its annual results. Although there was not much new on the operational side, the dividend was cut to €0.09, as was unfortunately expected (but it was probably the right thing to do). This corresponds to 6% of yesterday’s stock price (vs 10% previously). The major telcos, offering a 4.5-5.5% yield, lend it some upside if the market has confidence, like us, in the sustainability of the dividend. We maitain our Buy on the stock.

Companies: Vodafone Group

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

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

21 May 19

Secure Trust Bank - Upbeat trading update

Secure Trust Bank’s (STB) trading update seems to vindicate its decision to step away from mortgages for now and focus on segments where the risk-reward pricing is more attractive. The retail and motor finance segments (both with net revenue margins above 10%) have been doing well and earnings are slightly ahead of management expectations in the first four months of this year. We are not changing our forecasts, but may revise them if interims in July confirm the good news.

Companies: Secure Trust Bank

21 May 19

Ascelia Pharma

Ascelia Pharma recently announced its maiden interim financial results as a public company. Q319 operational expenditure and net loss has increased versus Q318 due to the Phase III study preparation and IPO costs. It is interesting to see a company with a clinical pipeline appear on the public market. Ascelia’s first product is Phase III ready with a sophisticated regulatory strategy.

21 May 19

SolGold - Positive PEA Study Results

21 May 19

paragon - Strong growth set to continue

Having delivered management expectations in FY18 and despite tempering our forecasts modestly for FY19, guidance is still indicating strong growth, especially at Voltabox. Q119 results do nothing to deflect the expectations and growth should accelerate as the year progresses, primarily as Voltabox increasingly delivers against its €1.1bn backlog. The continued investment in the auto operations should also start to be reflected in improved earnings this year. On our new lower estimates, the rating fails to reflect the growth potential.

Companies: paragon

21 May 19

Minds + Machines Group Limited - .luxe project update

21 May 19

Tinexta - Broad-based strong profit growth

Tinexta reported strong Q119 results, with c 10% organic revenue growth, c 32% organic EBITDA growth, 50% EPS growth and improving free cash flow (FCF) generation. All divisions contributed to profit growth and the acquisitions made in FY18 are performing well. Management has reiterated guidance for FY19, which appears conservative even though Q1 is a seasonally less important quarter. We maintain our forecasts for now but will review them later in the year.

Companies: Tecnoinvestimenti

21 May 19

Sirius Real Estate - 2019 Capital Markets Day Highlights

21 May 19

Alunorte’s embargo has finally been lifted

The Brazilian court has withdrawn the production ban – which had been in effect for more than a year – on Alunorte. As a result, the issue of below-par production and the all-important integration benefits should be addressed/restored soon. Even though the aluminium pricing environment is expected to turn lacklustre – due to the brewing (macro) challenges, Norsk Hydro remains our top sector bet by virtue of its inherent operational advantages.

Companies: NORSK HYDRO

21 May 19

LIBERUM: Harworth* - Good start to FY19

Harworth has had a good start to 2019, with progress made on planning, land sales and replenishing the pipeline. Planning applications are on track and 60% of budgeted sales for the year have already been agreed or completed, aiding confidence in our unchanged forecasts for double-digit returns.

Companies: Harworth Group

21 May 19

Sarine Technologies - Focus on cost savings and marketing efforts

As the midstream market continues to struggle, Sarine reported a net loss of US$1.4m in Q119 amid weaker scanning activity and lower margins on equipment sales. In this environment, the company is focusing on prudent cost management and further promotion of retail-oriented products (which remains a minor part of the business at just under 3% of Q119 group sales). Management has recently seen some initial signs of potential recovery in the number of scanned stones. The company retained a solid gross cash position of US$32.7m (vs US$28.9m at end-2018).

Companies: SARINE TECHNOLOGIES

21 May 19

Globalworth Real Estate - Strong growth continuing

2018 was a year of dynamic growth for Globalworth (GWI), and this has continued into 2019. Since reporting FY18 results, it has completed the issue of 55m new shares, valued at c €500m, directed at funding continued portfolio investment and the acquisition of the outstanding minority in its Polish subsidiary. Further acquisitions with a value of c €283m have been reported, and the group has a new core shareholder.

Companies: Globalworth Real Estate Investments

21 May 19

Morning Note – 21 May 2019

Companies: AMO SAV SHOE NAH

21 May 19

Vietnam Enterprise Investments - Long-established expertise in Vietnam

Vietnam Enterprise Investments (VEIL) was launched in 1995 and is the largest closed-ended fund focused on Vietnam. In July 2017, it became a member of the FTSE 250. VEIL aims to generate long-term capital growth by following a bottom-up approach, unconstrained by the benchmark, to find high quality companies that are attractively valued. Although the fund’s NAV total return has lagged the VN Index over one year, VEIL has a strong longer-term performance track record, delivering annualised NAV growth of c 26% and 20% over three and five years respectively. The manager believes sustained economic growth in Vietnam offers exciting long-term investment opportunities and valuations are now more reasonable following a sharp correction in the VN Index in 2018.

Companies: Vietnam Enterprise Investments

21 May 19

Nynomic - Expanding photonics platform

The acquisition of LayTec helped drive revenue growth slightly ahead of the German sensors and measurement market during FY18, though Spectral Engines is not yet profitable, resulting in static EBIT margins. LayTec takes the group into a new, high growth industry vertical while Spectral Engines adds B2C activity.

Companies: m.u.t.

21 May 19

Entertainment One - Content creation and ownership

Entertainment One’s full year results showed strong growth in underlying EBITDA, +21%, broadly in line with market and our estimates. The Family & Brands division is benefiting from the higher margins from advertising and streaming video on demand (AVOD and SVOD), with underlying EBITDA up 28%. Film, TV & Music’s performance reflects the completion of the transition in film and the shift in mix toward TV, with an improvement in underlying EBITDA margin from 11.6% to 14.6%. Our revised forecasts show the positive impact of the recent Audio Network acquisition (and the boost from IFRS16), diluted at the EPS level by the additional shares.

Companies: Entertainment One