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16 Oct 18

Target price increased – buying opportunity

Equity investors are usually looking for companies that have opportunities to deploy incremental capital at high returns. Burford Capital is, in our view, a prime example of this as it continues to apply its legal and financial skills to the business of law. It’s recent, well-timed, 5% placing at 1850p to raise c.$250m looks to us simply a logical response to the ever-expanding opportunities, on which we comment herein. This has coincided with market volatility, hitting the best performing shares on AIM the hardest. We have updated our estimates (3-4% reduction FY’18 and ’19, 5% increase FY’20) and increase our 12m TP 6% offering a 29% TSR. The exaggerated fall in the shares offers a compelling buying opportunity, in our view.

Companies: Burford Capital

16 Oct 18

Cenkos: IG Design Group Plc - Value: Fundamentals vs Market Sentiment

IG Design has announced a trading update for H1/19E, guiding to performance being in-line with strong market expectations. The group is expected to deliver record H1 revenues, with all regions contributing to the growth performance. Highlights for the period include numerous strategic actions by management, with the acquisition of Impact Innovations in the US being significant in transforming the group's growth profile. Management guides to good visibility in the order book, with strong momentum going into H2/19E. IG Design's fundamentals remain fully intact, and given the recent retracement in share price along with the broader market, we assess the current price levels (FY20E EV/Adj EBITDA of c7.8x) to be a great buying opportunity for investors. Buy.

Companies: IG Design Group

08 Oct 18

FY 2018 results – 12% upgrades to FY 2019

Full-year adjusted EPS was 11% above our expectations, driven by higher revenues across the majority of its product range. A 55p special dividend was proposed, resulting in full-year dividend growth of 27% to 116p. Strong underlying revenue growth (c.28%), which excludes c.£0.8m of backdated royalties and the loss of a c.£1.0m royalty stream, bodes well for future growth. This was despite a weak start for troponin sales in Europe, which we expect to benefit from Siemens’ US launch in July. We have increased FY 2019 forecasts by 11% and introduced forecasts for FY 2020 that imply c.12% EPS growth. We reintroduce a target price of 3,440p, which implies a 3.2% FY 2019 free cash flow yield, underpinned by 51% free cash flow/capital employed and 64% ROCE.

Companies: Bioventix

16 Oct 18

Interims justify FY2019 profit expectations

Gear4music’s interim results were released this morning and reconfirmed both underlying sales growth for the business and a view that full year profits will meet expectations. The company’s second half includes the all-important Christmas period. Moreover, international sales appear set to nudge ahead of UK in the six months. Clearly, sales trends remain strongly positive, which should benefit both future profit growth and valuation.

Companies: Gear4music

16 Oct 18

Not just a pretty face

dotdigital has delivered another year of strong growth, with a positive outlook promising more of the same in the current year. The results, which were largely flagged at the trading update in July, show 15% organic revenue growth, with 22% EBITDA growth and net cash of £15m at the period end. Double digit growth was delivered in all geographies, with an 18% increase in ARPU signalling continued progress with both new and existing customers. With further strong execution expected we are leaving our top of the range forecasts unchanged. The shares trade on a Dec’19 EV/EBITDA of just 12.9x, which we believe is highly attractive for a core holding in the sector and see recent share price weakness as an opportunity.

Companies: Dotdigital Group

19 Oct 18

LIBERUM: Safestyle* - Not buying SafeGlaze

In response to speculation, Safestyle’s Board has announced that it is not in discussions to acquire either the assets or business of SafeGlaze, the very aggressive and disruptive new entrant to the industry. However the Board has said it is considering other arrangements with key SafeGlaze stakeholders, and that these could potentially prove beneficial to Safestyle's business and its recovery.

Companies: Safestyle UK

08 Oct 18

Revenue visibility improves further

The strong momentum seen in Sopheon’s first half has continued through Q3, with the Group announcing that revenue visibility now exceeds $30 million for 2018 – up from U$27.2 million at the time of the interim results. This reflects a record Q3 performance with a number of transactions, including the addition of two new contracts of material size - one with a new customer and one an extension with an existing customer – which were booked towards the end of the third quarter. The update notes that the sales pipeline for the balance of the year remains ‘robust’. Unsurprisingly, the Board says that it sees the strong performance as indicative of the growing maturity both of the Enterprise Innovation Management solutions market and of Sopheon’s reputation and business model. New customer wins in the first half of 2018 were some 50% ahead of those achieved in the comparator period and momentum has clearly continued. We increase estimates for revenue and Adjusted EBITDA by 5% and 8% respectively for FY 2018E and also nudge up FY 2019E to reflect the updated revenue visibility in the trading update. After an impressive performance so far in 2018 and with Q4 typically a key contributor of revenue performance, we look forward to further positive updates.

Companies: Sopheon

17 Oct 18

LIBERUM: AFH Financial Group* - Reload. £15m cash now ready to deploy

AFH has successfully raised £15m at 370p. The statement makes clear that there is a strong pipeline, but we assume no acquisitions in numbers, hence our FY19 estimate falls 8%.

Companies: AFH Financial Group

15 Oct 18

Well placed to deliver strong organic growth

ZOO Digital’s Capital Markets Day highlighted the positive backdrop for the media localisation market - the preparation or modification of film or TV content to make it consumable for international audiences - and the Group’s leading position within that market. As a provider of services to showcase, localise, and distribute TV and movie content globally, ZOO’s proprietary cloud-based ecosystem presents a high barrier to entry for competitors, supports its subtitling, dubbing and digital package offering in a secure manner while providing cost & time efficiencies to its clients. We believe that its end-to-end offering differentiates ZOO from its competitors leaving it well placed for continued strong organic growth. We also note that the robust market dynamics in the home entertainment market continue to underpin ZOO’s prospects. We make no changes to our estimates ahead of the Group’s interims due on the 6th November.

Companies: Zoo Digital Group

16 Oct 18

Winning formula

The successful formula of selling more functionality, to more customers, through more partners, in more territories, over more communications channels continued in FY18. Much more than an email marketing platform, the acquisition of Comapi during the year confirms dotmailer as a data-led marketing platform across clients’ channels of choice (e.g. email, WhatsApp, SMS, Facebook Messenger), leading to greater revenue per client from additional services, including analytics. Prelims are in line with the trading update, showing a 26% increase in new client wins, and continuing momentum from the existing client base – even during the imposition of GDPR – leading to 35% revenue growth (15% organic) and 85% (FY17: 81%) recurring revenue. Forecasts continue to expect strong growth into FY19, and maiden FY20 forecasts show continuing trends in growth and margin. Unmodelled upside persists from the increasing use of AI to further assist targeted client marketing, tailored to the interests of individually profiled end users. Target lifted to 135p (115p): performance in FY18 proved the robust nature of the model even in a year of uncertain external influences.

Companies: Dotdigital Group

16 Oct 18

Telford Homes - Making progress, laying down markers

A 10 October update put down some clear markers for open-market sales to attain £50m+ group PBT in FY19 and for build-to-rent (BTR) sector expectations during H219. Some market risk remains evident at higher open-market price points and, with increasingly risk-averse UK equity market sentiment, Telford’s trading update was not well received. However, short-term market conditions are not distracting management from the development of an attractive pipeline of future project opportunities.

Companies: Telford Homes

17 Oct 18

FY 2018 results – US update

Full-year results were marginally ahead of the July trading update. Revenue growth (10%), albeit at the lower end of target range, was affected by lower UK growth (+1%) but international markets (+19%) now account for 51% of revenues and EBITDA rose 16%. Clarity from the US FDA with regards the regulatory process for a high-level disinfectant has been received, and the revised process will delay the filing by six months. We still expect royalty income from Parker Labs in the US for its EPA-registered product in FY 2019. We make minor upgrades to our FY 2019 forecasts (+4% to EPS) and introduce FY 2020 forecasts for 12% EPS growth. Our 280p target price implies a FCF yield of 3.2%, although scope for upgrades from better than expected launch of SHOT should not be discounted.

Companies: Tristel

17 Oct 18

Kape Technologies - Acquisition further strengthens VPN position

Kape has announced the acquisition of ZenMate, a digital privacy company based in Germany focusing on virtual private network (VPN) provision. With 50,000 software-as-a-service (SaaS) customers, the move strengthens Kape’s position in VPN, a standout growth area for the company currently. By utilising its digital marketing experience, Kape is confident it can accelerate ZenMate’s growth. We raise our FY19e EBITDA forecasts by $0.5m and adjusted EPS by 4%.

Companies: Kape Technologies

16 Oct 18

Positive conclusion to FY18, ahead of forecast

Driver continued to trade positively throughout H2, with FY18 results expected to be ahead of expectations. As a result we have increased our EPS forecasts by 9%/12% in FY18/19 (0%/16% including share based payments). The outperformance was driven primarily by higher utilisation rates (80% in FY18 vs. 76% in FY17) and a focus on higher margin work (e.g. growth in services provided by Diales). Driver’s management team has successfully delivered on its turnaround plan. Since the February 2017 placing, we have cumulatively upgraded our EPS forecasts by 56% and 53% respectively. The focus is now on delivering continued revenue and profit growth. We believe earnings momentum will continue to drive the share price higher and we expect a positive reaction to today’s trading update.

Companies: Driver Group

16 Oct 18

Contagious excitement in Low Code

Prelims to June are in line with the July trading update, demonstrating the robust customer engagement platform as well as the significant opportunity of the MatsSoft Low Code platform, with the renewal of key accounts, at higher revenue levels, alongside new customer wins and cross sales. With the addition of MatsSoft, contributing nearly 11 months to FY18, annualised cloud services revenue grew by 321% to £4.8m, further strengthening recurring revenue to 71% of group revenue. The opportunity to accelerate revenue growth, through investment in sales & marketing, product development, and service delivery, is being embraced and we adjust forecasts to accommodate enhanced investment – which we expect will lead to cloud services revenue growth of over 20% in FY19, rising to 35% in FY20. Target 90p (75p), with recognition by Forrester and Gartner illustrating excellence and opportunity, and further proof of execution offering upside more appropriate to a high growth low code stock.

Companies: Netcall

19 Oct 18

Impact of weather conditions and restructuring costs

There was no surprise about the poor figures in Q3 18 as Husqvarna warned on 18 September 2018 on the adverse weather conditions and the low demand for lawn care products and spare parts which affected the Husqvarna division, by far the largest division within the group. Management is now involved in huge restructurings in Consumer Brands with a full positive effect expected on the group’s operating margin and WCR in 2020.

Companies: Husqvarna

19 Oct 18

Reassuring summer performance

Accor has recorded solid revenue growth during Q3, mainly driven by the favourable price effect across all regions. In addition, the acquisitions of Mantra and Mövenpick have started to bear fruit as expected. Both have contributed 17% to growth (€144m) on a reported basis. New business development is still very challenging and the group has now decided to focus more on the profitable core business.

Companies: Accor

19 Oct 18

A stronger financial position goal

Wereldhave’s trading statement for Q3 18 shows a decreasing rental income for the first three quarters of FY18 to €167.4m (-1% yoy), due to lower rental income in France. The negative impact of gross rental income from disposals in 2017 has been offset by income growth in the Netherlands and Belgium. The occupancy rate increased by 0.1% in Q3 18, to reach 96.2% at September 2018 (+0.7% yoy), pushed by an improvement of 20bp in the Netherlands and 10bp in the other countries. Overall footfall increased by 0.7% in the three first quarters (2.1% above the market average). The company still performed well in the leasing activity, with 86 leases signed. Following the disposal of a shopping centre in Helsinki for a net price of €450m, Wereldhave expects FY18 EPS of between €3.30 and €3.35, while the dividend will be maintained at €2.52 for both 2018 and 2019.

Companies: Wereldhave

19 Oct 18

H1 trading update: another solid quarter

The group sees no change in the Chinese dynamics so far (contrary to the luxury sector). Nevertheless, we remain prudent and we see no additional elements which could increase our target price.

Companies: Remy Cointreau

19 Oct 18

Business as usual...strong growth...what's Brexit?

The London Stock Exchnage Group (LSEG) released some numbers (trading statement) this morning. Total revenue at £464m is 2.5% below expectations but, adjusted for the new accounting standard IFRS 15, this is line with expectations (and 4% below ours). The LSEG also announced it is purchasing another 15% of LCH Group for £384m, funded with cash and existing debt facilities. This will be accretive to earnings following completion and it takes LSEG’s ownership in LCH to 80%. Regarding Brexit, no major information was given either in the statement or during the conference call. Management is discussing with both clearing members and regulators and no IRS clearing agreement for the Paris clearing house (LCH clearnet) has been requested to date. No notice of termination has been sent either to LCH’s EU members.

Companies: London Stock Exchange Group

19 Oct 18

Profit warning due to Sopra Banking Software

Sopra Steria gave a profit warning on 2018 earnings. Sopra Banking Software, which is specialised in solutions for the banking sector, will not meet expectations in Q3 18 and therefore the whole year 2018. Sopra Steria mentioned two problems related to Sopra Banking Software. A significant software deal did not materialise in Q3 18 and there have been delivery issues consecutive to the commercial success for more than a year. Consequently, revenue should drop by 20% in Q3 18 and the operating result on business activity should be €42m (€27m related to licence revenue, €15m related to the project margin) below expectations in FY2018. Our understanding is that the contribution of Sopra Banking Software would be zero at best or negative at the operating income on business activity level vs €39m in 2017. In 2018, for Sopra Steria, based on organic revenue growth estimated at +4.5% (previous guidance: +3-5%), o/w +3.7% in Q3 18 including a poor top-line at Sopra Banking Software, the group’s operating margin on business activity is estimated to be slightly above €300m (vs €330m in 2017), corresponding to a margin rate of 7.5% of revenue compared to the company’s consensus at 8.5% of revenue and our estimate at 8.7% of revenue. The other negative impact is on free cash flow which should be flat (vs €110m in 2017) contrary to the initial guidance of €170m.

Companies: Sopra Steria Group

19 Oct 18

Executive interview – Nanoco Group

19 Oct 18

An essential Scandinavian player which should improve its margin in 2019-20

Q3 revenues were flat yoy and this is somewhat disappointing. EBITDA rose in parallel by 1.8% but with a margin improvement that was less significant than in H1. Management has begun medium-term structural initiatives that will drive further cost reductions and improve the EBITDA margin by 2020. Despite a disappointing Q3, we believe the group is restructuring well… getting ready for the future in particular on the TV side in Sweden, Norway and Finland. We maintain our opinion at Add.

Companies: Telia Company

19 Oct 18

Organic growth acceleration driven by account wins

Excluding Publicis Health Services for which the divestment is finally planned, organic net revenue growth accelerated significantly in Q3 18 (+2.2% vs +0.2% in H1 18) thanks to the ramp-up of contract wins since the beginning of this year. Contract wins continued in Q3 18 with the gain of many accounts, o/w the GSK global media budget which was the biggest global pitch for Publicis.

Companies: Publicis Groupe

19 Oct 18

Solid State - Positive H119 pre-close trading update

Solid State’s pre-close trading update notes that group H118 revenues will be c 4% ahead of prior year levels. Moreover, the 64% year-on-year increase in order book at end H119 leads management to believe the group will exceed FY19 market expectations. Consensus EPS estimates have risen by 7.9% and 5.0% for FY19 and FY20 respectively. Despite a favourable response to the news, the shares continue to trade at a significant discount to peers.

Companies: Solid State

19 Oct 18

Cenkos: Smart Metering Systems Plc - Landmark contract win

Yesterday, SMS announced that it has extended its relationship with First Utility and signed an exclusive agreement until 31 December 2021 to be its fully integrated domestic smart meter installer and Meter Asset Provider (MAP). This agreement provides SMS with an initial access to up to 1 million meter points, significantly underpinning our forecast of 2.5 meters installed by end 2020. Based on our assumed average supply and install cost (SMETS2 dual fuel), we estimate that SMS will be investing at least another £175m in smart meter assets for First Utility. By the end of August 2018 SMS had installed 748,000 smart meters in total, with index linked annualised recurring revenue (ARR) of £71.4m. The 5-year ARR CAGR to end 2017 was 39.5%. SMS offers investors exposure to recurring index linked earnings which will grow significantly over the next two to three years as the smart rollout accelerates towards completion.

Companies: Smart Metering Systems

19 Oct 18

NetScientific - Steady as she goes

NetScientific recently announced half-year results for 2018, with incremental progress continuing to be made, although we are yet to see that progress in reported revenues. In May 2018, Wanda, which focuses on digital health, and its partner Health Resource Solutions (HRS), achieved a 46% reduction in hospital readmissions in a high-risk congestive heart failure (CHF) population. In addition, in August ProAxsis announced a CE Mark for a fourth product, the ProteaseTag Active Proteinase 3 immunoassay, which was accompanied by a commercial sale to a large US biotechnology company.

Companies: Netscientific

19 Oct 18

LIBERUM: Safestyle* - Not buying SafeGlaze

Companies: Safestyle UK

19 Oct 18

The market is no fool!

Key highlights Total Q3 revenues up +8% (IFRS) and +10% (non-IFRS at cc) to €6.02bn. Cloud revenue growth once again accelerated, up +39% (IFRS) and +41% (non-IFRS at cc). New cloud bookings up +37% at cc (+29% in Q2 and +25% in Q1) to reach €411m. +500 S/4 HANA customers added in Q3, now accounting for c. 9,500 customers. Double-digit operating profit, up +13% (IFRS) and +10% (non-IFRS at cc). IFRS EPS was down 1% to $0.82 while Non-IFRS increased +13% to €1.14 per share. Outlook for 2018 (somewhat) raised: Non-IFRS cloud subscriptions and support revenue now expected to be in the range of €5.15-€5.25bn at cc (previously €5.05-5.2bn at cc). Non-IFRS cloud and software revenue now expected to be in the range of €21.15-21.35bn at cc (previously €21.02-21.25bn at cc). Non-IFRS total revenue now expected to be in a range of €25.25-25.50bn at cc (previously €24.97-25.3bn at cc). Non-IFRS operating profit is now expected to be in a range of €7.425-7.525bn at cc (previously €7.4-7.5bn at cc).

Companies: SAP