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17 May 18

Many models, more IPOs, probably

Last Friday we hosted our second Listed Law conference, London’s only investor event focussed on the business of law in a listed context. We are fascinated that a sector involving many hundreds of billions of dollars of activity each year in high added-value services only offers public market investors fewer than a dozen equity market investment opportunities globally, with an aggregate market cap of only £4.3bn (of which Burford Capital is £3.3bn). With high costs driving change in the way legal services are bought and sold, our speakers offered fascinating insights on emerging business models. These require capital and talent to function fully and our conference theme paid particular attention to how that talent is attracted, deployed and retained. We conclude that more public investment opportunities are likely. A video of each presentation is embedded on each company profile herein and the slide packs themselves are available on e-mail by request.

Companies: BUR GOR GTLY

15 May 18

LIBERUM: Elegant Hotels* - Outlook improved with top-line growth accelerating

Elegant offers a 9% FCF yield, 5% dividend yield, and is trading at a 40% discount to NAV. The group has seen improvement in occupancy in all its hotels and revenue visibility for the rest of the year sits at 95%, with greater confidence in the outlook vs. the same time last year.

Companies: Elegant Hotels Group

16 May 18

Upgrades to revenue forecasts and price target

Blue Prism has issued a trading statement today that confirms the very strong sales momentum that we are seeing in Software Automation. The strong momentum was highlighted in our recent sector update, “Software Automation- Automating Intelligently” published on the 20th April. We continue to see this as a multi-year growth story and a multi-billion dollar end market, and we continue to expect further upgrades to market forecasts. We retain a Buy rating on PRSM and increase our price target to 2200p from 2000p.

Companies: Blue Prism Group

15 May 18

Opening up a significant market

The Supreme Court of the USA (SCOTUS) yesterday voted 7-2 in favour of repealing the Professional and Amateur Sports Protection Act of 1992. Seven justices voted in favour of repealing with the court quoting: “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not. PASPA “regulate[s] state governments’ regulation” of their citizens, New York, 505 U. S., at 166. The Constitution gives Congress no such power. The judgment of the Third Circuit is reversed.”

Companies: GVC WMH PPB PTEC

15 May 18

Financial sector holds back progress elsewhere

A customer in the Financial sector has experienced a downturn in activity in H1 which has offset strong progress in the Gaming sector. After a poor H1, Financials has seen an improvement in demand and a generally stronger H2 is expected. Exciting opportunities remain in Gaming and elsewhere, and with more normal Financial sales, the outlook remains positive. We have reduced our PBT forecast in FY18 from £5.6m to £5.2m and await updates as the year progresses. Year end net cash is expected to be £14.8m. Given the expected improvement in H2, an ex cash P/E of c.13x and a dividend yield of over 5% are still strong attractions.

Companies: Zytronic

16 May 18

£2 FOBT limit and self-help estimates

A £2 max stake, is a worst-case scenario for operators with betting shops, we estimate (table 1, p2) it will reduce operators’ revenues and profits significantly, though these estimates exclude any self-help initiatives available to management teams, such as shop closures, automation (SSBTs) and further omnichannel rollout to mitigate the impact of lower B2 limits. Furthermore, we estimate increasing POC tax from 15% to 20% for online (table 3, p4), would offset the taxes lost on FOBTs for the Treasury and help fund losses to the horse racing industry, the latter likely to be affected by the lower B2 limits. The increased POC tax would likely lead to further consolidation in a highly fragmented UK online market.

Companies: GVC WMH PPB PTEC

17 May 18

Multinational growth platform

Water Intelligence has reported a strong set of FY 2017 results with adj. EPS up 30% and a continued strong outlook. Indeed, the recent Q1 2018E statement detailed sales were up +40% and PBT up 50%. We have updated our target price to 309p (previously 263p) and reiterate our view that Water Intelligence has a differentiated offering in a large, growing market that is supported by regulation, underpinning very significant growth prospects.

Companies: Water Intelligence

22 May 18

Onwards and upwards

“Success breeds success” is a crucial, yet under-appreciated, concept when it comes to investing. You see, great companies devote substantial amounts of time/resource nurturing and maintaining high-performance cultures. Management obviously plays an enormous part – walking the talk, motivating employees, recruiting the right people and challenging the status quo.

Companies: Watkin Jones

15 May 18

Going strong

Treatt has transformed itself from a commodity-based ingredients company into a supplier of value-added ingredients and ingredient solutions. The previous strategy was delivered three years ahead of target, following a stellar FY17, and the new strategy introduced last September builds on the strong momentum in the business, which has seen five consecutive years of earnings above company expectations. Our DCF analysis points to a value of 540p/share, supported by peer group analysis that places the stock at a c 10% discount to its competitors.

Companies: Treatt

21 May 18

Trading update & GCL acquisition

Gateley have confirmed strong progress for FY18 with revenue growth of at least 8% and EBITDA growth over 7%. The group have also strengthened the property activities acquiring GCL creating one of the largest residential development teams in the UK legal market. The acquisition will drive meaningful cost and revenue synergies and we estimate will enhance earnings by 4% in FY19. Gateley shares offer investors access to an established business model set to directly benefit from the changing structure of the UK legal market; an opportunity-rich landscape for ambitious mid-tier firms. Results since the float have clearly demonstrated a quality earnings stream and we believe the positive year end trading update aligned with the earnings enhancement from GCL should provide a catalyst for re-rating.

Companies: Gateley

15 May 18

Market stabilising

Elegant has this morning announced H1 results that should position it well to deliver our FY expectations. YoY improvements have been delivered across most KPIs and the company has confirmed trading is in line with expectations, we are therefore leaving our full year forecasts. We believe the shares represent good long-term value, trading below IPO price and at a 41% discount to NAV, with a yield of 4.7% which remains ahead of the sector average with solid cover in excess of 2.3x.

Companies: Elegant Hotels Group

15 May 18

Reinstated coverage – lower sales forecasts

Sprue’s 2017 results are in line with the expectations in the January trading update, save for the £3.8m exceptional charge announced last week in the settlement with BRK. This mainly relates to an inventory write down/charge which has impacted cash flow and no final dividend has been declared. We have reinstated coverage with lower sales and profit forecasts than previously. However, with a strong product roadmap, we expect to see these recover in due course. We reinstate a Buy rating and a DCF-derived 170p target price.

Companies: Sprue Aegis

17 May 18

Building a smarter future

Delivering infrastructure projects on time, to-spec and within budget has proved a minefield for corporates & politicians alike. Typically, 80% are late and 40% over-spent with little thought on how best to manage the asset once complete. Not exactly ideal, when total running costs over a property’s 25-40 year life, can be >4x the upfront capex. Luckily things are changing...and fast. Here technologies, such as data analytics, IoT, VR/AR, robotics & artificial intelligence, are transforming the $8 trillion global construction market. In turn helping to drive strong demand at Elecosoft (ELCO), a leading BIM (Building Information Modelling) software developer.

Companies: Elecosoft

16 May 18

Electrifying flight**

Electrifying aviation motivated by cost-saving potential and environmental implications – whilst electrification is profoundly impacting the automotive industry, there is a growing case for electrification in the aerospace industry. 40% aggregate powertrain energy cost saving potential, combined with clean sky initiatives is driving expanding research and investment across the sector. Rising urbanisation is creating congestion solutions focusing on electric Vertical Take-off and Landing (eVTOL) innovate technologies.

Companies: ABM AMC AAZ JAY bmn GEO KOD MKA PGM SOLG URU

18 May 18

On a joy-ride

It seems Ocado is on a partnership spree. The UK-based e-com grocer come technology firm has announced a fourth international partnership within a span of six months. The latest addition to its kitty is Kroger, the second largest food retailer in the US. Under the agreement, Kroger will have access to Ocado’s Smart Platform ‘OSP’ (a proprietary automated warehouse facility) for grocery and other food distribution related activities. The fee structure will be broadly similar to previous deals, except for a reduction in the initial capital requirements for Ocado compensated by lower ongoing fees. The US retailer will subscribe to 33,146,200 new Ocado ordinary shares (5% of the existing issued share capital) for £183m. This will bring the company’s total investment in Ocado to more than 6%.

Companies: Ocado Group

22 May 18

Accor’s delicate shareholder relations

After JinJiang internationals, Accor’s largest shareholder with 12.32%, HuaZhu Hotels Group (China Lodging Group Ltd, NASDAQ: HTHT) announced its strategic investment in AccorHotels during its Q1 18 release and also indicated that they already hold 4.5% of Accor’s capital (just below the minimum reported level of 5%).

Companies: Accor

22 May 18

Takung Art - Growing the retail base

Takung Art’s Q118 results show it is making progress at reorienting its user base more towards the retail market, which significantly increases its potential reach. There has also been some success in the quarter in increasing the average listing values of the items listed on the trading platform and in diversifying the offering, with five new pieces of sports memorabilia listed in the period. The FY17 reconstruction makes direct comparison with Q117 figures of limited use. The share price is yet to reflect the scale or quality of the potential opportunity.

Companies: TAKUNG ART CO

22 May 18

PDL BioPharma - First quarter results

PDL’s recent Q118 results reported that revenues of $38.5m were down 15.2% compared to Q117 as the company transitioned away from royalties related to the Queen et al. patents to product revenue related to its Noden and LENSAR subsidiaries as well as royalties from the Depomed assets. Excluding Queen et al. royalties, revenues were up 14.2%. Also, while the revenues associated with the Tekturna assets sold by Noden continue to be weak, LENSAR is now EBITDA positive. PDL has also repurchased approximately $12.6m of stock since March 2018 and has $12.4m available under its current repurchase program.

Companies: PDL BIOPHARMA

22 May 18

The Merchants Trust - FY18 outperformance continuing in FY19

The Merchants Trust (MRCH) is managed by Simon Gergel at AllianzGI. He aims to generate a high and growing level of income, with the potential for long-term capital growth, from a portfolio of UK equities. The manager considers there are great opportunities in the UK stock market for high-yield investors, and that in aggregate UK stocks are looking attractively valued compared to global equities. MRCH has a distinguished dividend history; payouts have grown in each of the last 36 consecutive years. In FY18, the annual distribution was 2.5% higher than in FY17 – a larger growth rate than in recent years, reflecting higher dividend growth from portfolio companies, but also due to MRCH’s lower interest costs following the refinancing of a tranche of its high-cost debt in late 2017.

Companies: Merchants Trust

22 May 18

Consolidation process in the railway industry continues

Wabtec has entered into an agreement to combine the GE Transportation division. The transaction is valued at US$11.1bn when adjusted for a net tax benefit of US$1.1bn. The combined company is valued at 11.75x adjusted EBITDA 2019. GE will receive US$2.9bn in cash and will have a stake of 50.1% in the new company. With respect to valuation, we are surprised that GE Transportation will not only receive US$2.9bn in cash but also hold a majority interest in the company. We see the higher profitability of GE Transportation and the large order backlog having mainly influenced the valuation of the new entity.

Companies: Siemens

22 May 18

JD Sports Fashion - Set to take on America

Few retailers can boast the enviable track record of JD Sports, the ambitious multi-channel ‘athleisure’ business with a fashion-forward offering that combines the major sportswear brands with established own-label ranges. The company’s expanding international footprint is about to be enhanced by a potentially game-changing recently announced US acquisition, which has yet to be reflected in the consensus forecasts.

22 May 18

Executive interview - Be Heard Group

22 May 18

LIBERUM: HomeServe* - Another step change in the US

FY FD EPS of 33.1p in line, but DPS increased 25%, ahead of expectations. We continue to expect FY FD EPS of 36.2p and 40.1p for FY 2019 and FY 2020, but shift the mix from the UK to the US.

Companies: Homeserve

22 May 18

LIBERUM: Shaftesbury* - Consistently good growth

Shaftesbury’s first half results confirm another period of good earnings and capital gain just ahead of our forecasts. NAV +3% to 983p was 2% ahead of forecast and evenly driven by rental growth and further yield compression.

Companies: Shaftesbury

22 May 18

Entertainment One - On course to double EBITDA by 2020

An excellent performance from Family & Brands and strong growth in Television offset declines in Film to deliver EBITDA growth of 11%, which is in line with forecasts. The group is in good shape entering FY19 and is on track to deliver to its five-year plan to double EBITDA by 2020. The shares are on a c 40% P/E and c 20% EV/EBITDA discount to global peers and we believe they offer good value.

Companies: Entertainment One

22 May 18

LIBERUM: Topps Tiles* - H1 in line, profit forecasts unchanged

Topps Tiles’ H1 is in line with adjusted PBT of £7.2m. Current trading has stabilised, with LFL sales growth of -0.2% reflecting a sequential improvement on Q2's -2.2%.

Companies: Topps Tiles

22 May 18

Shaftesbury - Half Year Results 2018

22 May 18

Entertainment One (ETO) results interview May 2018

22 May 18

Trading in line with FY18 expectations

Trading in the first five months of the year has been in line with expectations despite the impact of adverse weather in the January to April period. As expected, the UK RMI market remains stagnant, weighing on the operating environment across the building products industry. This is being exacerbated by continuing cost input pressures, particularly in PVC resin. The reiteration of FY18 guidance should be viewed positively in the face of these headwinds. With one of the customer issues encountered last year resolved, and the other being worked through, forecast visibility has improved relating to the wider market back drop. Whilst lacking in growth, the underlying market does not appear to have deteriorated materially YTD. FY18 estimates have taken a realistic assessment of the potential impact from the issues faced in FY17 assuming a c. 14% decline in profitability before growth of c. 15% in FY19. On current forecasts the shares trade on 7.6x earnings, 4.9x EV/ EBITDA, have less than 1.0x net debt/EBITDA and yield 6.5%.

Companies: Epwin Group

22 May 18

Investment case

We observe four attractive characteristics, which ensure MAB delivers predictable revenue, profit and dividend growth: Currently, the main driver of growth in MAB’s revenues, profits and dividends is the number of advisers employed or self-employed by its Appointed Representative firms (ARs); High cash conversion: operational cashflow is over 100% of post-tax profit; MAB is capital light: it is able to pay out 90% of reported earnings; MAB’s management team has a material equity interest.

Companies: Mortgage Advice Bureau