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20 Jul 17

N+1 Singer - IQE - Photonics ramp up begins in earnest

IQE’s H1’17 trading update confirms a strong first half, with multiple photonics programmes ramping up, which should deliver very strong growth in Photonics revenue in future periods. The group has confirmed that it has secured multiple, multi-year contracts for VCSEL wafers, which we believe relate to 3D sensing opportunities, the most high profile of which is the 10th anniversary iPhone. In order to deliver the expected increase in demand, the board has authorised a capacity expansion plan, which initially includes c.£15m of tools orders. The group has also agreed heads of terms for the lease of new premises in South Wales with the Cardiff City Region. IQE is one of our key picks for the year and we believe the group is in the very early stages of a significant ramp up in Photonics. Management are guiding to modest upgrades in FY’17 and FY’18 this morning, however we believe that eventual EPS upgrades to the FY’18 exit run rate could be closer to 75% (40% on a full taxed basis).

Companies: IQE

12 Jul 17

AIM – End of summer term report

We update this table which we first published in early January and highlight the continued progress of the biggest AIM companies so far this year and activity in general. The latest AIM Statistics show that there are 963 companies currently, with 28 new issues year to date raising £441m. What’s more, this momentum has been maintained since June. This demonstrates that despite, the uncertainty surrounding the UK economy, generally investors continue to be active in the AIM market. In Share News & Views we comment on Cohort, ECSC*, Porvair, Quarto*, SQS* and Xafinity.

Companies: BMS CRPR ECSC EUSP FDM PCF PPIX QRT SNX SPRP SQS TCN W7L

19 Jul 17

US market squarely in the cross-hairs

One golden rule of investing is not to ‘count chickens’. A prudent view that we’ve adopted when modelling Tristel’s application to the EPA/FDA to launch chlorine dioxide (Clo2) based infection, hygiene and contamination control products in the US. Whilst our approach is admirable, there is nonetheless a danger of us being too conservative for too long. Especially when, in Tristel’s case, the opportunity of accessing the world’s biggest healthcare market is now almost within striking distance.

Companies: Tristel

05 Jul 17

Conviction List Q3 2017

Since its inception in 2010, the Panmure Gordon Conviction List has outperformed the market, returning 284% against a Small Companies index that would have returned 221% over the same period.

Companies: ALD AVON CTH GKN HVN HCM INF NOG OTB POLY SNR SQS STJ

12 Jul 17

Looking Forward on the markets H2 2017

The AIM market turned twenty-two in June and it is fair to say it has had its fair share of difficultiesH1 2017 saw a further net loss of constituents and we ask what will the rest of 2017 hold in store. Arguably the stability of the UK government, Brexit and the shift in global monetary policy will be the biggest themes for the remainder of the year.

Companies: IDP PEG AMYT SOU EVRH TST VANL W7L G4M

17 Jul 17

Taking on water

In the recent FY trading update, it appears that sales, EBITDA and net cash will be in line with our bottom of the range forecasts; however, when also considering the £2.2m provision, profit is considerably below. Out of the three metrics, poor operating cash conversion is our principle concern – estimated at just 15%, rising to 43% excluding £2.6m of exceptional costs. Furthermore, what’s alarming is that we do not know the source of this: are credit terms on new contracts exceptionally long? Or is aggressive revenue recognition a wider theme than the statement highlights? In view of provisional results, we downgrade both FY18 and FY19 forecasts after reviewing our cost assumptions: FY18E EBITDA £9.1m (prev: £11.0m), meaning that (ex provision) EBITDA will be flat y-o-y. Furthermore, we expect continuing cash pressure, with expected FCF of £-3.8m in FY18 vs. £-5.2m in FY17, suggesting that Blancco might need an additional £4m cash in FY19. In view of revised forecasts, we adjust our target price to 80p and reiterate our Sell recommendation.

Companies: Blancco Technology Group

11 Jul 17

Strong H1 2017 delivery

Amino has reported H1 17A results ahead of management’s expectations, and a closing net cash position (£13.1m) confirmed as having more than doubled over FY 16A. Key metrics saw impressive growth, with turnover and adjusted EBITDA up 21% and 70% respectively. IP device sales were strong, particularly in the Americas. In software, the group continues to report positive momentum. We leave earnings estimates unchanged at this stage and believe the maintained progressive dividend policy (+10% y/y) continues to demonstrate management’s confidence in the outlook.

Companies: Amino Technologies

19 Jul 17

N+1 Singer - City of London Investment Group - FuM +7% in Q4, modest positive earnings surprise, better final dividend

City of London Investment Group (“CLIG”) has issued a FY trading update indicating that FY17e earnings are expected to be 7% ahead of our forecasts and that FuM grew by 7% in Q4. FY17e PBT is expected to be £11.6m when final results are reported on 18th September. The board has recommended a small increase in the final dividend to 17p (FY16 16p). FuM grew by 6.8% to $4.7bn over the final quarter driven in the main part by positive underlying benchmark performance. We will update our forecasts for the positive earnings indication. We recognise that CLIG shares offer a healthy dividend yield (6%+) but net inflows are not being sustained. We remain at HOLD.

Companies: City Of London Investment Group

19 Jul 17

Updating forecasts post TE2 acquisition

The acquisition of The Experience Engine (TE2) looks like a good fit in the expanding Accesso product set. Accesso continues to move towards, through acquisition and internal IP development, providing a ‘frictionless’ customer experience. TE2 is growing fast ($2.2m to $12.7m 2015-16) and already has a number over lapping clients with Accesso (Cedar Fair & Merlin Entertainments). Even without the potential cross-sell, we expect TE2 to continue its growth trajectory. We upgrade our forecasts and retain our BUY.

Companies: Accesso Technology Group

19 Jul 17

Fully fledged bank

PCF has this morning announced that the regulatory restrictions relating to the bank mobilisation have been lifted and the group can now commence taking in deposits as a fully operational bank. The mobilisation process concluded within seven months (max 12 months allowed) without impacting the business momentum. Indeed, new business originations were up 20% YoY in 3Q17 with the quality of loan book improving with the introduction of prime business trials. Management now expects FY2017 profits to be slightly ahead of previous expectations. This update reinforces our view at 1H17 that good cost control and impairments are likely to more than offset slightly lower loan and revenue growth as management focus on maintaining their credit underwriting discipline. We maintain our TP of 38p, implying a 2017E P/B of 2.1 which we think is fair for a bank in its infancy and in the medium term targeting RoE of 17.5% and loan growth of 35% CAGR.

Companies: Private & Commercial Finance Group

17 Jul 17

Strong FY17 results ahead of expectations, integration on track and confident outlook

Following on from the positive trading update in May, Conviviality today reports a strong full year set of results. Group sales increased 85% YoY to £1,560m, while adjusted EBITDA doubled to £60.9m, 5.2% ahead of our forecast of £57.9m. Adjusted PBT increased 111% to £45.8m, and adj. fully diluted EPS of 21.0p was also ahead of our forecast of 20.2p. FY17 was a transformational year for Conviviality and significantly the integration of the recent acquisitions are running ahead of plan. Management remain confident in the outlook for the business, reflected by the 33% increase in the full year dividend to 12.6p that is covered 1.7x, as well as increased guidance on synergies in FY19.

Companies: Conviviality

18 Jul 17

Taking share in a challenging market

Today’s trading statement confirms the difficult market conditions commented on at the Group’s AGM statement in May, with FENSA data showing market volume decline of more than 10% in the first five months of the year. Despite this backdrop, Safestyle has continued to grow its order intake, up 2% YOY, an encouraging performance that implies significant market share growth. We trim our forecasts for the first time since the Group came to market in December 2013 with modest revisions that reflect Safestyle’s continued outperformance. Our FY17 revenue and PBT forecasts move -4.9% and -6.4% respectively to reflect the weak market backdrop and management’s more cautious outlook for the second half. We maintain our dividend expectations, reflecting the Group’s strong cash flow generation and solid balance sheet with £16.2m net cash forecast in FY17. A dividend of 11.8p gives an attractive 4.6% prospective yield for a well-run business that is solidifying its market leadership thanks to its differentiated proposition.

Companies: Safestyle Uk

21 Jul 17

H117 trading update

No change to forecasts following H117 update; our forecast equates to earnings growth of 23% in FY17. We believe a PE valuation around 10x remains inconsistent with current trading, geographical alignment and delivery of the strategy to acquire niche growth businesses such as Rishworth and ConSol. We anticipate an ongoing narrowing of the discount to its peer group as superior growth rates compensate for size/liquidity and cash generation drives a rapidly improved balance sheet. A rating of at least 13x is a realistic short term expectation providing scope for meaningful share price outperformance from current levels.

Companies: Empresaria Group

05 Jul 17

Making a great impression

Taptica offers a global end-to-end mobile advertising platform that helps the world's top brands reach their most valuable users with the widest range of traffic sources available. It utilises AI and machine learning to leverage proprietary big data for quality media targeting in high volumes. Cutting-edge algorithms assesses huge volumes of data in milliseconds, enabling global giants like Amazon, Disney, Facebook and Twitter to serve the right ad impressions, to exactly the right user, at exactly the right time – and at the right price – on mobile or social media channels. More than 600 clients are scaling and engaging more relevantly with mobile audiences, staying ahead of their competition. Headquartered in Israel, it is expanding globally: in the US, China, Korea and now the UK.

Companies: Taptica International

18 Jul 17

Doing the difficult things others won’t or can’t do

Solid State continues to make progress towards management’s goal of doubling revenues over the next five years. It delivered pre-exceptional profit growth from continuing businesses of 6% during FY17. The record order book combined with investment during FY17 in both the Manufacturing and Distribution divisions shows management is driving organic growth to complement its successful acquisition programme.

Companies: Solid State

21 Jul 17

Robust order intake

H1 17 revenues were €111m (-5% yoy) and net income was €61m (flat yoy). The guidance for 2017 is confirmed: - revenue at c. €225-240m; - net margin above 50%; - dividend for 2017 at least at the level of 2015 and 2016 (€2.66 per share).

Companies: Gaztransport & Technigaz

21 Jul 17

Q2 above expectations

Q2 update: Sales are up 4% in local currencies and +8% on reported figures. The operating margin was up 20bp yoy (25.9%). By division, snus sales were up +2% in local currencies and +5% on reported figures with a surprisingly good margin progression qoq to 42%. SWMA’s underlying snus volumes progressed 1% in Scandinavia. Other tobacco products recorded a strong 13% increase in sales in local currencies and +21% on reported figures, driven by cigars. The operating margin for the division contracted in local currencies and on a reported basis by 160bp (39.6%). Cigar volumes were up +19% in the quarter. Lighters recorder a very poor quarter with sales down 5% and a margin contraction of 530bp to 12.3% due to lower volumes which resulted in an unfavourable cost development.

Companies: Swedish Match

21 Jul 17

Broadly favourable events

Euromoney’s Q3 trading update shows overall performance continuing as expected, with positives from events, subscriptions and content, partly offset by a jittery asset management sector facing regulatory changes. RISI, acquired in early April, is performing well and contributed £5.4m of subscription revenue to the quarter’s total of £118.4m, a figure 13% ahead of the comparative period. Underlying growth was 2% (currency adjusted) and our forecasts are unchanged, putting the shares on a discount of c 9% to peers. Given the improved share liquidity and the growth in forecast earnings and dividends, we regard the rating as overly cautious.

Companies: Euromoney Institutional Investor

21 Jul 17

Operating performance improved further

In Q2 17, revenues declined 2.6% to US$8.45bn. Service revenues declined by 2.2% to US$1.47bn and product revenues by 2.6% to US$6.98bn. Order intake declined 9.2% to US$8.34bn and the order backlog dropped 11.1% to US$23.55bn. Total base orders were up 3% (below US$15m). The book-to-bill ratio improved from 0.96x to 0.99x. The product gross margin improved from 25.3% to 28.7% and the gross service margin from 39.9% to 40.6%. EBITDA, however, jumped 22.2% to US$1.14bn and the EBITDA margin increased from 10.8% to 13.5%. EBIT also jumped by 36.6% to US$884m. The EBIT margin increased from 7.5% to 10.5%. Net income jumped 29% to US$525m.

Companies: ABB LTD-REG

21 Jul 17

Strong Q2 performance

Boliden reported yet another set of clinical results. Even though performance softened sequentially on account of a severe smelter maintenance shutdown (guided earlier) and some moderation in average price realisations, the Q2 17 results were impressive. Sales were SEK11.6bn (+20% yoy; -9.2% qoq), benefiting from healthy yoy (mining) volumes and prices. Profitability was even better, with reported operating profit coming in at SEK1.9bn (+110% yoy; -11% qoq; 6% ahead of consensus). Here again, mining was the key driver, achieving profits of SEK1.6bn (+277% yoy; +2% qoq). On the other hand, smelting profits plummeted (-31% yoy; -69% qoq) to SEK283m, as it included SEK260m of costs associated with smelter maintenance shutdowns and SEK280m of losses on process inventory revaluation. Emulating the operating trend, Q2 net profit came in at SEK1.5bn (+136% yoy; -12% qoq; 11% ahead of consensus). In addition to resilient profitability, reported OCFs of SEK3.5bn (+69% yoy; +78% qoq) benefited from SEK541m of working capital release. Although a large part of this working capital release seems attributable to the maintenance shutdown – a trend visible in earlier second quarters as well. Even after an aggressive capital spend of SEK1.4bn (+47% yoy; +27% qoq), net debt declined 8.8% (vs. end Q1 17) to SEK6.9bn. Management guides for SEK50m and SEK135m of costs associated with smelter maintenance shutdowns, planned for Q3 17 and Q4 17, respectively.

Companies: Boliden

21 Jul 17

Cushioned profitability

Givaudan reported +6% (organic: +2%) higher sales (to CHF2,483m) but the gross profit margin declined 80bp to 45.6% in H1 due to the newly-acquired businesses. EBITDA was down 6% to CHF597m as, in the previous year’s period, the company booked a CHF55m gain from changes in plan assets. Net income attributable to shareholders came in at CHF384m (CHF368m). Operating CF (CHF269m after CHF237m) primarily improved due to lower NWC outflow (CHF-210m after CHF-242m) despite higher inventories. Investing CF (CHF-229m after CHF-48m) was driven by significant higher capex and acquisition-related costs (Activ International) of CHF-111m. Financing CF moved from CHF-407m to CHF-146m due to higher net cross debt proceeds (CHF385m after CHF88m), which was more than eaten up by the higher dividend payment of CHF-515m (CHF-495m). Management confirmed its mid-term guidance for the 2015-20 period, expecting a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales. An explicit guidance for 2017 was again not given.

Companies: Givaudan

21 Jul 17

Heavy results week – combating sluggishness

Next week includes a busy reporting schedule for the UK FMCG sector with 7 names in our coverage universe due to release either a trading statement or results. So far, we infer that Q2 2017 included sustained slowing in emerging markets for the larger operators and continued sluggishness in mature markets, notably Western Europe. However, for the small and mid-cap soft drinks companies, which include Britvic (BVIC LN, BUY, T/P 800p) the UK weather was clearly helpful. This should have had a positive impact also on domestic Food to Go.

Companies: RB/ CWK FEVR BATS BVIC DGE GNC

21 Jul 17

2Q17 preview – Angola hit, gearing still rising

BP will release 2Q17 earnings on 1 August. We forecast clean replacement cost EPS of USc3.77, around 6% below the median consensus, down 2% YoY and down 51% QoQ. However, BP has pre-advised a ~US$750m pre and post-tax exploration write-off associated with the relinquishment its 50% interest in Block 24/11 offshore Angola which will not be treated as a non-operating item and is itself equivalent to around USc3.8 per share. We expect underlying cash flow generation, excluding the impact of Gulf of Mexico related payments of US$5.5bn, but expect the company to be overall cash negative after cash dividend, capex and Gulf of Mexico payments to the tune of around US$0.5bn in the quarter. As a result, we expect gearing to continue to increase, albeit modestly, to 28.2%. We forecast a maintained dividend of USc10 per share. We amend our FY17 EPS forecast to reflect our revised 2Q17 earnings forecast.

Companies: BP

21 Jul 17

Good H1 numbers, but not better than expected

Valeo’s H1 revenue increased by 16% to €9.46bn, while we had expected €9.42bn. The growth rate moderated from 22% in Q1 to 12% in Q2. EBIT was up by 17% to €754m (our projection was €744m) whereas net earnings of €506m (+20%) fell clearly short of our expected €569m.

21 Jul 17

H1 numbers clearly ahead of our expectations and consensus

Faurecia’s revenue increased by 8% to €10.3bn in H1 17 whereas we had projected €9.92bn. Simultaneously, EBIT and net earnings were up by 20% to €587m and 28% to €314m, respectively. Our numbers were €529m and €252m, i.e. the company did clearly better than we had anticipated.

Companies: Faurecia

21 Jul 17

Morning Note

Companies: Sound Energy

21 Jul 17

Breakfast Today

On balance, most concluded he had been slightly more dovish than expected. ECB President, Mario Draghi, certainly did a good job in keeping the markets guessing during his Central Bank's Monetary Policy Statement and press conference yesterday afternoon. But in saying "We were unanimous in setting no precise date for when to discuss changes in the future," and going on to point out "In other words, our discussions should take place in the Fall, or in the Autumn, since we are in Europe", he appears to have ruled out the opportunity for next month's Jackson Hole Symposium to be his platform for the big announcement. Whilst he is simply putting off the inevitable, Draghi's insistence that "Inflation is not where we want it to be or where it should be", while also voicing commitment to bolster the bond buying programme should it be necessary, the 'can' now appears to have been kicked down the road to either the September or October meetings. This all left the US in a rather anticlimactic mood, having already received mixed macro news inputs as the Labor Department reported a fall in weekly first-time unemployment claims, while the Federal Reserve Bank of Philadelphia released a report showing that regional manufacturing activity grew at a notably slower rate in July and the Conference Board said its index of leading indicators rose by more than expected for the month of June. With a Bloomberg report suggesting the investigation into association between Trump's Campaign and Russia was also to be extended into his business dealings, the three major averages drifted downward shortly after the opening on profit taking, going on to traded fractionally either side of unchanged for the remainder of the session. Reporting majors Travelers and American Express both weighed on the Dow Jones after releasing dull second quarterlies, while Best Buy and Home Depot were hit after Sears said it would start selling its Kenmore line of refrigerators and stoves on Amazon.com; Trucking, Railroad, Telecom, and Steels also all met modest selling. Post-close, Microsoft firmed 0.9% in after-hours trading, on reporting that its quarterly profits had more than doubled, boosted by strong demand in its cloud operations plus tax benefits. So far, the Wall Street's Q2'2017 earnings have tended to surpass consensus expectations, which presently appears to be the principal bull support for equity indices which remain at or close to their record highs. Treasuries found demand as the ECB deflated some concerns over an early shift toward reducing monetary stimulus. The yield on the benchmark ten-year note fell as low as 2.239%, before settling virtually unchanged at 2.266%. Crude prices rose to a seven-week high Thursday, with the international benchmark Brent touching the $50/barrel level for the first time in more than a month during US hours, although this succumbed to profit taking late in the session and crude went on to decline fractionally during Asian trading. Traders eyeing the recent decline in US stockpiles, will be sensitive to this evening's weekly US Oil Rig Count data and Monday's meeting of OPEC delegates to review an extension to existing production cuts and discuss now also including Libya and Nigeria into the agreement. Following recent strength coming from Bank of America Merrill Lynch's bullish stance on Asia-Pacific equities, the region's markets appear to have somewhat run out of steam this morning. Just ahead of their close, most had made just fractional moves with only the S&P/ASX-200 showing a reasonable decline with its export plays being pressurised by the AUS$'s recent strengthening against the US$, while weak Energy stocks also kept the Nikkei pointing downward. European shares started on a positive note yesterday, following new record highs amongst the principal US indices on Wednesday and a firm closing of Asian trading first thing Thursday morning. This was further bolstered by strong earnings reports from media heavyweight Publicis and consumer giant, Unilever (ULVR.L). The STOXX 600 peaked almost 0.5% higher immediately before the ECB president spoke, but then collapsed into the red where it remained following the US's lacklustre opening. The Euro dipped slightly during this morning's Asian session, having extended recent gains to hit its highest level against the US$ since August 2015 yesterday. The IMF Board this morning has reportedly accepted Greece's latest bailout plans 'In Principle', while an earthquake in the county resulted in 2 deaths and multiple casualties. By comparison, the FTSE-100 opened in the positive yesterday, going on to rise further on receipt of better than expected June retail sales data and then just blipped modestly on the ECB statement, to close with a good 0.77% gain on the day. The highly international index benefitted from a further sharp fall in Sterling as the EU's Chief Brexit Negotiator, Michel Barnier, highlighted continuing "fundamental" differences over the issue of citizen rights and willingness to recognise obligation to pay exit bill that remained. Amongst individual stocks, Sports Direct (SPD.L) rallied as full year profits highlighted the damage Sterling's devaluation had inflicted to its full year profits, while easyJet (EZJ.L) led a round of profit taking amongst European airlines. There are limited macro releases due today. The UK details just its Public Sector Net Borrowing for June, while nothing is due form the EU and the US provides its Baker Hughes US oil Rig Count. UK corporates due to provide earnings or trading updates include Vodafone (VOD.L), Homeserve (HSV.L), Close Brothers (CBG.L), AO World (AO..L), Acacia Mining (ACA.L), Record (REC.L), Beazley (BEZ.L) and Capital & Counties Properties (CAPC.L). Majors reporting in the US later today include General Electric and Honeywell. Lacklustre overnight markets bode for a similar European opening this morning, with the FTSE-100 seen trading between 0 to 10 points down in early business.

Companies: EZJ HWDN UKOG ULVR

21 Jul 17

The Macro View

ECB and BoJ refuse to be swayed by accelerating growth as inflation worries grow. | UK tourism data shows overseas spending up 8% YoY – fastest in three years. | Public sector borrowing in focus ahead of next week’s Q2 GDP estimate

Macros: Economic DataEconomic DataEconomic Data

21 Jul 17

Panmure Morning Note 21-07-2017

Griffin Mining provided a positive trading update ahead of its planned interim results yesterday afternoon to confirm that whilst stronger commodity prices in general have been a positive, an exceptional 90% increase in the average price for its zinc concentrate over the last 12 months will drive profits higher than current market expectations. We have thereby significantly increased our forecasts for FY2017 and reiterate our Buy recommendation with a target price of 87p, underpinned by our 100p valuation of the Caijiaying operation.

Companies: Griffin Mining