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14 Nov 18

Strong FY 2018 performance

AB Dynamics has reported FY 2018 revenue and Adjusted PBT in line with our estimates, which were revised in October when the Group announced that it would significantly exceed market expectations. Both numbers are at record levels. The Group has delivered strong performances across a number of global geographies in the ADAS (Advanced Driver Assistance System) targets and steering robot businesses, and won its first simulator order (for delivery in FY19). As ADAS complexity is increasing, further customer demand is anticipated. The announcement also notes the tailwind of a ‘healthy’ order book at the start of FY2019. Given this strong outlook, and the prospect of another year of ‘solid progress’, AB Dynamics is to make further investment in supporting the significant growth opportunity, constraining near-term operating margin. We have upgraded our FY19 and FY20 estimates materially, while assuming an increased level of investment and upgrading EBITDA at a lower rate.

Companies: AB Dynamics

06 Nov 18

THE MONTHLY November 2018

In addition to Hardman’s monthly analysis of client stocks, the thorny issue of market disruption – a popular theme currently - is also addressed. In a wide-ranging article, Hardman’s utilities analyst, Nigel Hawkins, assesses the impact that market disruption has already made. In some sectors, notably telecoms and aviation, market disruption has been apparent for many years, as the rise of Vodafone, Ryanair and easyJet demonstrates. However, in some sectors, such as oil and housebuilding, structural changes have been modest – the dominance of the big players endures. For investors, there is real interest in those sectors where changes are underway. The UK groceries market, which may shortly become a duopoly, is a case in point. And, intriguingly, who knows if there is a company currently languishing in AIM, which will attain a £50bn market valuation within the next decade?

Companies: OPM AVO AGY APH ARBB AVCT DISH BNO BUR CMH CLIG CSH DNL DPP GTLY GDR HAYD KOOV MCL MUR NSF OXB PHP RE/ REDX SCE SIXH TON VAL VTA W7L

15 Nov 18

IQE - Short-term VCSEL slowdown hits profits

IQE has announced an immediate slowdown in shipments of VCSEL wafers, which materially affects FY18 revenues and profitability, and has issued revised guidance. Although we have cut our EPS estimates by 43% and 24% for FY18 and FY19 respectively, we note this is a short-term problem that does not impact the prospects for photonics growth in the medium term. Our revised estimates give an indicative value of 73p/share.

Companies: IQE

23 Oct 18

Quarterly Research Outlook

The June IPO of Knights Group Holdings, a Top-100 regional law firm, marked the fifth entrant to the burgeoning UK-listed legal sector. Following recent expansion of our coverage across all five listed legal firms, complemented by coverage of three broader support services peers with exposure to the sector, we revisit and build upon our views on this rapidly evolving sector.

Companies: ARS GTLY GENL KEYS KGH MNO RBGP TWD 7DIG ABBY AMS AMER ANX ARS ATYM AVON BLVN PIER CGS CAML CALL CSRT TIDE DTG DEMG ELM EMR FPM FPO FST GTLY GENL GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KEYS KGH LAM MACF MNO MKLW NAH OXIG PCA PKG CAKE PDG RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TWD TRAK TRI VNET VTC ZTF

06 Nov 18

North Sea Rockstar

RockRose has quickly managed to establish itself as a significant North Sea player, with an acquired portfolio of assets which were non-core to the sellers but material for a company of RockRose’s size. We initiate coverage with a BUY recommendation and a TP of 1460p, representing significant potential upside of 156% from the current share price, a gap we believe will close quickly once investors realise RockRose is trading at a sharp discount to fundamental value.

Companies: Rockrose Energy

15 Nov 18

Gaining Market Share but Costs Rising

Dart Group has released strong interim FY19 results, citing a particularly strong season for Leisure Travel, which contrasts well with weaker commentary from peers in recent weeks. Cost pressures are rising which will impact margins but we see attractions in the Group’s strategy, attractive package holiday offering and approach to customer service. Maintain buy.

Companies: Dart Group

14 Nov 18

Trading update & EPS upgrade

We note the unscheduled trading update released this morning by Marshall Motor Holdings (MMH), confirming better than expected trading in the used car market. Together with continued growth in the aftersales business and strong operational initiatives this is driving growth in underlying PBT vs 2017A. As a result, the company now expects adj. PBT in 2018E to be ahead of 2017 (continuing basis). We update our forecasts accordingly to reflect this, which triggers a 14% upgrade to our previously below consensus estimates. We leave forecasts for 2019E and 2020E unchanged reflecting the current uncertainty heading into next year and remain cautious at this juncture as we await further clarity over Brexit. The valuation on our cautious assumptions from 2019E continue to look compelling to us, particularly in the context of its balance sheet, dividend yield and strong anticipated FCF.

Companies: Marshall Motor

14 Nov 18

Avon Rubber - Continuing to deliver

Avon Rubber’s FY18 report demonstrates the success of the new business strategy, delivering growth across both divisions. The product portfolio has been updated and the company is winning contracts in new geographies. The company has also taken action to address its business structure and production footprint. We see continued opportunity for organic growth supported by selective bolt-on acquisitions.

Companies: Avon Rubber

12 Nov 18

LIBERUM: AFH Financial Group* - FY update highlights a year of delivery

FY2018 beat expectations. The year saw success in six major areas: 16 acquisitions made; historic acquisitions integrated to plan; strong organic new business; margins raised; EPS up more than 30%; capital raised to continue to consolidate the industry.

Companies: AFH Financial Group

15 Nov 18

GVC Holdings - Parliamentary U-turn

Following the resignation of Sports Minister Tracey Crouch, the UK government has bowed to pressure to bring forward the reduction in FOBT stake limits, from October 2019 to April 2019. The planned increase in remote gaming duty (from 15% to 21%) will also commence in April. We reduce our FY19 EBITDA by a further £95m and net debt/EBITDA now peaks at 3.0x in FY19. Our FY20 estimates are broadly unchanged.

Companies: GVC

12 Nov 18

Carr's Group - Recovery in both divisions confirmed

The FY18 results for Carr’s Group show that it has delivered the promised recovery in both divisions. This is the result of (1) market conditions which have boosted demand for feed blocks in the US and a wide range of agricultural inputs in the UK; and (2) prior year investment, for example in feed block production capacity and in acquisitions. Noting that the FY18 performance was ahead of our estimates, we revise our FY19 and FY20 forecasts upwards and raise our indicative valuation by 4p/share to 182p/share.

Companies: Carr's Group

12 Nov 18

Trading since 30 June

Management reported that overall performance since 30 June is consistent with performance seen at the time of the half year results, reported on 23 August. B2B Gaming in line with trends reported at half year and Asia has stabilised at an annual run-rate of €150m. In B2C Gaming, momentum in Snaitech has continued into in the 2H18. TradeTech continued to display positive moment in the 2H18, though market movements favoured customers in September and October. Plus500 shares sold and €530m bond offering completed.

Companies: Playtech

13 Nov 18

LIBERUM: Codemasters* - Driving in line

Maiden interim results reflect the successful launch of F1 2018 and the increasing share of digital revenues. The investment case is based around three established franchises, with large fan bases and the potential to double revenues.

Companies: Codemasters

16 Nov 18

Now For the Bad News

We feel that M&S is entering a period of forecast attrition as it tries to reposition against a background of continuing weak demand. This is likely to be exacerbated by execution issues in our view. We believe that these are resulting from Too Much Disruption and Not Enough Control. We have reduced our current year estimate below £500m and expect PBT to decline again in 2019/20. Indeed we believe that investors should be valuing M&S against a base profit towards the end of its reorganisation in the range £300-400m. The dividend is becoming increasingly vulnerable.

Companies: Marks And Spencer Group

06 Nov 18

6 month trading update

Double-digit growth of instructions has combined with increasing average revenue per instruction to deliver sustainable growth. Despite increased competition & total category media spend, Purplebricks has maintained its leading market position with 74% share of the UK online/hybrid market, and brand awareness (97% aided and 48% unaided).

Companies: Purplebricks Group

16 Nov 18

Sales miss for Darzalex; cost base to expand in the forecast years

Impacted by a one-off adjustment in Europe and modest growth in the third-line and fourth-line MM setting in the US, sales for Darzalex came in below our expectations. However, given the continuous market share gain in the second-line regimen and upcoming approval in frontline, we believe that the growth momentum would accelerate in the coming years. Though increased investment into the commercial infrastructure is a short-term FCF dampener, it is expected to create value in the long run.

Companies: Genmab

16 Nov 18

Solid organic growth in Q3 led by pricing

In a short trading update, Bekaert reported first nine months consolidated sales of €3,227m, up +5%, while organic growth was +10%, led by volumes (+3%) but mainly price increases and a favourable mix (+7%). In Q3, volume growth moderated to +1.4% yoy as strong demand from the automotive and construction markets were partly offset by weaker industrial steel wire markets, reflecting the impact of rising trade tensions in the global economy. The aggregate effect of passed-on wire rod price increases and price-mix added +9.2% to organic sales growth for the third quarter. Currency movements (-0.6%) and divestment effects (-0.5%) were limited. The company expects continued good demand from the automotive and construction markets in Q4 18, while the H2 18 EBIT is expected to be above that in H1 18. The net debt position should also be reduced by year-end.

Companies: NV Bekaert

16 Nov 18

9m18: solid performance in lfl EBITDA, net debt decreased significantly

Acciona used to be a pure construction company more than a decade ago but it now has the profile of a Spanish renewables player in electricity generation from windmills (60% in Spain). Note that the Energy division accounts for 70% of our NAV. Reported EBITDA increased by a mere 1.2% over 9m18 vs a 6.7% increase in H1 18. Following this earnings release, we expect to cut our EBITDA forecast slightly but to keep our Buy recommendation with a lower target price.

Companies: Acciona

16 Nov 18

Positive surprise in Transportation & Logistics Q3

The 11% organic growth posted by Transportation & Logistics, the historical heart of Bolloré, is a positive surprise in a context of downgraded world GDP growth.

Companies: Bollore

16 Nov 18

Confirmed targets

CNP announced a 3.1% increase in premium income (up 6.6% lfl) thanks to excellent growth in Unit-Linked sales (+19.5%). Unit-Linked contracts represented 42.2% of the group’s sales. The APE margin decreased slightly but remains high at 22.7%. Net profit stood at €955m, up 3.1% (5.1% lfl). The solvency ratio is comfortable at 193%. We will refine our model with no change in our opinion. The main driver of the share is the progress of the merger with La Banque Postale.

Companies: CNP Assurances

16 Nov 18

Carclo - FY19 likely to be a game of two halves

As flagged in the October trading update, Carclo’s H119 performance was adversely affected by delays in commencing three medical programmes. Moreover, all of the new vehicle production programmes planned for FY19, with their attendant start-up inefficiencies, started during the first six months. While these events held back first-half performance, they augur well for a second-half recovery. We therefore leave our estimates broadly unchanged. The reduction in our indicative valuation from144-153p to 125-133p reflects a 24% drop in the prospective P/E multiple for automotive peers since June, rather than a change in Carclo’s investment proposition.

Companies: Carclo

16 Nov 18

BMO Managed Portfolio Trust Growth Portfolio - Higher exposure to more defensive funds

BMO Managed Portfolio Trust (BMPT), which changed its name from F&C Managed Portfolio Trust on 9 November 2018, has a unique structure comprising two discrete portfolios investing in closed-end funds: BMPI, which aims to generate an attractive and growing level of income, with some capital growth, and BMPG, which aims to generate capital growth. Any income generated by BMPG is transferred to BMPI in exchange for an equivalent amount of capital. Manager Peter Hewitt notes that BMPI’s Q119 dividend is 3.8% higher year on year, and as previously announced, barring unforeseen circumstances, the board expects the regular annual dividend to be at least 5.85p per share (5.70p in FY18). For BMPG, the manager says the portfolio offers exposure to well-managed funds, with strong performance records and secular long-term growth characteristics. Given the manager’s near-term caution on equity markets, he has been increasing the more defensive exposures in both BMPI and BMPG.

Companies: F&C Managed Portfolio Trust Plc Grwth Shs 10P

16 Nov 18

BMO Managed Portfolio Trust Income Portfolio - Higher exposure to more defensive funds

Companies: F&C Managed Portfolio Trust

16 Nov 18

On time delivery, cont’d

Forget the quarterly swings to sequential growth, Chargeurs is delivering on its promise of focused, profitable growth.

Companies: Chargeurs

16 Nov 18

A nearly 40% yoy growth for UMG's streaming revenues in Q3

Universal Music’s streaming and subscriptions revenues (now 56% of UMG’s business for the first 9m) were up by 38.6% yoy in Q3, an impressive number which more than offset the decline in physical and download sales which represent now less than 30% of UMG’s business. UMG’s EBITDA could double in two years and reached $2bn in 2020. So a valuation at $40bn (€35bn) at mid-2019 is not so unreasonable. We maintain our opinion at Add on the stock.

Companies: Vivendi

16 Nov 18

Cenkos: Regional REIT Ltd -

Regional REIT (RGL) has performed well since its IPO in November 2015 generating a total return (NAV and dividend per share) of 32% thereby delivering on its target of at least 10% per annum. 2018 has seen a high level of portfolio activity and further positive financing initiatives: c£190m of property turnover has helped to increase the portfolio weighting in regional offices (to 75% of gross assets by value) and light industrials (16%), while the most expensive loans have been, or are being, repaid or refinanced.

Companies: Regional Reit

16 Nov 18

Bonesupport - Turnaround story on the way

Bonesupport’s independent distributor network is now promoting CERAMENT bone void filler (BVF) in the US since Zimmer Biomet’s exclusivity period ended on 21 October. According to the latest update, 25 distributors in total had signed up ahead of the previously communicated deadline (end-2018). Other recent news includes Bonesupport’s capital markets days in Stockholm and London, where management presented on CERAMENT products, market opportunities, clinical and economic studies, and new details on the commercial platform. Our valuation is higher at SEK1.49bn or SEK29.0/share (vs SEK22.8/share), upgraded mainly to reflect the substantial expansion of their commercial presence in Europe.

16 Nov 18

Q3 18: high time to...wait some more

Revenues reached €961m (-0.3% yoy and +5% at CER), EBITDA €43m (vs €9m), EBIT €-29m (vs €-88m) and net income €-92m (vs €-119m). Net debt at the end of Q3 18 reached €2,097m vs €1,934m in H1 €1,783m in Q1 and €1,542m at year-end 2017. Over 9 months, revenues were up 4.7% to €2,805m, EBITDA up from €-9m to €61m and operating profit up from €-277m to €-234m. The group had targeted a positive outlook for H2 with EBITDA higher than in H1, and now indicates Q4 EBITDA should be above that of Q3 (€43m). Demand should be softer in the US (after inventory build-up anticipating section 232) and stable in Brazil, while activities should benefit from higher volumes and prices elsewhere.

Companies: Vallourec

16 Nov 18

LIBERUM: Kier Group* - Re-assuring AGM statement

AGM statement guides to in line, and we assume c. 70% weighting to H2 as expected. Average net debt to fall £20m in H1 but we increase our over ambitious FY average net debt from £342m to £365m.

Companies: Kier Group

16 Nov 18

LIBERUM: Workspace - Outperforming Offices

Workspace continues to deliver strong profit growth. Unlike traditional leased office space, Workspace is confident in the positioning of its product, direct customer relationships, and rising diverse customer base to support its returns. A 70% retention rate demonstrates this is working.

Companies: Workspace Group