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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

10 May 18

Sector leading returns and earnings growth

Fulcrum is a leading provider of utility connection services across the UK. It has a strong recent track record, with adj. operating profit growing organically from £1.1m to £6.5m over the last two years. The Group has two segments, Infrastructure Services (high margin utility connections business) and Asset Ownership (recurring revenue at a very high margin as gas and electric flows through installed networks), and it recently acquired an electricity connections business named Dunamis. Fulcrum’s operating margin is sector leading at 17.2% in FY’17 vs. the construction peer group at 5%, and it operates a cash generative model. We expect continued growth as management implements its strategy to win market share and forecast PBT to grow to £12.4m by FY’20 from £6.5m in FY’17. We set our target price at 80p and initiate with a Buy recommendation.

Companies: Fulcrum Utility Services

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

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

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

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

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

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

10 May 18

Rounding out the portfolio

With the acquisition of Glassman High Voltage, XP continues in its quest to expand its product portfolio to include high-voltage and high-power products. The acquisition should help XP to further penetrate key accounts, as well as adding new customers. XP is paying £31.8m in cash, funded by extending the company’s credit facility, and expects the deal to be earnings enhancing in FY18. We increase our FY18 and FY19 normalised EPS forecasts by 3.6% and 6.1% respectively. We forecast a net debt/EBITDA ratio of 0.8x at end FY18, well below the company’s 2.0x ceiling.

Companies: XP Power

21 May 18

Rexel: weak Q1 18

Rexel reported Q1 18 results below our estimates as well as industry consensus. The company once again grew in all its operating regions. Growth rates for North America and Asia remained on an upward trajectory, a direct contrast to the European region, where growth momentum softened for the second straight quarter. We remain optimistic on the North American growth story, whereas Europe should remain subdued mainly due to an unfavourable base effect. We have revised our estimates downwards. No change in stock recommendation.

Companies: Rexel

21 May 18

Q1 18: hit by the BHM provision, Ferrovial remains value destroying

With a ROCE expected of below 6.5% against a WACC of 7.6%, Ferrovial is a value-destroying company. With the £-208m provision (€-237m) registered for the Birmingham contract (BHM) in Services, one can understand that risk management isn’t yet at the utmost best level. As a consequence, we will reduce our target price. And this should trigger a change in recommendation from Add to Reduce.

Companies: Ferrovial

21 May 18

All lights are green

The group reported a strong set of quarterly results supported by strong fee income generation and some provision recoveries making full-year guidance easy to meet.

Companies: Banco Bilbao Vizcaya Argentaria

21 May 18

Greatland Gold - Black Hills: Multiple Gold Zones Identified

21 May 18

Avast - Market Open

21 May 18

CyanConnode - Significant Order

21 May 18

CyanConnode - 2017 Full Year Results

21 May 18

FY 2018 revenue on track with new regions opened

2017 results are largely as expected after January’s trading update. Affected by a delayed delivery, revenue fell 36% YoY to £1.2m contributing to a cash loss of £10.7m. R&D spend increased during 2017 with development of a new standards based product which is now complete. Cash at the YE was £5.4m after an £11.3m equity injection in the year and we calculate current cash of under £3m but with a further £1.4m due from R&D tax credits. The cash burn will be reduced during 2018, and whilst there is no visibility on the Bangladesh order, new territories have been opened up and a large order for $3.2m in India is announced with the results. The cash should be sufficient through to Q4, when the bulk of the year’s £10m expected revenues are due to be booked. To be prudent, our forecasts do not include anything from Bangladesh and little from Iran; however, delivering them will require additional working capital (our forecasts assume £2m from equity) with a number of sources being considered, including licensing. The uncertainty on timing and funding means this remains a highly speculative holding and we place our TP under review. We do see opportunity in a huge order book and strong IP; also a shift of emphasis from hardware to software with a licence and royalty model for the new product developed during the year.

Companies: Cyanconnode

21 May 18

GMP FirstEnergy ― UK Energy morning research package

Kosmos Energy (KOS US/LN) (not covered): Well update in Suriname | Serinus Energy (SEN LN/CN)1 : Speculative Buy, £0.25; Coming closer to home

Companies: Kosmos Energy SERINUS ENERGY

21 May 18

Morning Note

Allergy Therapeutics (AGY): Corp Positive Phase II PQ data – significant value inflection | CyanConnode (CYAN): Corp FY 2018 revenue on track with new regions opened | Omega Diagnostics (ODX): Corp VISITEC CD4 update

Companies: AGY CYAN ODX

21 May 18

AAMS signs off on SNAI deal

PTEC this morning announces that it has received consent from Agenzia delle Dogane e dei Monopoli (AAMS), the Italian regulator regarding the acquisition of SNAI and as result the Initial acquisition of c. 70.6% of SNAI will complete in June as opposed to the 3Q18 as originally intended.

Companies: Playtech

21 May 18

Positive Phase II PQ data – significant value inflection

A highly statistically significant dose response from the Phase II Grass MATA MPL/PQ Grass trial in Europe enables the company to confidently select a dose to take into a pivotal Phase III trial for US and European registration purposes. This is the first of two material clinical trial readouts this year. The Phase III Birch allergy study is expected in H2 2018, safety data from which might be able to be included as part of the safety package needed by the FDA for Grass MATAMPL. We maintain a target price of 47p and expect to upgrade on positive PQ Birch results. Further upside (33p) exists for the Pollinex Quattro Grass programme in the US.

Companies: Allergy Therapeutics

21 May 18

Allenby Capital HCM Update 21.05.18 (HVN.L; NBB.L; STAF.L)

Harvey Nash Group plc (HVN.L, 103p/£75.8m) Acquisition | Norman Broadbent plc (NBB.L, 11p/£5.8m) Final results to 31 December 2017 | Staffline Group plc (STAF.L, 970p/£270m) AGM Statement

Companies: HVN NBB STAF

21 May 18

Bolstering the case for AP-CDLD

Intec Pharma recently released the results from two pharmacokinetic (PK) studies of AP-CDLD (n=18 and n=30). The data showed trends towards lower peak serum concentrations (Cmax) and a longer half-life (T1/2, although there was some inconsistency), which should reduce dyskinesia and off-time, respectively. Additionally, one study measured food effect, which was present but did not delay onset of effects, unlike the approved extended-release carbidopa/levodopa formulation, Rytary.

21 May 18

Allenby Capital TMT Update 21.05.18 (GFIN.L, TEK.L, CER.L, TPG.L)

Gfinity plc* (GFIN.L, 15.7p/£45.1m) Board changes: Garry Cook appointed Executive Chairman | Tekcapital plc* (TEK.L, 17.0p/£7.2m) Belluscura private placement | Cerillion plc (CER.L, 145p/£42.8m) Interims: Solid H1, Skyline gaining some traction | TP Group plc (TPG.L, 7.25p/£55m) Meeting with management: Expanding the service offering

Companies: GFIN TEK CER TPG