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17 May 19

LIBERUM: Staffline* - Unscheduled statement: estimates reduced

We are reducing 2019 and 2020 FD EPS by 46% and 17%. We increase FY net debt from £52m to £85m (net debt /EBITDA of 3.0x) for FY 2019.

Companies: Staffline Group

14 May 19

Cenkos: Duke Royalty Ltd - Capitalising on more favourable terms

Duke has agreed modifications to the terms of three royalty agreements from the Capital Step acquisition. The effect is to unlock a minimum of £3.7m in additional revenues over the next 5 years. As a result, Capital Step's future revenue is expected to increase by 25%+ at no additional cost. This realises a key synergy from the Capital Step deal.

Companies: Duke Royalty

17 May 19

Interim results – another beat

H1 Revenue is ahead of our not long ago increased expectation driving a better profit result. Cash is also £10m ahead. The business has good momentum and despite the ever present spectre of Brexit there is still significant scope for us to prudently raise revenue, EBITDA and EPS estimates. Acquisitions integrations and performances are on plan and the online advertising technology changes in place to benefit. The shares have re-rated again in line with the changing fundamentals. We see a path to 20x EBITDA leaving significant upside potential without the need for further upgrades.

Companies: Future

22 May 19

Settlement news flow, attractive returns

We believe the settlement in principle of a litigation project that was announced on 20 March 2019 will likely be confirmed on Monday 27 May, providing further positive news flow for the shares and demonstrating the attractive returns available if the right cases are selected.

Companies: Litigation Capital Management

23 May 19

LIBERUM: Sirius Minerals* - On the cusp of a major de-risking event

The completion of $825m in equity and convertible financing now puts Sirius on the cusp of finalising the funding package for its WoodSmith mine. The company plans to issue a $500m high yield bond in the coming months which will unlock the remaining $2.5bn credit facility from JP Morgan, needed to complete the project.

Companies: Sirius Minerals

20 May 19

Cenkos: Falcon Oil & Gas Ltd - Full Steam Ahead

Falcon Oil & Gas is an international oil and gas company focussed on the acquisition, exploration and appraisal of unconventional oil and gas assets. Falcon has a 30% interest in three exploration permits in the Beetaloo Sub-basin, in the Northern Territories (NT), Australia - covering 4.6million gross acres and estimated to contain 496 trillion cubic feet (TCF) of original gas in place (OGIP) within the Middle Velkerri B dry gas shale play. As part of a transformational farm out to Origin Energy in 2014, the Company carries up to A$113m (US$80m) for the costs of the upcoming Stage 2 and 3 work programme to drill and hydraulically fracture stimulate four further horizontal wells and evaluate the potential of the Kyalla and Velkerri liquid plays before confirming commercial production flow rates in the most prospective play(s). On Friday, the Company conditionally raised gross proceeds of cUS$9m (c£7m) to primarily fund Falcon's share of the next cUS$100m of capital expenditure on the Beetaloo work programme and its ongoing G&A. By the end of the Stage 3 work programme, a total of US$300m would have been spent by Falcon and its partners in determining the commerciality of the Beetaloo. Through its transformational farm-out deals with Hess and Origin, we estimate Falcon's share of this gross cost to be approximately US$15m, or 5% of the total capex to date for its 30% working interest. Prior to development we would expect Falcon to monetise its interest and exit the play. Given the multi-TCF potential, strategic location and multiple commercialisation options, we believe Falcon offers early entry to a world-class play with potential upside far greater than any of its peers. We initiate coverage with a price target of 41p and a BUY recommendation.

Companies: Falcon Oil & Gas

21 May 19

Upbeat H1 & in line with FY19 estimates

One of the most reliable gauges of a company’s ‘competitive moat’, is (not surprisingly) the amount of money it generates. Not solely profits, but the return on invested capital after adjusting for financial gearing. On this measure Watkin Jones ranks as the industry’s #1 player (see below), delivering an anticipated FY19 unlevered Return on Equity of 44.2%.

Companies: Watkin Jones

17 May 19

Upgrades to forecasts, release of FY22E numbers

Following FY19A results last week, we upgrade FY20E and FY21E forecasts to reflect an increase in business momentum. We increase FY20E revenues by 3.0% to £48.6m, and adjusted PBT 6.7% to £5.6m. For FY21E we nudge up revenues by 1.3% albeit keep earnings broadly flat. Our newly released FY22E forecasts expect £62.3m of revenues and £7.2m Adj. PBT. We increase our PT to 520p from 460p (set by DCF) on updated forecasts, yet remain Neutral.

Companies: Keystone Law

23 May 19

Positive trading update, new factory progressing to schedule

We note the announcement this morning by Strix, confirming it continues to trade in line with market expectations, as previously announced at the time of the FY18 results (21st March 2019). It has also confirmed that the group has signed an agreement with the Zengcheng Government regarding a land purchase and construction of the group’s new factory is scheduled to start at the end of Q3 this year, this is in line with expectations. The impact of this new factory is already built into forecasts and its effect was discussed in a ZC note published on the same day as the FY18 results. Despite c. £25.0m of investment over the next two years, net debt will remain c. 1.0x EBITDA. Dividend growth of 10% to 7.7p in FY19 yields 4.8% with the shares trading on 10.6x earnings in FY20.

Companies: Strix Group

11 Apr 19

Quarterly Research Outlook

We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.

Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE DTG DEMG EMR FPO FST GTLY GENL GOR GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR PARK PGM PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF

03 May 19

Burford Capital - Time to Top Up

We believe recent share price weakness presents an opportunity to enter the market leading litigation funder at an attractive valuation. Current market concerns surrounding an overstated ROIC and aggressive fair value accounting are unfounded, in our view. We reiterate our Buy rating and 2,300p price target.

Companies: Burford Capital

28 Mar 19

Litigation, litigation, litigation

Within this note we look to build upon our existing legal sector coverage of Anexo*, Gordon Dadds*, Gateley, Knights, Keystone, Rosenblatt and NAHL to include the litigation funders Burford Capital, Manolete Partners and Litigation Capital Management.

Companies: ANX BUR IMF JIL LIT MANO RBGP

16 May 19

Cenkos: RA International Group Plc - Delivering contract wins

This morning, RA International announced that it has been awarded a new contract by a large humanitarian client in Central Africa. Under the terms of the contract, RA International will construct accommodation facilities for peacekeeping troops in up to 10 locations around the country. The one year US$10.7m contract commences in June 2019. Recent contract wins should have added substantially to the contracted revenue backlog, now above US$150m in our estimation. RA remains well positioned to secure further significant longer duration contracts with both existing and a broader base of new customers, including several Western governments, mining and oil & gas companies.

Companies: RA International

20 May 19

Earnings accretive acquisition

CentralNic has announced this morning the acquisition of TPP Wholesale, the leading Australian and New Zealand domain name and hosting reseller business for a consideration of $24m AUD, subject to financing. This acquisition is a good example of CNIC’s strategy to acquire high recurring revenue businesses, with potential synergies that exist in new markets. We leave forecasts unchanged for now, preferring to wait until the financing condition is satisfied, but management have stated that they believe this transaction will be immediately earnings accretive for 2019E with double digit earnings accretion in 2020E. This is the group’s third acquisition in 12 months as they continue to execute their consolidation strategy.

Companies: Centralnic Group

20 May 19

Cenkos: Collagen Solutions Plc - Strategic investor vote of confidence

Collagen Solutions has announced it has received a strategic investment of £4.2m from the private US company, Rosen's Diversified Inc (RDI). The company will increase the raise to ~£6.0m through a proposed equity placing and open offer. The associated shares will be issued at a price of 5.0p. We believe this investment supports the growth we see developing in the company and significantly de-risks the near-term cash position. Following the recent positive trading statement, we have upgraded our FY19E forecasts and introduce new numbers out to FY21E. The momentum we see in the company supports our forecasts and Buy recommendation.

Companies: Collagen Solutions

23 May 19

ERM Power - Investor day confirms structural growth trends

The recent investor day confirmed the opportunities we see for ERM Power from an evolving energy market, which we expect will create medium-term growth potential especially for the Energy Solutions business. In the meantime, investors will benefit from strong forecasted cash flow generation, with total free cash flow over the period FY19–21 equivalent to c 40% of the current market cap. We expect this to be allocated in a balanced way between shareholders’ remuneration and growth capex.

Companies: ERM Power

23 May 19

ADL Bionatur Solutions - Q1 off to a good start, raising margin expectations

ADL Bionatur Solutions (ADL-BS) recently reported Q119 results, showing positive €0.11m EBITDA, and over 134% year-on-year revenue growth to €10m, driven by 180% growth in contract manufacturing (CMO). After increasing our margin assumptions and rolling forward our estimates, we now obtain an NPV of €163.1m, translating into an equity valuation of €3.02 per share (from €2.37 previously) after adjusting for net debt.

Companies: Bioorganic Research and Services

23 May 19

Medserv - A platform for growth

FY18 results met revenue and company-defined adjusted EBITDA guidance, although accounting changes and impairments led to higher depreciation charges than we expected. As a result, the adjusted pre-tax loss was a little below our estimate. The Suriname offshore base management contract is a prime driver of significant improvement in FY19, with group revenues set to almost double. However, even in other territories underlying progress is occurring, notably in Egypt, Cyprus and Malta, with potential for significant new opportunities to land this year for both the ILSS and OCTG operations. These may have helped to progress the major shareholders’ intentions to sell to a strategic partner.

Companies: MEDSERV

23 May 19

LIBERUM: NewRiver* - Bravo joint venture re-established

Against a challenging backdrop for retail property, NewRiver’s results were largely in line with our forecast with declines limited by its diverse portfolio mix, centred on affordable convenience & community assets. FFO was 2% below our forecast, with underlying FFO stable.

Companies: Newriver Reit

23 May 19

Morning Note – 23 May 2019

Companies: President Energy Gateley

23 May 19

President Energy - The transformation has arrived

A very active and impressive year for President, with strong operational performance delivering record results. The Q4 2017 acquisition in Argentina has delivered on its promise rapidly and the late-2018 acquisition is shaping up to build on and amplify this. Production and profits have grown sharply, with unit costs benefiting from the improved asset mix and enlarged asset base. These results demonstrate that President’s transition is complete and, while there is more to come, they give a taster of the transformation that these assets can deliver.

Companies: President Energy

23 May 19

LIBERUM: Premier Asset Management* - HY as expected despite tough markets

HY19 results were in line with our expectations, despite a period of substantial market uncertainty and weak industry flows. We note subdued gross sales rather than larger redemptions, suggesting that the business is performing well against peers.

Companies: Premier Asset Management Group

23 May 19

LIBERUM: HomeServe* - The US continues to drive growth

FY19 EPS grew by 12% yoy, to 37.0p, driven by 37% CC EBIT growth in the US, now the largest division by EBIT, and despite increased investment in Home Experts. Net debt increased to £305m, due to Tranche 2 of Dominion and smaller HVAC acquisitions.

Companies: Homeserve

23 May 19

LIBERUM: Sirius Minerals* - On the cusp of a major de-risking event

Companies: Sirius Minerals

23 May 19

Positive trading update, new factory progressing to schedule

Companies: Strix Group

23 May 19

Recent contract wins highlight momentum

Following a solid performance in 2018, StatPro’s AGM statement confirms that the Group has traded in line with expectations during the first part of the current financial year. This is consistent with the outlook comment in the March FY 2018 results announcement which said that the Group had good visibility into H1 2019 with a solid business pipeline. We also note recent positive announcements on contracts – the latest of which was made earlier this week when the Group announced a three year extension for £2.44 million with a Top 20 Fund Administrator. Management had previously said that StatPro was seeing further growth from its fund administration clients in the first quarter of 2019. In his statement, Chairman Rory Curran reiterates two particular areas of focus: improving EBITDA margins – aided by the move to the new divisional structure – and ensuring that the Delta integration is a success. We leave estimates unchanged while noting the supportive contract announcements.

Companies: Statpro Group

23 May 19

Trading in line, £100m buyback announced

Inchcape had announced a trading update this morning confirming trading in the first four months of the year has been in line with expectations. The UK and Australian markets now look to be stabilising and the group has also announced a £100m share buyback scheme, in line with the group’s track record in allocating capital to deliver value for shareholders. We leave forecasts unchanged following this announcement. We remain comfortable with the distribution-led story at Inchcape, which now represent >90% of group profits. Inchcape trades on a 2019E P/E of 9.6x falling to 8.8x in 2020E, which we believe is at odds vs. its distribution peers, as well as the ROCE delivered of 28%.

Companies: Inchcape

23 May 19

(Almost) Daily Market News Update

After the government lifted the cap for energy tariffs, it was widely expected to see a jump in electricity and gas prices that would drive the UK consumer price inflation rate above the 2% target of the Bank of England (BOE). And thanks to a 10.9% jump in electricity prices and a 9.3% jump in gas prices, consumer prices rose 2.1% year-on-year. Overall, the jump was less than anticipated though, and consumer prices missed economists’ expectations. However, retail prices, where electricity and gas prices have a higher weight, overshot expectations, creating overall a balanced picture. We think that this increase in inflation in the UK is likely to be short-lived since energy prices should remain relatively stable in coming months, leading to a gradual decline of the inflation rate below 2.0% again.

Macros: Commodities - EnergyCommodities - Metals & MiningEconomic DataIndices and MarketsForeign ExchangeCommodities - EnergyCommodities - Metals & MiningEconomic DataIndices and MarketsForeign ExchangeCommodities - EnergyCommodities - Metals & MiningEconomic DataIndices and MarketsForeign Exchange

23 May 19

Site visit to Rainsborough Park

Yesterday we attended a site visit to Gleeson’s Rainsborough Park development near Doncaster. This is a big and popular site in its second phase with excellent transport links (commuting distance to Leeds and York). Gleeson has been on site since 2014 with a sales rate (one per week) and average selling price (£140k) above Group average. Price increases have been implemented as the site has developed (cumulatively +15%) and this is expected to continue in future phases. Overall, the visit reinforced our conviction in the Gleeson model, the quality of the leadership team, the growth trajectory and the important role the company plays in increasing home ownership by providing good quality homes at an affordable price point.

Companies: MJ Gleeson

23 May 19

Trading update: continued growth in revenue, profits and investment

Gateley’s FY’19 trading update indicates an in line performance, and highlights: the group’s strengths in depth and breadth; attractive growth in revenue and profits while continuing to invest for the future; ability to integrate acquisitions; and the exciting opportunities for future expansion. With these facets in mind and an indication that the FY’19 dividend payout may exceed our expectation, the valuation attractions of the shares are compelling, in our view.

Companies: Gateley