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20 Mar 19

Initiating with Sell – 23% downside

Somero Enterprises is a leading manufacturer of advanced concrete placing and levelling equipment that uses proprietary laser-guided technology to serve the global commercial construction industry. We consider the current mid-cycle multiple of c.12.7x FY19E P/E as inadequately pricing in the downside risk to earnings, arising from i) the cyclicality of the group’s exposure to the US construction industry, which is seeing signs of a slowdown and ii) the heightened probability (25%) of a US recession in 2020, impacting the risk-reward profile for equity investors. We forecast a significant deceleration in earnings (c.3-9% below consensus for FY19-20E) and initiate coverage with a Sell rating, setting a PT of 300p (c.10x P/E, 23% downside).

Companies: Somero Enterprises

20 Mar 19

Cenkos: Seeing Machines Ltd - RFQs in 2019 to set market shares for 2020's

The automotive industry undoubtedly now recognises the importance and value of Driver Monitoring Systems and OEMs that did not have a programme are now racing to establish one. With regulatory time pressures working against them, 2019 looks set to be a transformative year with more than ten major Requests For Quotations expected to set market shares for most of the 2020s. With conservative assumptions, we see total DMS software license fees worth over A$785m pa by FY25 and A$1235m by FY30, with Seeing Machines looking on track to win substantially more than a 25% market share. As the market opportunity, timing and playing field have become increasingly clear, we have performed a scenario analysis to show the potential, and updated our forecasts and valuation to reflect a c40% share mid-case scenario.

Companies: Seeing Machines

13 Mar 19

Full-year results – eye-catching dividend pay-out

Results were slightly above recently upgraded expectations, with a stronger than expected H2. Strong sales growth was gained in the US, with ongoing demand in its construction customer base. New products provided a boost to sales, while the recently launched SkyScreed®25 will accelerate sales prospects in the medium term. A strong cash performance supports the exceptionally strong underlying and supplemental dividend growth. No change to 2019 PBT forecasts, with the year having started well, a higher tax charge results in a 2.6% EPS reduction to 40.8ȼ giving YoY growth of 8.1%. We introduce conservative 2020 forecasts pointing to YoY EPS growth of 5.6%. Our 465p price target continues to offer good upside, with an eye-catching 6.6% forecast dividend yield.

Companies: Somero Enterprises

18 Mar 19

LIBERUM: Miton Group* - Alpha + brand + cost control = success

Revenues beat by 3% and PBT by 9% as costs were controlled to plan. Fund performance remains good, while the range of funds offered is broader.

Companies: Miton Group

19 Mar 19

Cenkos: Bango Plc - Final results update

This morning, Bango announced final results for the year to December 2018. During the period End User Spend (EUS) continued the trend of recent years and has more than doubled to £558.2m and revenue up 60% to £6.6m (FY18: £4.2m). Adjusted LBITDA improved to -£0.9m (FY18: -£1.6m), with positive EBITDA achieved during Q4/18. Following the Audiens acquisition in early 2018 and investment in further development, December 2018 saw launch of Bango Marketplace. This is a new business segment, adding a potentially significant and high margin revenue stream, monetising the extensive and growing amount of transactional data from the Bango Platform. There remains a growing pipeline of new MNO/App Store integrations and further Google Play upgrades, representing a significant pipeline of over US$4 billion in EUS.

Companies: Bango

13 Mar 19

LIBERUM: Burford Capital* - Beats, evolves, discloses more

$1.1bn of capital deployed, when we bullishly expected $0.6bn. Burford has also beaten profit expectations by 25%, with higher ROIC, a broader range of solutions for the legal industry and now greatly enhanced disclosure, even down to individual investments.

Companies: Burford Capital

19 Mar 19

Hurricane Energy - Aoka Mizu hook-up at Lancaster

The Aoku Mizu FPSO is now on station and hooked up at Lancaster; we believe this keeps the EPS on schedule for first oil in H119. Hurricane will now focus on topside commissioning prior to start-up, which will be followed by a ramp-up period to a gross targeted plateau production rate of 20kbd (17kbod net of operating efficiency). In addition to progressing Lancaster, the company has a full programme of activity in its neighbouring Greater Warwick Area (GWA), with the three-well E&A programme in the GWA expected to kick off in early Q219 at Warwick Deep. Our risked valuation stands at 102.8p/share (see our last note).

Companies: Hurricane Energy

21 Mar 19

An excellent performance in FY 2018…

Sopheon has reported full year results in line with its January trading update and a little ahead of our estimates which we upgraded at that time. Sopheon saw a strong finish to 2018 with a number of transactions further underlining the adaptability and flexibility of the Accolade platform. Overall, Sopheon won 18 new customers compared to 13 in 2017. Chairman Barry Mence says that Sopheon has ‘a unique opportunity’ to build on its category leader status by accelerating investment. Revenue visibility is already at $20.6 million for FY 2019E and the announcement highlights a sales pipeline which includes a number of ‘large opportunities’. Management continues to look at acquisition opportunities to augment organic growth. After an excellent FY 2018 which has enabled Sopheon to increase its dividend by 30%, we note the Board’s intention to speed up investment during the year and we make changes to our FY 2019E estimates which leave Adj EBITDA a touch lower than our previous estimate. We introduce FY 2020E estimates which reflect a resumption of good growth in Adj EBITDA on the expectation of moderated investment spend.

Companies: Sopheon

20 Mar 19

LIBERUM: Alpha FX Group plc* - Global trading

FY18 results show Alpha FX putting in place the building blocks to deliver a further step-change in its service offering and revenues, with very strong growth in the UK and overseas. At the centre of the investment case is a proven sales team culture and a business that has delivered on its strategy in FY18 with ramping revenues from the Institutional and European initiatives.

Companies: Alpha Fx Group

19 Mar 19

Strong progress in FY 2018

Kape has reported FY 2018 results in line with its January trading update with strong EBITDA growth to $10.4 million. The numbers are reported on a continuing business basis following disposals which leave the Group’s App Distribution segment as its sole focus. Kape has now completed its transformation into a privacy-led cybersecurity software provider. The acquisitions of Intego and ZenMate were concluded during the year; both are now integrated into the Group and expected to contribute to revenue growth and profitability in the coming year. The number of subscription users rose by 219% to around 830,000 while the customer retention rate improved to 74%. The numbers of paying users and subscriptions show the growth the customer base and the associated retention rate provides an indication of how well Kape is maintaining its quality of service and products. With Adjusted EBITDA in FY 2018 in line within expectations, we leave our estimates for FY 2019E all but unchanged and introduce estimates for FY 2020E which reflect assumptions of further strong user acquisition and an increase in recurring revenue.

Companies: Kape Technologies

19 Mar 19

Payments industry M&A thoughts

There have been a few developments with Mastercard this month. Having lost out to its rival, Visa, in the auction for Earthport, Mastercard has unexpectedly signed an agreement to purchase Transfast, another cross border account-to-account network. Like HomeSend (ESG’s JV with Mastercard), the Transfast network also supports the Mastercard Send service. HS has much wider reach across multiple markets and channels, already fully integrated with transactions flowing. However Mastercard seeks to address a huge global market and Transfast will add much needed capacity.

Companies: eServGlobal

20 Mar 19

New products deliver FY 2018 earnings beat

The multi-national construction software and digital visualisation developer and supplier has defied Brexit fears to deliver another strong year, showing both organic and acquired growth. FX fluctuation meant its overseas sales were slightly below our forecast, but stronger margins from operational gearing led to a comfortable beat on the earnings front. The cash conversion remains excellent and the solid 0.7p dividend is in line with our forecast. The H2 acquisitions left £2.1m net debt at the YE; however, given the reliable FCF we expect that to be paid up quickly with no dividend impact. Operationally, the additions of ShireSystems and ActiveOnline extend the portfolio along a building’s lifecycle from planning and construction into facilities management and further into interior design. ELCO offers a ‘BIM’ software suite to bring together the many different stakeholders in a construction. BIM processes are being widely adopted in the UK (mandatory for government construction) and globally. ELCO is well positioned to ride this wave of adoption, benefiting from cross selling into regional markets where it is already established with excellent brands. We take the opportunity to reiterate our FY 2019 and introduce FY 2020 forecasts; we also lift our TP to 93p on the back of these strong results and expect a re-rating.

Companies: Elecosoft

19 Mar 19

New product launches Pelatro into mobile advertising

Pelatro has launched its exciting new Data Monetization Platform (DMP) product with a revenue-share contract from an existing customer. A multi-year contract worth $0.5m in year one it is part of the expected pipeline and builds up the base of recurring revenue. Data monetisation – selling mobile subscriber data analysis and marketing services to B2C clients – is at an early stage globally but will become an important revenue and earnings generator for telcos as ARPU continues to slide; opening up the huge mobile advertising market. This is a significant move and we raise our TP by 5% to reflect the long-term opportunity.

Companies: Pelatro

19 Mar 19

Profitable ABSs illustrate the potential

NAHL has reported FY 2018 results in line with our forecasts (revised after a slower Q4). The transition towards the new, digitally enabled platform is progressing well and the Alternative Business Structures (ABSs – effectively the mid-way between the old and new model) are profitable. This validates the concept and the new 100% owned platform will launch in April 2019. Investors are being paid to wait during this transition phase with an FY 2019E dividend yield of 8.7%, and we continue to forecast net debt to peak in 2019 and a return to EPS and DPS growth in 2020. As the return from the new model drives increasing free cash flow we see very significant share price upside, with downside risk protected by the value of the growing Critical Care business.

Companies: NAHL Group

19 Mar 19

All eyes on Capacity Expansion

Zotefoams has reported 2018 results in line with our expectations. The Group continues to execute well on its strategy, utilising best in class IP and technology to innovate new products and work with customers to target high value demand. Increasing capacity in 2019 and 2020 should provide further operational flexibility to allow Zotefoams to realise increasing value from its assets and drive earnings upgrades. We make small tweaks to earnings for 2019E but believe investors should focus on the multi-year expansion and significant opportunity. Reiterate Buy.

Companies: Zotefoams

21 Mar 19

Cenkos: Cello Health Plc - Organic momentum continues

Today's largely in-line results were well flagged by January's trading update, but there are notable beats on EPS, DPS and Net cash. The group continues its organically focused delivery, leveraging Signal's digital capabilities into the healthcare space, alongside new office openings. This will continue Cello's migration over time into a more healthcare-focused, US-centric and higher margin business. We feel the defensive nature and FCF potential of Cello are not fairly valued in the current share price.

Companies: Cello Health

21 Mar 19

Sopheon - Prelims – onwards and upwards

Sopheon has again delivered strong prelims, reporting EBITDA of $9.4m for FY18 from original estimates of $7.4m, having been upgraded at the end of 3Q18 (to $8.0m) as well as post year end (to $9.0m). The strong 4Q performance of previous years began to manifest in 3Q this year, with 4Q still providing strong momentum. The perpetual enterprise licence model continues to attract new customers, often delivered on a hosted basis, contributing to a growing base of recurring revenue at a $15m run rate including green shoots of demand for the SaaS version. Recruitment has proved a challenge, restraining costs to the benefit of EBITDA; however, the recruitment logjam now seems to have been solved into FY19 – this inward investment delivers a fillip to growth in maiden forecasts for FY20, with EBITDA growth of 17%. We lift our target price to 1500p (1400p), with a strong balance sheet ($16.7m net cash) offering all strategic options, including the 30% uplift in dividend from 2.5p per share in FY17 to 3.25p.

Companies: Sopheon

21 Mar 19

Tyman - Focus on strategic progress and position

Headline earnings growth was modest in 2018 but, in our view, steps taken during the year reinforced and extended the group’s strong strategic positioning in its leading markets. Our estimates are modestly lower and more in line with consensus now, we believe. The current valuation – with single-digit P/E multiples – looks unduly bearish and we continue to expect that the company will outperform its underlying markets.

Companies: Tyman

21 Mar 19

Centrale del Latte d'Italia - Steady performance in a tough environment

Centrale del Latte d’Italia (CLI) had a good year in FY18, with total revenue up 1.2% and EBITDA margins up 40bp. The economic and consumer environment in Italy remains challenging. The export business continues to be a standout performer, albeit relatively small. We leave our underlying forecasts unchanged and our fair value remains €3.35 per share.

Companies: CENTRALE DEL LATTE DI TORINO

21 Mar 19

Morning Note – 21 March 2019

Companies: Cello Health Sopheon

21 Mar 19

LIBERUM: Safestyle* - Stabilisation achieved, now restoring profitability

Safestyle's new management has successfully stabilised the business and seen off the challenge posed by an aggressive new entrant in 2018. With most of the lost agents and staff now back at Safestyle, sales order intake stepped up at the end of 2018 and this has continued in the first quarter of 2019.

Companies: Safestyle UK

21 Mar 19

LIBERUM: GAME Digital* - Solid H1 result, but disappointingly lowering our forecasts

H1 EBITDA growth is solid, but we lower our EBITDA forecasts by 13-15% across FY19E-21E reflecting: (i) softer market conditions at the beginning of H2; and (ii) the impact of a slower roll-out of BELONG than anticipated. The latter’s impact on profits is disappointing, although the benefit could be better rent deals on new openings if current property market conditions continue.

Companies: Game Digital

21 Mar 19

LIBERUM: Ted Baker* - A determined team delivered a credible result in a tough year

Ted Baker results have come in line with recently reduced expectations delivering a PBT of £63m. The Group faced a plethora of issues in FY'18/19 and has delivered a credible result despite everything the Group had to deal with.

Companies: Ted Baker

21 Mar 19

LIBERUM: Real Estate Investors* - Growing income and capital returns

REI delivered good income growth and positive capital gain in FY18. We see a continued positive outlook for FY19, with rising office rents across the Midlands, negligible exposure to weaker segments of retail, and a growing conversion to residential opportunity within the portfolio.

Companies: Real Estate Investors

21 Mar 19

Strix - Full year results 2018

21 Mar 19

FY18 results highlight good performance

As announced in the pre-close trading update at the end of January (22nd), Strix has confirmed FY18 results in line with profit expectations, cash generation was ahead of forecast leading to a lower than expected net debt position. Revenue of £93.8m was 2.5% below ZC estimate of £96.1m but on a constant currency basis would have shown 4.5% growth to £95.1m. Adj operating profit of £30.9m was in line with the £30.8 forecast as were adj. PBT of £29.2m and EPS of 13.8p. Net debt of £27.5m was a touch a below the £28.0m updated forecast, and significantly ahead of the £30.8m estimate prior to January’s trading update. We leave profit forecasts in FY19 and FY20 unchanged and introduce FY21 forecasts. Estimates assume growth in profitability of 8% and 7% in FY20 and FY21 as the investment into HaloSource and growth from Aqua Optima begin to have a meaningful impact. The major change to forecasts relates to the impact of the new factory. 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 4.6% with the shares trading on c. 11x earnings in FY20.

Companies: Strix Group

21 Mar 19

Full Year Results

Safestyle has announced results for the year ended 31 December 2018. Performance for the year is broadly in line with our forecasts with a better than expected year-end net cash position of £0.3m thanks to working capital management. Safestyle’s year has been dominated by the actions of an aggressive competitor that significantly impacted operations, resulting in a material fall in sales and profitability. The successful legal resolution of this action means the Group ended the year on a stable footing, with positive sales momentum building into FY19. With a challenging year now behind them, management have successfully completed the first of a three-phase turnaround plan aiming to stabilise the Group and return it to profitable growth. The shares currently trade on an FY19 PE ratio of 15.1x falling to 9.0x in FY20. Safestyle remains a simple and focused business with well invested infrastructure. We believe the investment case is compelling, should management execute the turnaround to plan.

Companies: Safestyle UK

21 Mar 19

An excellent performance in FY 2018…

Companies: Sopheon

21 Mar 19

First Light

LPA Group (LPA) – Corporate – AGM statement

Companies: LPA Group

21 Mar 19

Securing Future Expansion

Strix – the world’s largest kettle safety controls supplier – released preliminary FY2018 results in line with our own and market expectations. Expansion plans, including the new Chinese factory and growth outside kettle controls, notably Aqua Optima, appear on track. In 2019, dividends are still planned to increase by 10.0% to 7.7p per share, which reflects management confidence.

Companies: Strix Group