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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

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

21 Mar 19

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

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

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

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

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

26 Mar 19

Cenkos: XLMedia Plc - Very high FCF yield

2019E should see the beginning of a recovery phase. Development effort into existing assets and diversification away from gambling should help reduce the volatility seen of late. The free cash flow yield is pricing in no recovery whatsoever.

Companies: XLMedia

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

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

22 Mar 19

Product innovation led revenue growth set to continue

We attended dotdigital’s impressive annual Summit earlier this week, alongside over 1,200 of the group’s partners and customers. The event was a showcase for the power and functionality of the group’s Engagement Cloud, with several new features launched during the event. dotdigital has an excellent track record of adding new functionality to the platform and driving additional revenue from its user base as these features are adopted. Functional recurring revenue from product innovation now makes up c.28% of Engagement Cloud revenue (H1’19: £5.7m, +50% vs H1’18). We believe the latest round of feature releases are set to continue the strong growth trend going forwards, underpinning our growth expectations for the current year and beyond.

Companies: Dotdigital Group

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

26 Mar 19

Cenkos: Venn Life Sciences Plc -- Terminate Coverage

Cenkos Securities plc has terminated coverage on Venn Life Sciences Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon. Please contact Cenkos for further information.

Companies: Venn Life Sciences

26 Mar 19

Diaceutics plc - An introduction

26 Mar 19

D4T4 Solutions - Contract wins underpin expectations

Just ahead of its financial year-end, the AIM-listed data solutions provider has reported a number of new significant global contract wins and extensions in key verticals (notably financial services) for its Data Management and Data Collection businesses. These will provide valuable underpinning to future earnings. We reiterate our forecasts and, with the greater visibility, nudge up our TP ahead of the post-YE trading update next month.

Companies: D4T4 Solutions

26 Mar 19

EMIS - Returning to innovative roots

After a year of improving the customer-facing elements of the business and investing in development resources, EMIS has entered FY19 ready to accelerate the pace of innovation in healthcare technology. Its presence in each care setting gives it a strong position from which to develop software that provides a single view of the patient as well as applications that mitigate the pressures on front-line clinicians and allow patients to manage their own care more effectively.

Companies: Emis Group

26 Mar 19

EdisonTV - New website

26 Mar 19

Murray International Trust - Disciplined investment process

Murray International Trust (MYI) is managed by Bruce Stout at Aberdeen Standard Investments. He stresses the importance of sticking to his disciplined investment process, regardless of stock market gyrations, to achieve the trust’s objectives of long-term growth (and protection) of capital while delivering an above-average level of income. Stout is very positive on the prospects for emerging markets, suggesting that now the US has backed away from raising interest rates there is potential for policy easing in these regions, which would be very supportive for economic growth. MYI has a progressive dividend policy; over the last five years, the annual distribution has compounded at an average rate of 3.7% pa and the trust currently offers a 4.4% yield.

Companies: Murray International Trust

26 Mar 19

Telford Homes - Greater focus on a long-term growth market

Telford Homes represents a pure play on London’s clear requirement for the delivery of more good-quality, new build homes. Management is continuing to orient development activities towards the more robust build to rent (BTR) subsector, although there will be a near-term dip in earnings as the pipeline transitions, factoring in isolated other project delays and current market conditions also. Regaining and sustaining historic profit levels would warrant a share price significantly ahead of the present valuation.

Companies: Telford Homes

26 Mar 19

Detailed analysis – weak revenue and profitability guidance for FY19

Bic released its FY18 results wherein underlying revenue growth came in at +1.5%, thus achieving the target of +1-3% set by management. Segment-wise, the Lighters division was the primary growth contributor (+2.4%; c.35% of sales) while both the Shavers (c.23% of sales) and Stationery (c.40% of sales) divisions reported +1.7% growth, respectively. On the profitability front, though the adjusted operating margin exceeded expectations (18.1% vs. target of 17-18%), the margin plunged as compared to the previous year (FY17: 19.6%). Normalised EPS was also down 6.2% to €5.87 per share for the year, however, the dividend was maintained at €3.45 per share (pay-out: c.59%). For FY19, management anticipates slight organic growth and an adjusted operating margin in the 16.5-18% range. The company has also announced the first steps for its ‘BIC 2022 – Invent the Future’ transformation plan.

Companies: Societe B I C

26 Mar 19

Executive interview - Boku

26 Mar 19

ÅAC Microtec - New CEO to pilot growth strategy

A day in advance of the promotion of the company share listing to the Nasdaq First North Premier market, it has announced the appointment of a very experienced new CEO. Luis Gomes is to join on 7 May 2019 from Surrey Satellite Technology (SSTL) and will be responsible for delivering ÅAC’s strategy through its ramp-up phase.

26 Mar 19

Standard Life UK Smaller Companies - Following a well-established investment process

Standard Life UK Smaller Companies (SLS) is managed by experienced UK smaller-cap specialist Harry Nimmo. He is somewhat cautious on the near-term outlook for UK equities, citing ongoing Brexit uncertainty, lower US earnings growth and the US/China trade dispute. The manager continues to follow his tried-and-tested investment process, seeking high-quality firms that can grow their businesses regardless of the stage of the economic cycle. He notes that SLS’s portfolio companies are generally trading well, showing good earnings momentum and beating expectations, which he expects will lead to higher dividend payments. The trust currently offers a yield of 1.6%.

Companies: Standard Life UK Small Co's Tst

26 Mar 19

Wheaton Precious Metals - Exceeding guidance and expectations

Wheaton Precious Metals’ (WPM’s) FY18 production outcome exceeded guidance for all of its products (namely gold, silver and palladium) to the point at which gold production and sales also achieved new records. Not only was gold production during the quarter ahead of guidance (which was expected), but it was also materially ahead of our prior expectations, driven by a 12.2% increase in production attributable from Salobo, and accounted for 64.3% of WPM sales. Of note was the fact that unit cash costs for both gold and silver declined compared with Q318.

26 Mar 19

Boku - Mobile commerce enabler

Boku has built a platform that helps merchants to transact with consumers safely and simply in a mobile-first world. The first application enabled by this platform, direct carrier billing (DCB), continues to perform well, with 100%+ volume growth translating to 45% revenue growth and an EBITDA margin of 17.9% in FY18. The recent entry into the identity verification market broadens Boku’s addressable market and leverages the strength of its existing carrier relationships. In our view, the current share price does not capture the growth potential of the business.

Companies: Boku

26 Mar 19

Cenkos: XLMedia Plc - Very high FCF yield

Companies: XLMedia

26 Mar 19

Avon Rubber - Another successful mask campaign

Further positive news for Avon Protection comes from the award of the M53A1 mask and powered air systems sole source contract by the US Department of Defense. It is another IDIQ (indefinite delivery/indefinite quantity) contract with a maximum value of $246m over its seven-year term with a five-year base period and two one-year extension periods. The first order is expected shortly. As with the M69 aircrew mask systems contract award in January, the latest success had already been incorporated in guidance so does not affect forecasts. However, it does further underpin expectations for the division over the next five years.

Companies: Avon Rubber