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14 Nov 19

Evolving investment case - the next phase

While the FY20 interims are in-line, this does not tell the whole story with the investment case for Volex evolving away from the recovery mode of the last few years to a growth business which now focuses on cash generative, higher margin customers in new markets. The business is substantially de-risked with the top three customers now accounting for 25% of revenues – down from 47% in FY15 and when combined with a re-iteration of our PBT growth forecast of 47% for FY20, an upgrade to our expected net cash estimate from US$17m to US$23m at March 2020, a restored dividend and with it trading on a FY20 PE rating of just 10x, we re-iterate our buy recommendation with a price target of 160p.

Companies: Volex

14 Nov 19

Strong interim results

Volex has announced results for the 26 weeks to 29th September 2019 that reflect management’s focus on operational efficiency, cost control and margin analysis to drive business at acceptable margins. Adjusted PBT and EPS(FD) rose 69.3% and 48.3% respectively with benefit captured from targeted acquisitions. The Group has also returned to the dividend list with the payment of a 1p interim dividend, the first since 2013. On a calendarised basis the shares currently trade at a 34% PER and 36% EV/EBITDA discount to a comparable peer group for 2020. The Board has reiterated its confidence in delivering its full year expectations and in its ability to drive shareholder value.

Companies: Volex

19 Nov 19

Substantial deal both transformational and significantly earnings enhancing

In a deal which will have a profound effect on the prospects for the group, Kape has announced the proposed acquisition of LTMI Holdings, the holding company for virtual private network provider Private Internet Access (PIA). PIA is a Denver-based security software business, the addition of which will transform the size of Kape by doubling group revenues (including a stronger recurring revenue base) and increasing adjusted EBITDA by around 2.5 times in FY 2020E. Reflecting that, our earnings estimates increase by around 90% for FY 2020E while our new FY 2021E estimates build strongly on that much larger base. Total consideration is c. US$95.5 million with an enterprise value of c. US$127.6 million. The deal is expected to complete within 45 days and is anticipated to be immediately earnings enhancing. The transaction will create a significant player in the digital privacy market and will enable Kape to expand its footprint in North America with a broader product offering.

Companies: Kape Technologies

14 Nov 19

Prelims: consistency and opportunity

EBITDA of £10.5m (£10.4mE) was delivered from revenue of £49.2m (£46.7mE) with net cash of £24.1m, (as revealed in August), comfortably ahead of our £21.5m year-end forecast. Newsflow in the period included three acquisitions, the securing of a five year framework agreement for deployment of TRACS Enterprise with a major Train Operating Group, and the successful transition of the CEO role to Chris Barnes. The Group continues to deliver the proven mix of self-funded acquisitions and organic growth, demonstrating comfortable delivery of forecasts reiterated at interims, and a very strong balance sheet giving capacity to deliver much more of the same. With the new CEO able to deliver operational efficiencies to a Group already well versed in delivering successful acquisitions, we look forward to the next part of Tracsis journey. Target 775p reiterated.

Companies: Tracsis

15 Nov 19

FY’19 organic Media sales up 31% y/y

Future Plc’s FY results revealed the better than consensus growth noted in the trading update last week. Underlying group revenues grew 11% y/y, and 70% on a reported basis to reach £221.5m (FY’18: £130.1m), with organic Media revenue growth of 31% (reported: 134%) to £154.9m (FY’18: £66.3m). EBTIDA margins were 24.6% (FY’18: 15.9%) supported by increased scale and improving product mix. Regionally, US sales grew an organic 40% y/y with US ARPU still at a 38% discount to the UK (FY’18: 48%). EPS growth rose 95% y/y to 47.5p/share, whilst FCF rose >200% to £53.7m. Alongside FY results, management have announced the acquisition of Barcroft Studios (‘Barcroft’), a small independent studio that creates original video content for distribution across owned and operated social sites as well as mass media channels. Total consideration is £23.5m (9.4x LTM EBITDA), of which 40% will be satisfied in shares. Finally, management have also noted that, after a strong Q1, the Group now expects to be materially ahead of full year expectations. As joint broker to Future, we are restricted and can therefore provide factual comment only up to the conclusion of the General Meeting.

Companies: Future

18 Nov 19

Acquisition of Team Internet

CentralNic has announced the acquisition of Team Internet for a total consideration of $48m. The acquisition will be financed in part by a further €40m bond issue under identical terms to the €50m issue announced on 23 May 2019. Team Internet operates a ‘domain monetisation’ platform, allowing domain name owners to monetise dormant domains to generate recurring income to offset renewal fees and earn a profit. This provides a complimentary service to existing CNIC services: clients currently pay CentralNic subscription fees to register and renew domain names. Team Internet had revenues of $66.7m in the 12 months to June 2019, with EBITDA of $10.6m. We expect this transaction to have an immaterial impact to 2019E due to timing and be 43.8% accretive to 2020E earnings. Post completion, we estimate net debt:EBITDA will be 2.1x in 2020E falling to 1.6x in 2021E.

Companies: Centralnic Group

19 Nov 19

IQE - Continued impact from supply chain disruption

IQE’s reduced guidance for FY19 revenues of £136–142m (vs £140–160m previously) reflects primarily the greater than anticipated disruption to its major US wireless customers as a result of the US/China trade war. There is good evidence to support a recovery in the medium term: the qualification of products and tools in the Asian supply chain for both 3D sensing and wireless RF is encouraging, while exposure to 5G remains attractive. However, the timing of a recovery is difficult to gauge and with Q120 expected to be seasonally quiet we downgrade our FY19 and FY20 revenue estimates by 5.3% and 15% respectively, with FY19 EPS reduced from a 0.5p profit to a 0.8p loss and FY20 EPS reduced from 2.3p to 0.3p.

Companies: IQE

19 Nov 19

Significant earnings accretive acquisition

Kape is set to acquire Private Internet Access (“PIA”) for a cash-free/ debt-free total consideration of $127.6m, representing an EV/FY’18 EBITDA multiple of 8.7x (presynergies). The strategic rationale is compelling, immediately doubling Kape’s paying subscriber base, creating an estimated $4.5m cost synergy – resulting in pro-forma sales and EBITDA of $110m and $27m respectively - and further, improving Kape’s Data Privacy geographic footprint and functionality stack. PIA is cash-generative (FY’18 CFO: $16.3), growing sales +5% pa. and is expected to quickly benefit from Kape’s digital marketing capabilities. Revenue is expected to be 57% higher for both FY’20E and FY’21E, with the deal forecast to be 13% EPS accretive in FY’21.

Companies: Kape Technologies

15 Nov 19

LIBERUM: Frontier Developments* - Trading update, future games, CMD

Frontier has provided a trading update which highlights that the strong sales of recent launch Planet Zoo underpins FY20 forecasts and in the same statement provides a number of positive updates on existing and future games. The main takeaways for us are the strategically important expansion of Planet Coaster onto console (FY21), the confirmation of a major paid-for release for Elite Dangerous (FY21), and news of two major releases coming in FY22 including the licensed IP launch in FY22 which will be multi-platform. The update drives changes in some of our game release assumptions but we leave headline revenue and profit forecasts unchanged. We retain our Target Price of £18 and our view that Frontier is a core holding in a UK SMID fund.

Companies: Frontier Developments

15 Nov 19

DCB for YouTube in the USA

Bango has announced the launch of Direct Carrier Billing (“DCB”) payment services for Google’s YouTube TV Service, with the initial launch via a “leading” but unnamed US Mobile Network Operator (“MNO”). With the ongoing growth in US Over The Top (“OTT) video services continuing to cannibalise the Cable TV operators, we believe DCB for YouTube TV is a strong offering in a large market. The release is light on detail as to the potential value to Bango, and we make no revisions to forecasts. Nevertheless, the launch represents a further win in an area of strategic focus for the group. It also confirms the integration of a major new merchant service into the Bango Platform.

Companies: Bango

19 Nov 19

How to have your cake and eat it

Often investors are faced with the difficult decision of having to choose between growth and value. Rarely is it possible to get the best of both worlds, but we think Watkin Jones is one such stock. Not only do the shares trade on a FY20 adjusted PER (ex cash) of 12.0x and pay a 3.6% dividend yield. But also the firm is benefiting from long term tailwinds in its 2 key markets of Build to Rent (BtR) & student accommodation (PBSA). In turn, offering opportunities much larger than we’d previously thought.

Companies: Watkin Jones

19 Nov 19

Record H2 expected from Systems milestones

As noted in the October trading update, SRT’s big Systems project milestones will be booked in H2, leaving just the growing Transceivers revenue in H1. This business jumped 15% YoY and drove an overall 10% YoY growth in group revenue. Management is comfortable in delivering major milestones on the Philippines MDA deployment, which will see SRT achieve record H2 results and we therefore reiterate our FY forecasts and TP of 75p.

Companies: SRT Marine Systems

20 Nov 19

We remain selective; Buy Consumer Tech

We continue to take a selective stance on stocks within the small cap Technology space. The sector’s equity performance was lacklustre over 2019, rising 4% and keeping pace with the All-Share index (relative to multi-year periods of outperformance) as investors took a cautious stance on geopolitical and macro risk. We believe cautious sentiment is likely to dominate trade during the first half of 2020 and maintain our preference for consumeroriented players, consistent with our Arden Thematic Technology framework. Our top picks for 2020 are CDM, EVRH*, SUMO and VNET.

Companies: CALL CDM FDEV KWS SUMO TM17

14 Nov 19

Encouraging Mina do Barroso metallurgical testing

Encouraging and detailed metallurgical testwork results were reported from their advanced 100% owned open pit Mina do Barroso spodumene hard rock lithium project in Portugal. This involved the development of a new flow sheet and testing of a variety of mineral types, including different weathered types of spodumene ore from the various drilled deposits that form the project.

Companies: SAV BHP GLEN ASO ALBA CAML GWMO

18 Nov 19

Allenby Capital TMT Update - 18.11.19 (MIRA.L, TERN.L, CCT.L)

Mirada plc* (MIRA.L, 160p/£14.2m) | Tern plc* (TERN.L, 9.25p/£21.9m) | Character Group (The) plc* (CCT.L, 360p/£77m)

Companies: MIRA TERN CCT

21 Nov 19

IIR Inidctive Weekly NTA Summary of Listed Managed Investments

The Listed Managed Investment (LMI) Indicative NTA Report tracks the indicative movement of a LMIs pre-tax NTA throughout the month by monitoring the movements in the disclosed holdings and using an index to track the movement of the remainder of the portfolio. We note that the indicative NTA is only an estimate based on the information provided by the LMIs. The indicative NTA is most accurate for those companies/trusts that have a highy concentrated portfolio, disclose a large percentage of their portfoio holdings, have low turnover and regular disclosure of the cash position. The Indicative NTA Report will be released weekly. The report also provides dividend data, historical pre-tax NTA and share price performance data, option information, the dilution impact of options if exercised and the impact on the share price if the average premium/discount was returned to.

21 Nov 19

Kodal Minerals - New replacement exploration licences and ESIA

21 Nov 19

Seneca Global Income & Growth Trust - Executive interview

Seneca Global Income & Growth Trust (LSE:SIGT) was launched in 2005 and adopts a ‘multi-asset value investing’ approach, aiming to generate income and capital growth with low volatility by investing in a multi-asset portfolio of equities, fixed income and specialist assets. Since July 2017, SIGT’s performance has been benchmarked against CPI +6%. Annual dividends have increased each year since 2013. On 1 August 2016, SIGT adopted a discount control mechanism aiming to ensure that its share price trades very close to NAV. In this webcast, one of SIGT’s fund managers, Gary Moglione, discusses how the environment has been for value managers and how Brexit is affecting the fund’s UK exposure. He then highlights the new positions in the portfolio, before discussing changes within the specialist asset segment of the trust and how overall asset allocation has evolved over the course of this year.

Companies: Seneca Global Income & Growth Trust

21 Nov 19

Q3: say goodbye to one of the best-in-class satellite operators

Inmarsat did not reconfirm its growth trend this quarter, on the back of the continuing client shift in Maritime, while Aviation suffered from a high comparison basis. The company is expecting its delisting to happen by the end of this year.

Companies: Inmarsat

21 Nov 19

Coro Energy - South-East Asia growth strategy

Coro Energy is an independent E&P company that offers investors exposure to the rapidly growing South-East Asia gas markets. The company intends to execute its strategy of creating a portfolio of hydrocarbon-producing hubs in a region that is observing an exodus of the major oil and gas players, creating opportunities for small- and mid-cap independent E&Ps. With the experienced and well-connected in-region ex-Salamander CEO James Menzies at the helm, Coro is well placed to build on these opportunities and acquire low-cost discovered reserves, monetise existing resources and appraise the fields for potential upside. With the generated cash flows, Coro intends to acquire new opportunities, replicate the process and achieve a self-funding portfolio of hubs with the final goal of redistributing capital to shareholders.

Companies: Coro Energy

21 Nov 19

Performing ahead of the market

M&B has reported a strong closure to FY18/19. The adjusted operating profit came in line with our estimate of £317m. Tighter capital expenditure, better than expected net debt reduction and management’s disclosure of 1.4% lfl sales growth in the first seven weeks of the new financial year also bode well for investors’ sentiment. The company should be able to sustain this momentum and preserve the profit margin in FY19/20.

Companies: Mitchells & Butlers

21 Nov 19

CMD 19: strong dichotomy between the two businesses

Rheinmetall held its CMD yesterday (20 November) at its Unterluss Defence facility. The key takeaways of this CMD are a remaining lacklustre environment in Automotive, impacting the margin, over the next two years, while the Defence business will remain strong. We therefore anticipate a downward adjustment, dragged by Auto.

Companies: Rheinmetall

21 Nov 19

Sales beat in H1 while profitability misses the bus; full-year outlook raised

Sales momentum accelerated significantly in H1, led by broad-based growth across businesses. While wholesale benefited from the success of Marvel, the momentum in cochlear implants was driven by the MRI-compatible implant. Retail was fuelled by effective lead generation management and in-store execution, leading to the financial guidance upgrade for FY19/20. Nonetheless, higher than expected R&D and sales and marketing expenses and a new restructuring charge took away some of the sheen.

Companies: Sonova Holding

21 Nov 19

Executive interview - Seneca Global Income & Growth Trust

21 Nov 19

Global Energy Metals in London discussing plans to develop cobalt projects to feed growing EV demand

21 Nov 19

Battery materials' position of points

JMAT’s H1 results were positively impacted by the good demand for car and truck catalysts, but profitability suffered. The top-line of New Markets was helped by the strong demand for battery materials, but profitability suffered from the investments in the next generation battery material eLNO, which came in more pronounced than expected. Due to the good performance in all other divisions, JMAT’s figures were a notch higher than expected from us, but consensus was met.

Companies: Johnson Matthey

21 Nov 19

FCR Immobilien - High-growth German property investor

FCR Immobilien (FCR) invests mainly in retail property, targeting total returns derived from recurring rental income and capital gains. The company seeks to acquire properties at attractive prices and actively manages the assets to improve income, by reducing voids and increasing rent levels and capital values with minimal or no capex. A key element of FCR’s strategy is to sell properties where asset management plans are mature, with capital recycled into new opportunities. Consequently, gains on disposal are a significant element of returns, with historical average gross IRR at project level of c 25%. High leverage is part of its strategy, with net debt to total assets at 79% at end-June 2019.

21 Nov 19

H1 19/20: continued operational strength

United Utilities posted a satisfactory H1 19/20 (closing in March), with solid underlying operating profit growth (+6.5%). The company has been continuously improving operationally, earning top marks from the regulator and making it eligible to receive regulatory incentives, which UU estimates will reach £50m over the 2015-20 period.

Companies: United Utilities

21 Nov 19

Canacol Energy - Returning value to shareholders through dividend

Canacol Energy presented a 22% increase in natural gas production compared to Q219 following the achievement of one of its 2019 milestones – the Jobo to Cartagena 100mmscfd pipeline. 2019 is proving to be a transformational year for the company, with an increase in production to 215mmscfd and advanced negotiations to expand export capacity to 315mmscfd by the end of 2023. Given the forecast of stable free cash flows for the coming years, Canacol’s board of directors decided to declare a recurring quarterly dividend, starting in Q419 at US$7m. Our 2P + risked exploration NAV is in line with our previous note at C$6.35/share, a 1% decrease, reflecting a 4% decrease in our 2019 production estimate.

Companies: Canacol Energy