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15 Oct 19

Earnings risk remains but how much bad news is in the price?

Following the 1H 19 results, we trim our earnings by ~2%/3% for FY19/20e to account for a more synchronised global slowdown. At a PE of ~8x on our FY20e estimates, we believe current levels are now pricing in a ~35% peak-to-trough volume cut vs. the ~70% cut seen during 2007-10). While this may warrant investor interest, we retain our Neutral stance (but lower our PT from 275p to 200p) as we see heightened earnings risks, and importantly note an absence of positive catalysts. Recap on H1 interims. H1’s results came as a mild surprise with revenues outside North America falling ~19% y/y. We note that volumes across the product suite fell 16.5% y/y, mildly offset by a +3.8% y/y gain in average pricing.

Companies: Somero Enterprises

14 Oct 19

LP-LDL achieves two major milestones

Last week, OPTI announced two major milestones for marketed ingredient LP-LDL, currently sold as a probiotic in foods and food supplements for the reduction of cholesterol: (1) achievement of process validation under good manufacturing practices ("GMP"), a necessary step in developing LP-LDL as a pharmaceutical drug; (2) confirmation of generally regarded as safe ("GRAS") status by the FDA. Both milestones reflect OPTI's commitment to improving the quality of the science and manufacturing conditions for probiotics to bring them closer to pharmaceutical standards. They should increase LP-LDL's attractiveness to both food companies looking to differentiate their products with evidence-backed ingredients and pharma companies looking to target the microbiome with live bacteria. With both events taking OPTI closer to achieving our forecasts and hence valuation expectations, we reiterate our OUTPERFORM recommendation and target price of GBp97 per share.

Companies: Optibiotix Health

16 Oct 19

FY 2019 results: new three-year financial plan

Full-year results were in line with July’s trading update. Revenues grew by 18% CER, with a stronger-than-expected UK performance (+9% vs +2% in FY 2018), driven in part by the launch of new products, supporting the continued expansion in international markets (+26%) that now account for 55% of group revenues. The expected response to Tristel’s pre-submission request to the FDA, expected in December, should help determine the next steps for US registration. We maintain our FY 2020 adjusted pre-tax profit forecasts (+16%) with changes to reflect IFRS16 and introduce FY 2021 forecasts for 10% and 7% revenue and EPS growth. These are towards the bottom of Tristel’s newly set three-year financial plan, which bodes well for potential upside given the strong delivery over the past three years. Our unchanged 325p target price implies a 4% FY 2020 FCF yield.

Companies: Tristel

15 Oct 19

Core holding continues to deliver

dotdigital’s final results contain no surprises, having been largely flagged at the trading update in July. The group continues to deliver high quality growth, with good progress being made across each of its strategic pillars. Group organic revenue growth from continuing operations of 15% was driven by growth in all geographic regions, with new product functionality continuing to drive increased revenue from existing customers. Further strong execution is expected and we are making no major changes to our forecasts. With net cash balances forecast to rise quickly from here, we believe the group has strong opportunities for both organic and acquisitive growth, offering multiple avenues for future value creation.

Companies: Dotdigital Group

17 Oct 19

Strong evidence that fair value is fair

In the aftermath of a dramatic period, Burford has provided additional disclosure that greatly improves understanding of its fair value process and its conservatism. The timing of when fair value adjustments are made has been well explained previously, with clear objective criteria. How the amount of each valuation change is determined has also had some clarification, with an objective core overlaid by adjustments that involve some judgement. Detailed data have also been provided on the 20 concluded cases that have had adjustments of $1m or more. All this adds considerably to the belief that Burford’s fair value is prudent.

Companies: Burford Capital

16 Oct 19

Positive trading update, material upgrades

Augean has issued an update that highlights a strong Group trading performance in the third quarter. As a result, management expects adjusted profit before tax to be materially ahead of the current consensus forecast of £16.5m for the year to 31st December 2019. The Group notes that it has benefitted from a 20% increase in landfill volumes across all waste types, a further 20% improvement in landfill pricing, increased radioactive waste profit and a good performance by both the treatment and North Sea businesses. We have upgraded EPS forecasts for FY2019E by 17%, including the benefit of our revised expectation of a sustainable 19% tax charge compared to 23% previously. Outer year forecasts rise further as we adjust to factor in established trends and remove now undue levels of conservatism.

Companies: Augean

18 Oct 19

H1 delivering double digit growth

Following its positive end-August trading statement, IG Design Group’s H1 update to end September confirms it has achieved double digit year-on-year growth in both revenue and operating profit. Cash generation has remained strong and year-end average leverage is expected to reduce to 1.1x from the prior year figure of 1.3x. With high levels of orders going into H2 and a strong pipeline of commercial initiatives, operational efficiency gains and acquisition opportunities underpinning future development, the group is on track both to deliver FY20E market expectations and to position it strongly for further growth in FY21E. Our forecasts are therefore unchanged ahead of the interim results.

Companies: IG Design Group

15 Oct 19

Cenkos: IXICO Plc - Accelerated revenue growth

IXICO has released a trading update for FY19 (YE September), announcing revenues of £7.6m and a first full year EBITDA profit, driven by accelerated revenue growth. Revenues for the year are ~6% ahead of our previous forecast and ~15% ahead of our ‘initiation' forecast (29 Apr 19). Having reported an EBITDA profit for H1/19A, the company is expecting to deliver a full year EBITDA profit, supported by strong revenue growth and operational leverage. We have upgraded our forecasts to reflect this update. IXICO's strong revenue generation and operational gearing support our BUY recommendation.

Companies: IXICO

17 Oct 19

LIBERUM: Alpha FX* - Broad-based upgrade to revenues and profits

Alpha has released a brief trading update which highlights a strong Q3TD and the Board’s view that FY19 profits will now be ahead of expectations. The strength is broad-based, across UK and European clients, together with momentum in the Institutional, Alpha Pay and the Canadian initiatives.

Companies: Alpha Fx Group

18 Oct 19

Experience Portal delivering tangible benefits

Eckoh’s Capital Markets Day yesterday highlighted the progress which has been made on the Customer Engagement side of the business. With all products now successfully integrated into the Eckoh Experience Portal, the group is uniquely placed to enable digital transformations within their customers. We were shown several live case studies where the group has been able to deliver both an improved experience for end users and significant cost savings for clients by implementing a connected cross-channel customer experience. Last month’s AGM Statement and Trading Statement confirmed strong underlying momentum in both divisions and we see plenty of scope for growth within Customer Engagement, which will augment the large untapped opportunity in US Secure Payments.

Companies: Eckoh

15 Oct 19

Final results – building on the pillars

Final results to June indicate performance in line with expectations, with EBITDA of £14.7m (£15.0mE) delivered from revenue of £42.5m (£42.5mE) leading to adj. dil. EPS of 3.9p (3.4pE, outperformance due to a lower tax charge) and free cash flow of £6.2m (£6.3mE). In a post-GDPR, pre-Brexit world, DOTD has simply got on with the job, driving increased ARPU of £966 (FY18: £845) from more customers taking more products in more territories, with a greater number of channels and partners. This has led to 15% organic growth from continuing operations with 86% recurring revenue (90% contracted) – with the strong visibility supported by a hearty balance sheet including £19.3m net cash, giving DOTD strategic opportunities to add to its existing operational strength. There are few companies we can point to which consistently deliver 15% organic growth, PBT margins over 25%, and reliable cash conversion (>80% op cash/EBITDA). Target 135p reiterated.

Companies: Dotdigital Group

15 Oct 19

LIBERUM: SigmaRoc* - Blue chip investment

SigmaRoc is proposing to acquire Carrières du Hainaut (CdH) for €82m EV, funded by debt and a £32m share placing. It should enhance EPS by c.16%.

Companies: Sigmaroc

15 Oct 19

Flash Update: Q3 Trading Update

Capital Drilling (LSE: CAPD) this morning provided its Q3/2019 trading update. The key ARPOR (average monthly revenue per operating rig) metric (see fig 1.) is below our forecasts but revenue is slightly ahead (due to non-drill revenue from other businesses including MSA labs). There are also new contract wins starting in Q4 which has led us to slightly upgrade our FY/2019 revenue forecasts to US$115.5 million.

Companies: Capital Drilling

16 Oct 19

Informatics in focus

We recently met with the divisional management of one of Instem’s businesses – Informatics. Despite its relatively small scale, the unit has an interesting platform, is experiencing significant growth, and some of its services offer both material cost savings and process improvements to major players in the pharma market. It therefore offers Instem a greater degree of value than might be apparent simply by looking at its current scale – today’s RNS highlights informatics order intake up c60% YoY to £0.84m during the first nine months of 2019. This note summarises the mediumterm potential of the unit, both in its own right, and to Instem as a whole.

Companies: Instem

17 Oct 19

Cenkos: Record Plc - Strong quarter of inflows bodes well

The notable highlight of Record's Q2/20A update is the +$1.7bn net client inflow, which builds on Q1/20A's inflow of +$0.3bn. This takes AUME to $59.9bn, ahead of our year-end expectations. When combined with broadly unchanged fee rates over the quarter, we see upgrade potential should this level of AUME be maintained. We prudently keep forecasts unchanged today, noting materially stronger GBP this month, which would counter some of this upside to forecasts should it be sustained.

Companies: Record

20 Oct 19

Perseus Mining reports 'another excellent quarter' with production up and costs down

20 Oct 19

Episode #2: new offer with lower acceptance threshold

AMS has reiterated its bid offer on OSRAM at €41/share (all cash), but has lowered the acceptance threshold to 55% from 62.5% after having failed in the previous attempt at 51.6%. We believe that this new challenge should be easier given AMS is now OSRAM’s largest shareholder. We are cautious on the stock in the short term given the stretched balance sheet, but we remain positive on the company’s long-term perspective.

Companies: ams

19 Oct 19

Q3: EQT and Patricia Industries lead a solid NAV progression

Investor continues to build upon a strong 2019, despite a mixed Q3 for its listed core investments. The blockbuster IPO of its fund investment arm EQT, along with the strong revenue momentum of its wholly-owned subsidiaries in Patricia Industries make for an enticing investment proposition. While the discount to NAV compression has seen some relief, the looming headwinds in the demand/macro-economic front could weigh on listed and unlisted investments alike.

Companies: Investor

18 Oct 19

Q4 preview: the focus will be on margins and 2020 guidance

SGRE is due to report its Q4 results on 5 November. We look for FY19 revenues of €10.3bn and an adjusted EBIT margin of 7.4%. Therefore, our estimates are within the outlook provided by the company, though it remains at the lower end. We believe the focus will be mainly on the next guidance for 2020, and especially in terms of margin. Downside risks related to the peak number of installations next year are still likely.

Companies: Gamesa Corporacion Tecnologica

18 Oct 19

Minor guidance adjustment

Profit warning issued after delays in contract awards in Defence and the continuous soft market in the Telco Space business. We estimate the impact of the revised guidance to be c. 1% on the group’s sales for 2019, while the EBIT generation and all other long-term guidance are left unchanged. We therefore believe that, putting this into perspective, volatility should remain high on the stock over the coming weeks as investors’ sentiment has been hurt.

Companies: Thales

18 Oct 19

Marble Point Loan Financing - Solid cash flow

Marble Point Loan Financing (MPLF) is a closed-end fund that invests in leveraged loans via collateralised loan obligations (CLOs) and loan accumulation facilities (LAFs) managed by Marble Point Credit Management (Marble Point). The experienced credit investment team employs a conservative, disciplined approach. MPLF’s mark-to-market pricing approach directly reflects market volatility and this was notable during the November-December 2018 selloff, when MPLF underperformed its peers. However, its underlying portfolio has been largely unaffected and cash flow generation remains strong. MPLF’s H119 interims showed a 13.5% annualised net investment income backing its 10.1% dividend yield.

18 Oct 19

The improvements planned for Q2 were not there

While Q2 was expected to see acceleration, the group reported -3.6% organic sales growth (-4% in Q2, est. -2.7%) due to technical factors and Group Brands growth below its expectations. The unclear guidance isn’t reassuring.

Companies: Remy Cointreau

18 Oct 19

Q3: Transportation & Logistics feels the pinch

The widespread decline in air and sea freight volumes spurred on by the trade war and the uncertain macro-economic environment is catching up with Bolloré, with revenues decreasing by 4% lfl in Transportation & Logistics. Nonetheless, the scenario is more upbeat in the Communications division, as UMG continues to post solid rates of growth (up +16%), much to the benefit of Vivendi (+7%). Opportune disposals of non-core assets should keep the cash flowing in spite of a challenging outlook for Bolloré’s core activities.

Companies: Bollore

18 Oct 19

Despite the challenging environment, full-year guidance maintained

During Q3 FY19, Rexel witnessed a sequential slowdown in its top-line growth – soft industrial activity in markets like the US, Germany and China being the key culprit. While management anticipates trading headwinds in the near term, the FY19 financial guidance has been maintained (includes 5-7% increase in adjusted EBITA). No material change in our estimates.

Companies: Rexel

18 Oct 19

Diverse Income Trust (The) - Weak sentiment presents exciting opportunities

The Diverse Income Trust (DIVI) aims to provide shareholders with an attractive and growing level of income, as well as capital growth, over the long term. Unconstrained by index considerations, the managers (Gervais Williams and Martin Turner) have a wide investment universe from which to select companies that are well managed and able to deliver sustainable and growing dividends. The portfolio is well diversified, with a bias towards small-cap companies; since DIVI’s inception in April 2011 to end-September 2019, the trust has delivered an annualised NAV total return of 11.5% and consistent growth of its regular dividend.

Companies: Diverse Income Trust

18 Oct 19

Still benefiting

Yara’s Q3 figures were again positively impacted by lower energy prices, whereas deliveries were down, especially in Europe and Brazil, and there were lower sales prices for some key products. Contrary to this, the higher-margin product mix gave an additional profitability push. The company announced a kind of moderate share buy-back for an expected total volume of NOK800m (c.USD87m). The Q3 figures confirmed our view on the company and broadly met consensus.

Companies: YARA INTERNATIONAL

18 Oct 19

Augean - Growth fuels upside

Augean has reorganised its business and now enjoys a strong competitive position in its key markets, allowing it to capture underlying market growth and significantly improve profitability. The H119 results and recent trading update suggest this trend is set to continue. Augean’s market rating, even allowing for the outstanding tax liability with HMRC, appears very modest for a company with significant growth potential.

Companies: Augean

18 Oct 19

Complicated environment in Chinese market weighs on Accor’s business

AccorHotels released modest Q3 19 results and downgraded its FY19 outlook due to a disadvantageous performance and forecast in Asia-Pacific.

Companies: Accor

18 Oct 19

FY19 sales growth revised downward

Danone reported Q3 sales figures below consensus expectations and now targets lower full-year sales growth from 3% to between 2.5% and 3%. The operating margin target is unchanged at above 15%. However, we note some positive points anyway, especially in Early Life Nutrition in China.

Companies: Danone

18 Oct 19

Something like a negative signal in Q3 19?

Icade qualified its leasing activity as “resilient” in 9M 19 vs. “solid” in H1 19, or a change in its wording in our view. In fact, we observed a lfl decrease in rents in Q3 19. This leads us to become more cautious, aside our questions concerning the French Offices end-market around the City of Paris for some months.

Companies: Icade