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16 Oct 18

Target price increased – buying opportunity

Equity investors are usually looking for companies that have opportunities to deploy incremental capital at high returns. Burford Capital is, in our view, a prime example of this as it continues to apply its legal and financial skills to the business of law. It’s recent, well-timed, 5% placing at 1850p to raise c.$250m looks to us simply a logical response to the ever-expanding opportunities, on which we comment herein. This has coincided with market volatility, hitting the best performing shares on AIM the hardest. We have updated our estimates (3-4% reduction FY’18 and ’19, 5% increase FY’20) and increase our 12m TP 6% offering a 29% TSR. The exaggerated fall in the shares offers a compelling buying opportunity, in our view.

Companies: Burford Capital

23 Oct 18

LIBERUM: Plus500* - Beats despite low vol. markets

This was the trough quarter post ESMA, and there was no following wind from volatility, but the company still beat, and continued to invest to acquire stickier, high value, European and Australian customers, as its brand now makes possible. We raise 2018 estimates by 6% and keep 2019 where it is.

Companies: Plus500

16 Oct 18

Cenkos: IG Design Group Plc - Value: Fundamentals vs Market Sentiment

IG Design has announced a trading update for H1/19E, guiding to performance being in-line with strong market expectations. The group is expected to deliver record H1 revenues, with all regions contributing to the growth performance. Highlights for the period include numerous strategic actions by management, with the acquisition of Impact Innovations in the US being significant in transforming the group's growth profile. Management guides to good visibility in the order book, with strong momentum going into H2/19E. IG Design's fundamentals remain fully intact, and given the recent retracement in share price along with the broader market, we assess the current price levels (FY20E EV/Adj EBITDA of c7.8x) to be a great buying opportunity for investors. Buy.

Companies: IG Design Group

16 Oct 18

Not just a pretty face

dotdigital has delivered another year of strong growth, with a positive outlook promising more of the same in the current year. The results, which were largely flagged at the trading update in July, show 15% organic revenue growth, with 22% EBITDA growth and net cash of £15m at the period end. Double digit growth was delivered in all geographies, with an 18% increase in ARPU signalling continued progress with both new and existing customers. With further strong execution expected we are leaving our top of the range forecasts unchanged. The shares trade on a Dec’19 EV/EBITDA of just 12.9x, which we believe is highly attractive for a core holding in the sector and see recent share price weakness as an opportunity.

Companies: Dotdigital Group

16 Oct 18

Interims justify FY2019 profit expectations

Gear4music’s interim results were released this morning and reconfirmed both underlying sales growth for the business and a view that full year profits will meet expectations. The company’s second half includes the all-important Christmas period. Moreover, international sales appear set to nudge ahead of UK in the six months. Clearly, sales trends remain strongly positive, which should benefit both future profit growth and valuation.

Companies: Gear4music

19 Oct 18

LIBERUM: Safestyle* - Not buying SafeGlaze

In response to speculation, Safestyle’s Board has announced that it is not in discussions to acquire either the assets or business of SafeGlaze, the very aggressive and disruptive new entrant to the industry. However the Board has said it is considering other arrangements with key SafeGlaze stakeholders, and that these could potentially prove beneficial to Safestyle's business and its recovery.

Companies: Safestyle UK

23 Oct 18

Flowtech Fluidpower - Q3 trading update: on track, no surprises

Overall trading was in line for the nine-month period, with revenue growth of 54%, of which organic growth was 6.7%, with a significant boost gained from the acquired Balu operations. Q3 was solid, but as previously signalled, the buoyancy seen at the start of the year has now settled to a steadier pace, with a cautious tone for the outlook for 2019. We reiterate our recently reduced forecasts. The shares remain deeply oversold, on a substantial discount to its peers. We see significant upside once growth is delivered on schedule, which should provide a catalyst to narrowing the current valuation gap.

Companies: Flowtech Fluidpower

19 Oct 18

Cenkos: Smart Metering Systems Plc - Landmark contract win

Yesterday, SMS announced that it has extended its relationship with First Utility and signed an exclusive agreement until 31 December 2021 to be its fully integrated domestic smart meter installer and Meter Asset Provider (MAP). This agreement provides SMS with an initial access to up to 1 million meter points, significantly underpinning our forecast of 2.5 meters installed by end 2020. Based on our assumed average supply and install cost (SMETS2 dual fuel), we estimate that SMS will be investing at least another £175m in smart meter assets for First Utility. By the end of August 2018 SMS had installed 748,000 smart meters in total, with index linked annualised recurring revenue (ARR) of £71.4m. The 5-year ARR CAGR to end 2017 was 39.5%. SMS offers investors exposure to recurring index linked earnings which will grow significantly over the next two to three years as the smart rollout accelerates towards completion.

Companies: Smart Metering Systems

22 Oct 18

Record new business originations

PCF has reported a trading update for FY18 in line with market expectations. In its first full year as a bank PCF has delivered record levels of new business originations up 75% YoY to £148m (2017: £85m) with August and September both record months. The lending portfolio increased 50% to £219m (2017: £146m) and retail deposits increased 225% to £190m (2017: £53m), significantly ahead of our forecast. We will revisit our forecasts at the time of the finals on 5 December 2018. We retain our Buy rating and 60p target price.

Companies: Private & Commercial Finance Group

17 Oct 18

Kape Technologies - Acquisition further strengthens VPN position

Kape has announced the acquisition of ZenMate, a digital privacy company based in Germany focusing on virtual private network (VPN) provision. With 50,000 software-as-a-service (SaaS) customers, the move strengthens Kape’s position in VPN, a standout growth area for the company currently. By utilising its digital marketing experience, Kape is confident it can accelerate ZenMate’s growth. We raise our FY19e EBITDA forecasts by $0.5m and adjusted EPS by 4%.

Companies: Kape Technologies

08 Oct 18

FY 2018 results – 12% upgrades to FY 2019

Full-year adjusted EPS was 11% above our expectations, driven by higher revenues across the majority of its product range. A 55p special dividend was proposed, resulting in full-year dividend growth of 27% to 116p. Strong underlying revenue growth (c.28%), which excludes c.£0.8m of backdated royalties and the loss of a c.£1.0m royalty stream, bodes well for future growth. This was despite a weak start for troponin sales in Europe, which we expect to benefit from Siemens’ US launch in July. We have increased FY 2019 forecasts by 11% and introduced forecasts for FY 2020 that imply c.12% EPS growth. We reintroduce a target price of 3,440p, which implies a 3.2% FY 2019 free cash flow yield, underpinned by 51% free cash flow/capital employed and 64% ROCE.

Companies: Bioventix

16 Oct 18

Telford Homes - Making progress, laying down markers

A 10 October update put down some clear markers for open-market sales to attain £50m+ group PBT in FY19 and for build-to-rent (BTR) sector expectations during H219. Some market risk remains evident at higher open-market price points and, with increasingly risk-averse UK equity market sentiment, Telford’s trading update was not well received. However, short-term market conditions are not distracting management from the development of an attractive pipeline of future project opportunities.

Companies: Telford Homes

16 Oct 18

Winning formula

The successful formula of selling more functionality, to more customers, through more partners, in more territories, over more communications channels continued in FY18. Much more than an email marketing platform, the acquisition of Comapi during the year confirms dotmailer as a data-led marketing platform across clients’ channels of choice (e.g. email, WhatsApp, SMS, Facebook Messenger), leading to greater revenue per client from additional services, including analytics. Prelims are in line with the trading update, showing a 26% increase in new client wins, and continuing momentum from the existing client base – even during the imposition of GDPR – leading to 35% revenue growth (15% organic) and 85% (FY17: 81%) recurring revenue. Forecasts continue to expect strong growth into FY19, and maiden FY20 forecasts show continuing trends in growth and margin. Unmodelled upside persists from the increasing use of AI to further assist targeted client marketing, tailored to the interests of individually profiled end users. Target lifted to 135p (115p): performance in FY18 proved the robust nature of the model even in a year of uncertain external influences.

Companies: Dotdigital Group

17 Oct 18

LIBERUM: AFH Financial Group* - Reload. £15m cash now ready to deploy

AFH has successfully raised £15m at 370p. The statement makes clear that there is a strong pipeline, but we assume no acquisitions in numbers, hence our FY19 estimate falls 8%.

Companies: AFH Financial Group

17 Oct 18

FY 2018 results – US update

Full-year results were marginally ahead of the July trading update. Revenue growth (10%), albeit at the lower end of target range, was affected by lower UK growth (+1%) but international markets (+19%) now account for 51% of revenues and EBITDA rose 16%. Clarity from the US FDA with regards the regulatory process for a high-level disinfectant has been received, and the revised process will delay the filing by six months. We still expect royalty income from Parker Labs in the US for its EPA-registered product in FY 2019. We make minor upgrades to our FY 2019 forecasts (+4% to EPS) and introduce FY 2020 forecasts for 12% EPS growth. Our 280p target price implies a FCF yield of 3.2%, although scope for upgrades from better than expected launch of SHOT should not be discounted.

Companies: Tristel

23 Oct 18

Innovative medicine rule and drive the upgrade

The Q3 18 results reflected volume growth withstanding the pricing and competitive pressures. Thanks to the new products, Cosentyx and Entresto particularly, management upgraded its 2018 revenue guidance. Innovative medicines came in strongly, complemented by Alcon, while Sandoz remained weak. Profitability was impacted by some one-offs but core numbers remain assuring. We remain buyers of the company’s swiftness and execution so far.

Companies: Novartis

23 Oct 18

Pure economy hotelier

H1 revenues were £1.1bn (+2.6% yoy) and underlying operating profit came in at £286m (+2.9% yoy), both below consensus expectations. Costa is now reported as a discontinued operation, statutory profit for the period increased by 3.5% to £47m. The Costa deal (£3.9bn) with Coca-Cola has been approved by the shareholders and is now waiting for regulatory approval in the EU and China. More detail of the growth plan will be released in February 2019. Outlook for 2019 Given the recent economic and political environment, along with inflationary pressures in the Consumer sector, management has maintained its cautious view for next year. Management expects near-term profit growth may be lower than in previous years.

Companies: Whitbread

23 Oct 18

Flattish Q1 results; forthcoming December turnaround plan is the key

While the UK&Ireland performed in line with our estimates, the flattish lfl revenue in the Nordics was an unpleasant surprise. On the positive side, management reiterated its FY18/19 profitability guidance. We note a few positive steps taken by the new CEO. However, his turnaround strategy (to be shared in December 2018), especially regarding the ailing phone business in the UK, would be the most vital near-term trigger for the stock price. No change in our stock recommendation.

Companies: Dixons Carphone

23 Oct 18

Better than expected Q3

The company surpassed our estimates as well as market consensus in Q3. Pest control remained the star performer, once again supported by the Hygiene business, whereas Protect and Enhance continued to drag. Despite reporting a strong quarter for the North America Pest Control business, the company needs to do more to meet its 2020 revenue target. In the UK, CMA announced its provisional finding against the Cannon acquisition. We have revised our estimates slightly upwards. No change in the stock recommendation.

Companies: Rentokil Initial

23 Oct 18

Strong disappointment coming from the short-term outlook

Ams reported Q3 18 results which were in line with guidance but disappointed the market on its Q4 operating margin outlook.

Companies: ams

23 Oct 18

Magnificent ‘seven’ again as borrowed time nears an end

Roche delivered another strong quarter – group sales up by 7% at CER – pharma up 7% and diagnostics up 6%. New launches have been able to offset the impact of biosimilar competition for the bestsellers in Europe. The US continued to be the main contributor, while Europe the worst. The outlook for 2018 was retained – sales and core EPS growth in mid single-digit. The coming quarters will see biosimilars making their way in the US, posing a massive risk.

Companies: Roche Holding

23 Oct 18

Sound in an industry which is not

Klépierre recorded a good Q3 operational performance, despite a challenging retail environment.

Companies: Klepierre

23 Oct 18

First read – sales momentum accelerates further; merger finally complete

Standalone Essilor released its Q3 18 results which were broadly in line with our estimates as well as street expectations. Organic revenue grew by 5% on the back of double-digit growth in the Sunglasses & Readers segment (+11.4%; c.9% of sales). Momentum also accelerated in the ‘lynchpin’ Lenses & Optical Instruments segment (+4.5%; c.88% of sales), benefiting from robust growth in fast-growing markets and online activities. Sales in the Equipment business grew by a meagre 1.2% due to a demanding comparison base. After considering the impact of acquisitions (+0.6%) and currencies (-1.2%), total revenue grew by 4.4% during the quarter. Essilor has reiterated its financial guidance for FY18. Note that, with the go-ahead from the Turkish anti-trust authority, the merger between Essilor and Luxottica was finally closed on 1 October 2018. The company has now been renamed ‘EssilorLuxottica’.

Companies: Essilor International

23 Oct 18

Frontera Resources - Corporate update

23 Oct 18

Slowdown of organic growth in Europe

The slowdown of organic revenue growth was confirmed in Q3 18 (+2.7% vs +6% in H1 18) due to Europe, as expected, +2% in Q3 18 (vs +5% in Q2 18, +9% in Q1 18). In this context, the group succeeded in delivering a slight underlying margin improvement, helped by further cost improvements at Monster. For October 2018, the organic trend is in line with that in Q3 18. We do not anticipate any improvement by the end of the year.

Companies: Randstad Holding

23 Oct 18

Unexpected weak equipment demand in Q3 from semiconductor customers

Atlas Copo reported mixed Q3 18 results, including solid profitability (EBIT margin at 22%) and cash flow generation and an organic revenue growth of 6%. But demand was unexpectedly weak (-1% organic decline), led by poor demand in equipment from semiconductors and panel display customers that had been one of the main growth drivers in the past two years. Therefore, visibility is now more limited on the short-term growth potential for the company.

Companies: Atlas Copco

23 Oct 18

1Spatial - Building a platform for sustainable growth

H1 results showed good progress and financial discipline, significantly expanding EBITDA and reducing operating losses. A strong pipeline should support a return to growth in H2 and our estimates are unchanged. There is still work to do on the transformation, but by focusing on delivering repeatable spatial solutions based around the company’s core 1Integrate IP, we believe that the company is laying the foundations to deliver sustainable growth and margin expansion.

Companies: 1Spatial

23 Oct 18

Mercia Technologies - 2018 Capital Markets Day Highlights

23 Oct 18

No precedent, much cheaper, but still a risk

San Francisco’s Superior Court Judge Suzanne Ramos Bolanos has rejected Bayer’s arguments that the jury did not have any basis to conclude that the herbicide (e.g. Glyphosate – trade name) caused a former school groundskeeper’s cancer. But the judge cut the putative damage from USD250m down to USD39.3m. The deadline for the plaintiff to accept the total USD78.6m ends on 07/12/18 and Bayer plans to appeal the ruling.

Companies: Bayer

23 Oct 18

Very disappointing organic revenue growth

Atos posted no organic revenue growth, or only +0.1%, largely below the consensus at +1.9%. The Infrastructure & Data Management division (IDM) concentrated all the difficulties in North America and Germany. Atos missed several deals due to execution inefficiencies of the sales force in North America and at Unify in Germany and was also impacted by a dispute over a contract with a large Telco operator. The poor performance of IDM over 9M18 led Atos to revise downwards its 2018 guidance.

Companies: Atos