FY 2018 results – Boots to range Skinny Tan

Full-year results were in broadly line with the 19 June trading statement, with revenues rising 21% to £10.7m (£0.3m shortfall attributed to timing and despatch of June sales into July), resulting in a pre-tax profit of £0.7m and year-end cash of £1.9m. Confirmation that Boots is to range Skinny Tan online and in 1,250 (50%) of its UK stores from February/March 2019 significantly expands the retail footprint to more than 2,000 stores (2.7x), whilst Roots should benefit from a 4x expansion to more than 1,600 stores by year-end. We retain a 220p target price, which implies a calendar-adjusted 2019 P/E, EV/EBIT and EV/Sales of 24x, 14.0x and 1.8x, respectively. Strong growth expectations justify these premia.

Acquisition – 7% accretive in first full year

SDI is acquiring Fistreem International, a manufacturer and supplier of water purification systems (stills, deionisers) and vacuum ovens for use in the life science and industrial sectors. Considered a bolt-on acquisition, it is complementary to other SDI businesses such as ATC and Sentek, with opportunities for cross-selling as well as organic growth. SDI is paying £756k for the business, representing prospective proforma FY 2019 EV/Sales and EV/EBIT of 1.2x and 4.4x, respectively. The acquisition is being funded from cash with net debt and cash at year end of c.£0.6m and £2.0m, respectively. We expect the acquisition to be 2% accretive to adjusted EPS in FY 2019 (neutral to statutory EPS, given c.£55k of acquisition costs) and c. 7% in FY 2020. We raise our target price by 5% to 44p to reflect the earnings accretion. Based on our 2020 forecasts, this would place SDI on CY 2019 EV/Sales of 2.3x, EV/EBITDA of 10.1x and adjusted P/E of 16.4x with a FCF yield of 5.0%, rising to 5.8% in FY 2020.

Morning Note – 26 September 2018

Synairgen - Placing raised £2.9m

Synairgen raised £2.9m, primarily to fund a larger Phase IIa study for its lead product, SNG001, in chronic obstructive pulmonary disease (COPD). Although we expect Synairgen to receive its share (c.17%) of any upfront payment that Pharmaxis receives from licensing its LOXL2 inhibitor in fibrotic diseases, which is targeted for H2 2018, the company cannot wait for such payment given the need to have clinical investigators in place prior to the approaching 2018/19 respiratory virus season. Not only should this generate proof of concept efficacy data given the additional powering of the study rather than only proof of mechanism, but it should also increase the prospect of partnering the asset, better inform the design of the subsequent Phase IIb trial and increase the value of any such licensing deal. We are leaving our rNPV valuation unchanged at £57m, but given the dilution from additional shares, the target price moves to 53p. A successful Phase IIa trial would increase the value of SNG001 to c.£100m, implying an uplift in value of c.£60m for a Phase IIa trial cost of c.£5.5m, illustrating that the risk-reward remains skewed to the upside.

Pelatro - Morphing into a multi-product proposition

This is an exciting period for Pelatro; the IPO in December has been followed by a landmark contract win in Central Asia and then an earnings-enhancing acquisition that brings recurring revenue, a foothold in Europe and additional products, all of which are transforming the offering from a single-product firm into a multi-channel marketing hub. Organic growth has been impressive with sales rising from $0.4m to $3.1m in two years and maintaining momentum in H1; EBITDA and adj. PBT both saw double-digit growth, to $1.5m and $1.2m, respectively. A key driver of this strong performance has been the $1.7m Tele2 contract win with licence and managed services, which effectively secured our pre-acquisition IPO forecast for the year. Slow cash generation is an unavoidable facet of the industry but a net cash position and a pipeline of opportunities underpin organic growth prospects, enhanced by the H2 acquisition of Danateq. We lift our TP from 100p to 115p.

Trifast - In-line trading update

The group has released a solid trading update covering the first five months of the year. Overall trading is in line with expectations, with the US, Europe and Asia all performing well. As previously signalled, some effect in the UK has been seen from lower diesel demand and an increase in input costs. The acquisition of PTS earlier this year has integrated well and is on track to be earnings accretive in the current year. No change to forecasts. Having recently underperformed the shares trade on a P/e of 16x, followed by 15.1x, which is a 15% discount to its peer group. We reiterate our 300p price target with good upside scope.

President Energy - The best is yet to come

President’s interims demonstrated strong progress on a number of fronts with production trebling and unit costs declining significantly. This drove a material improvement in EBITDA, which will accelerate in H2. Year-end production is expected to be over 50% higher than H1 as renewed development drilling on Puesto Flores provides a step change to volumes. The expected acquisition of two concessions in Q4 will add further to volumes early next year, while also providing the infrastructure required to deliver its Neuquén basin gas to market – 2019 is already shaping up to be another strong growth year. Also important is the fact that there was no material negative cash impact from the weak peso on these results, which should go some way to helping investor confidence