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11 Nov 19

LIBERUM: AFH Financial Group* - Organically growing and improved FCF

AFH continues to grow at an impressive rate compared to peers in a tough market environment. It has delivered 8% organic net flows and new business written is up 46% yoy.

Companies: AFH Financial Group

08 Nov 19

Games Workshop Group - Strong five-month trading update

Games Workshop (GAW) has published a trading statement for the first five months of FY20, highlighting an acceleration in revenue growth to c 12% (versus our previous forecast for the year of c 4%), strong margin growth and encouraging signs with respect to its ability to leverage its intellectual property through royalty income. Our PBT estimates increase by c 9% for FY20 and FY21, and our DCF-based valuation increases by 10% to 5,176p.

Companies: Games Workshop Group

11 Nov 19

LIBERUM: Sirius Minerals* - Cost savings at the crux of the new plan

Sirius’ announcement this morning has confirmed it will split the financing of the shafts and the remainder of the project, with the $600m shaft component targeted before April. We outlined the rationale for this strategy in September and ran through some of the maths, but today’s release implies scope for less dilution than expected, if it can be executed.

Companies: Sirius Minerals

12 Nov 19

Cenkos: Seeing Machines Ltd -- EC safety regulations for DMS adopted

The European Council announced on Friday 8 November that it has adopted a regulation on the general safety of motor vehicles and the protection of vehicle occupants and vulnerable road users. This follows an agreement with the European Parliament in March 2019 and is part of the "Europe on the Move" package, launched by the European Commission in May 2018. These new regulations are to help transition towards a mobility system which is safe, clean and automated. Of relevance to Seeing Machines is the Regulation for the adoption of safety features that include advanced driver distraction warning systems and driver drowsiness and attention warning systems. These regulations will apply from May-2022 to all cars, vans, trucks and buses (including SUVs) and amend several existing safety regulations for EU-type approval.

Companies: Seeing Machines

18 Jul 19

FY results; acquisitions to fully benefit FY 2020

Full-year results to 30 April 2019 were in line at the revenue line but 5% (£0.1m) better than expected at the adjusted pre-tax profit level. Underpinned by c.5.5% organic growth, the 20% and 26% increases in revenue and adjusted EBITDA were driven by full-year contributions from ATC and QSI, acquired in FY 2018, as well as five acquisitions in FY 2019. Notable was the 35% increase in free cashflow. Additional investments into Sentek, Atik, Graticules and Astles and the integration of ATC with Thermal Exchange in FY 2020 should benefit the businesses in FY 2021. We upgrade our FY 2020 adjusted EPS by 7% as well as introduce FY 2021 forecasts, which indicate 13% EPS growth. The company indicates that it expects to add at least one new business in FY 2020, which will be incremental to these forecasts. We are raising our target price by 9% to 60p, reflecting the improved gross margins and stronger underlying cashflow.

Companies: Scientific Digital Imaging

08 Nov 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

11 Nov 19

Weak China trading in H1 weighs on FY outlook

Today’s trading update highlight that the ASF outbreak in China continues to weigh on performance, exacerbated by the US-China trade dispute. If these trends continue, FY results could fall significantly below market expectations. Although there are early shoots of market recovery, our revised forecasts conservatively imply that current trading conditions will remain through the remainder of this financial year, resulting in FY2020-22e gross revenue forecast reductions of 20%, 18% and 14%, respectively; and underlying EBITDA downgrades of 39%, 32% and 28%, respectively. Our EBITDA estimates have been reduced by a further £3m pa to reflect an anticipated change in R&D capitalisation, one of several areas under consideration as the company transitions to best accounting practice. We stress that several regions outperformed expectations in H1, and we remain confident that the Group is poised to benefit when the ASF outbreak is ultimately contained and trading conditions in China improve.

Companies: Eco Animal Health Group

12 Nov 19

Strategic initiatives powering up the gross margin

Interims provide concrete evidence that strategic actions undertaken to boost gross margins and improve profitability are producing results. EBITDA doubled and EBITDA margin leapt 110bps. The gross margin potential exceeds the gain in H1 though so, alongside cost efficiencies, top line guidance has reduced to +10% (vs +23%) whilst being confident about meeting FY profit forecasts. Even at this early stage, any incremental growth should drop through at a high level, underlining the investment case as growth re-accelerates again next year. We estimate fair value at 300p.

Companies: Gear4music

13 Nov 19

Full year results, first look

Avon Rubber has announced FY results comfortably ahead of consensus with the Group describing a transformational year in 2019 which sets it up well for the medium term. We see the Group as well positioned given its end markets and product development which should be attractive for investors but the recent stock run-up has been strong and valuation appears full. Neutral.

Companies: Avon Rubber

13 Nov 19

Capital Markets Event

We attended the Frontier Development capital markets day for institutional investors and analysts at the group’s offices in Cambridge yesterday. Whilst there was no new material information provided at the event, various senior managers provided valuable insight into the high-level detail of planning and execution which goes into making a game. The current managerial set-up and capacity the group has in Cambridge, validates the recent move into third-party publishing which we highly favour.

Companies: Frontier Developments

31 Oct 19

Velocys

Every time a plane takes off it causes CO2 to be released into the atmosphere. Imagine if instead it caused CO2 to be removed. While Velocys does not offer that now, it does have the component parts in place and is making strong progress in developing key reference projects. It has strong partners for its waste to aviation fuel project in the UK and thanks to a recent deal with Occidental can offer carbon capture and storage from its biomass to fuels project in Mississippi. With traction building in the form of a deal with Toyo in Japan, Velocys is putting a sometimes difficult history behind it in our view.

04 Nov 19

THE MONTHLY November 2019

The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.

Companies: AVO AJB AGY ARBB BUR CLIG DNL DPP FLTA GTLY GDR MCL MUR NSF PCA PIN SRE PHP RE/ RECI RMDL STX SCE TON SHED VTA W7L

06 Nov 19

LIBERUM: Frontier Developments* - Planet Zoo: a roaring success

Frontier launched their 4th game franchise Planet Zoo yesterday. The impressively high scores and positive comments from both game reviewers and players not only helps to underpin the commercial outlook for the game, but again underline Management's track record of delivering high quality games, with long-term revenue potential.

Companies: Frontier Developments

13 Nov 19

Cenkos: Trinity Exploration & Production Plc - Q3 Results

Trinity recently released its Q3/19 operational update in which the Company continued to focus on maintaining base production, whilst increasing its low-cost, high margin production. Production averaged 2,816bopd in Q3/19, a 3% YoY increase (Q3/18 2,734bopd). Two of the four new onshore infill wells came onstream during the period, with a third well coming onstream post-period end, increasing base production to 3,017bopd during October, with an expected year-end exit production rate of c3,400bopd. Trinity continues to pioneer its SCADA (Supervisory Control and Data Acquisition) system to optimise producing wells, allowing the Company to increase production, reduce opex and add value. The focus for the remainder of 2019 will be on the completion of the H2/19 onshore drilling campaign; with the information learned to be used in preparation of further drilling during H1/20. With new wells coming onstream, and a low operating break-even we expect the Company's cash generation levels and balance sheet to further strengthen during Q4/19. We maintain our BUY recommendation but reduce our price target to 37p (from 40p) following the 2020 National Budget changes (see below) and the recent shift in the USD/GBP exchange rate.

Companies: Trinity Exploration & Production

24 Sep 19

Quality of revenue improves during a strong half

This has been a good half, seeing growth in registrations, group revenue and renewals, assisted by a full six months of ICM. The increased sales at higher margin has meant H1 adj. EBITDA jumped over 300%; moreover, a key point is approached as renewal revenues now cover almost all costs: partner payments, cost of sales, and opex. Operationally, progress has also been made in resolving the legacy contract issues. MMX remains comfortably on track for our FY 2019 expectations, which remain unchanged. The company remains wary of giving FY 2020 guidance at this stage. However, looking ahead, this is a much more stable operation; a much better quality to the revenue stream, a controlled cost base, legacy issues addressed; and exciting and innovative growth opportunities.

Companies: Minds + Machines Group

14 Nov 19

Animoca Brands launches Addams Family mobile game and leads investment round into Sky Mavis

13 Nov 19

Q3: margins to improve in 2020

With now a replenished backlog, management changed its tune from optimism (in getting new awards) to confidence (on successful delivery). This is, nonetheless, too early to announce a dividend, as management wants to see several quarters of positive cash flow first.

Companies: Tecnicas Reunidas

13 Nov 19

Robust margin forecast supported by a better-diversified portfolio

The bolt-on acquisition of Air Europa is expected to strengthen the group’s overall performance by reason of more synergy effects. However, the downward outlook frustrates the market.

Companies: International Consolidated Airlns Grp

13 Nov 19

Q3: promising customer base increase

The group continues its promising growth, driven by the Gas division thanks to the larger amount of trading and higher earnings in last resort services. The group was able to reduce its net debt/EBITDA ratio to 2.5x. We confirm our positive view regarding the group’s strategy, but with a limited upside for the share price.

Companies: HERA

13 Nov 19

VolitionRx - Executive interview

<a href="https://www.edisongroup.com/company/volitionrx/2128/"><strong>Volition</strong></a> is a multinational life sciences company developing simple, easy-to-use, cost-effective blood tests to help diagnose a range of cancers and other diseases in the human and animal health markets. The tests are based on the science of NucleosomicsTM, which is the practice of identifying and measuring certain nucleosomes in the bloodstream or other bodily fluid – an indication that disease is present. In this <a href="https://www.edisongroup.com/edison-tv/executive-interview-volitionrx-discusses-q3-2019-results-and-provides-a-business-update/"><strong>video,</strong></a> Cameron Reynolds, President and Chief Executive Officer of VolitionRx, discusses the company’s third-quarter financial results and operating activities. During the quarter, the company made significant progress with its Nu.QTM Capture and Nu.QTM Vet platforms and with its colorectal cancer and lung cancer trials, particularly in Asia. The company began two studies in lung cancer this quarter, a large-scale study with the National Taiwan University and its first study in China with Shanghai Fosun Long March Medical Science. In addition, VolitionRx reported its first revenues from sales of research-use only kits and the provision of contract research services. Subsequent to the quarter, the Volition team executed a contract with Texas A&M University to collaborate on the research and development of Nu.QTM Vet products and help drive early revenue in the all-important veterinary market. Financially, Volition strengthened its balance sheet with an existing investor exercising $4.8m of outstanding warrants to purchase shares of common stock, making a total of $16.5m in warrants exercised during the first three quarters of 2019. It ended the quarter with cash and cash equivalents of $19.7m. During the third quarter, the company was awarded a further $1.4m in non-dilutive grant-funding from the Walloon Region and, after the quarter end, an additional $500,000 unsecured loan from SOFINEX was approved.

Companies: VOLITIONRX

13 Nov 19

KRM22 expands product offerings with deltaconX partnership, raises £1mln

13 Nov 19

Q3: back to square one?

Double whammy for Tullow Oil, which has revised its production forecasted for FY19 for the third time and reports that its latest discoveries in Guyana are heavy crudes with a high sulphur content. While it is too soon to declare both discoveries are not commercially viable, this is a big disappointment, which triggered a sell-off in the stock.

Companies: Tullow Oil

13 Nov 19

Operating weakness persists, although the investment case remains unchanged

Rusal’s quarterly results again came in at weak levels, largely due to severe market headwinds. Yet, the group has managed to sustain its (slow-paced) deleveraging momentum, thanks to sustained and growing dividend flows from Norilsk Nickel. While we don’t expect aluminium markets to normalise very soon, the group is well-equipped to withstand near-term headwinds and capitalise the white metal’s long-term fundamentals.

Companies: UNITED CO RUSAL

13 Nov 19

The same old story

The same old story: cash payments are dropping, pushing down the terminals and authorisations divisions, while the software activity is trying to offset these, mostly helped by EasyOrder and Magellan. Top and bottom lines have suffered from this for many quarters, but we finally see improvements during Q3.

Companies: Keyware Technologies

13 Nov 19

Executive interview - VolitionRX discusses Q319 results and provides a business update

13 Nov 19

Q3 19: disappointing and mounting labour cost inflation risk

The results were disappointing as reported net profit was a mere €6m and free cash flow reported €5m. The skilled labour shortage, which could result in a war for talent and labour price increases, remains a key risk to the company’s margin. Management believes it is well positioned to increase the prices of its services. Following this earnings release, we expect to keep our target price mainly unchanged.

Companies: Bilfinger

13 Nov 19

Photocure - US sales up 53% compared to last year

Photocure announced Q319 results, with 18% revenue growth for the Hexvix/Cysview franchise (vs Q318) to NOK51.1m. US sales of NOK25.2m were up 53% as the region continues to be the growth driver for the company while both Nordic and partner revenue fell (by 7% and 2% respectively) compared to the same period a year ago. Sales in the US continue to be driven mainly by improved reimbursement, added sales resources and a higher installed base of blue light cystoscopes. There are now 211 installed cystoscopes in the US, indicating 12% growth in the installed base over the quarter and up 34% since the beginning of 2019.

Companies: PHOTOCURE

13 Nov 19

The Long Awaited Gold Breakout

The Long Awaited Gold Price Breakout “You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.” — George Bernard Shaw. We’ve witnessed an extraordinary breakout with respect to the price of gold over recent months. The yellow metal broke out above its critical level of technical resistance during the month of June, rising above the high reached during July 2016 of $1380 per ounce. Importantly too, it has managed to remain well above that level. Gold’s robust recent performance has been driven by a confluence of factors - all positive - including falling interest rates, fears about economic growth, political instability, and uncertainty surrounding the ongoing trade war between the US and China. There have been other factors too, such as geopolitical concerns, including unrest in Hong Kong as well as the recent attack on Saudi Arabia’s oil facilities. After reaching the $1550 per ounce mark during early September, the gold price has consolidated somewhat, which is entirely rational, but has remained firmly above the $1450 per ounce level. The bottom-line is that investors and traders have moved strongly towards gold, reinforcing its traditional role as a safe-haven during times of political and economic uncertainty. It can be argued that the bull market in gold began at the start of this century. Ironically, following the Bank of England’s decision to liquidate half of its gold reserves at prices as low as $250 per ounce, gold’s recovery began. A far cry from the days of the Bank of England and Australia’s Reserve Bank selling vast volumes of gold reserves, central banks around the world these days are net buyers of the metal, at price levels six times higher than where the Bank of England sold. Central-bank accumulation of bullion has emerged as an increasingly important trend in the global market, offering additional support for prices that have rallied to the highest level since 2013 on rising demand. Authorities have been adding to reserves as growth slows, trade and geopolitical tensions rise, and some nations seek to diversify away from the dollar. Official purchases now account for about 10% of worldwide consumption, The Peoples’ Bank of China added a further 6 tons to its gold reserves during the month of September. This represents the tenth consecutive month of gold purchases, with the nation’s gold reserves now standing at 1,948t at the end of September. So far in 2019, China has added 95.8t of gold to its reserves. Meanwhile, the total Assets Under Management (AUM) of Chinese gold ETFs reached 17 billion yuan or US$2.4 billion as at the end of September, a new all-time record. As of 30th September, holdings of China’s four gold-backed ETFs’ totalled 50t, a 3.5t month-on-month rise. Chinese gold ETF investors tend to be more sophisticated and longer-term oriented, thus treating any dip in the gold price as an opportunity to expand their gold allocations. In all, the world’s central banks added 374.1 tons to their holding during the first six months of 2019, helping push total bullion demand to a three-year high. The trend is expected to continue, with a recent survey of central banks showing 54% of respondents expect global holdings to climb in the next 12 months. While the central banks of emerging nations have provided gold price support through their purchases, many of the central banks from the world’s biggest nations have provided gold price support through their policy actions – specifically debt. Gold’s best friends remain the world’s debt-addicted central banks. What started out as a temporary post-GFC measure to try and avoid international economic catastrophe, has now morphed into a dangerous addiction. It has now become a seemingly-permanent means of keeping the international economic wheels turning on a day-to-day basis. Keeping rates low for several quarters is a very different situation from keeping them there for years. What has transpired is that the low-rates scenario has unintentionally punished savers and distorted market prices, in turn encouraging enormous and destabilizing financial speculation. Furthermore, central bank policies of inducing negative real rates to effectively ‘incentivize’ borrowing has expanded the money supply and devalued currencies – in turn forcing investors to chase riskier assets in order to generate returns. It is little wonder therefore that investors are increasingly seeking refuge in gold. Base interest rates in industrialised nations have remained low since the financial crisis of 2008. Frequently throughout this period the rate of inflation has been higher than this, implying a loss in spending power over time for each unit or currency. In the USA, the August 2019 inflation reading showed that ‘core’ consumer prices (excluding volatile food and energy prices) rose to an 11-year high of 2.4% growth year-on-year. Not since September 2008 have prices expanded so fast and this doesn’t include the effects of the 15 tariffs on $112 billion in Chinese goods that the U.S. imposed on 1st September. Conclusion Gold’s robust recent performance has been driven by a confluence of factors - all positive. Right now, gold markets are in a consolidation phase following its strong run from below $1300 in June to a high of $1550. One of the persistent arguments against owning gold is that it “does nothing.” Unlike cash that earns interest, gold is a non-yielding asset. However, in today’s world of close-to-zero and negative interest rates, the old-fashioned notion that favours holding cash over gold is increasingly defunct. Encouragingly too, gold’s ascent has taken place against a background of US strength (typically a negative for the gold price). Gold is likely to continue to trade between $1450 and $1550 in the near-term. Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

13 Nov 19

Sureserve Group - Starting to build a track record of delivery

Sureserve continues to demonstrate it has a de-risked business and the ability to deliver growth and cash generation from its two core divisions. The recent announcements affirming end FY19 net-debt of £7.6m, FY19 earnings guidance to meet expectations and the pay down of the revolving credit facility all provide comfort that the more focused group is performing well. Our previous earnings were marginally below consensus and we are raising FY19 and FY20 PBT estimates from £7.7m and £8.3m to £8.1m and £8.6m, respectively. The valuation at 7.2x current year earnings suggests the market still has to reprice the lower risk to earnings and start to differentiate the attractive gas compliance and energy services operations from the more out of favour construction services sector.

Companies: Sureserve Group

13 Nov 19

The New Criterion: Picking the One Cent Wonders that could become Dollar Dazzlers

When a stock is trading at a fraction of a cent, it’s usually a message for investors to abandon all hope and sell for the tax losses while they can. But ‘penny dreadful’ shares can sometimes rise from the ashes