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17 May 18

Many models, more IPOs, probably

Last Friday we hosted our second Listed Law conference, London’s only investor event focussed on the business of law in a listed context. We are fascinated that a sector involving many hundreds of billions of dollars of activity each year in high added-value services only offers public market investors fewer than a dozen equity market investment opportunities globally, with an aggregate market cap of only £4.3bn (of which Burford Capital is £3.3bn). With high costs driving change in the way legal services are bought and sold, our speakers offered fascinating insights on emerging business models. These require capital and talent to function fully and our conference theme paid particular attention to how that talent is attracted, deployed and retained. We conclude that more public investment opportunities are likely. A video of each presentation is embedded on each company profile herein and the slide packs themselves are available on e-mail by request.

Companies: BUR GOR GTLY

16 May 18

Upgrades to revenue forecasts and price target

Blue Prism has issued a trading statement today that confirms the very strong sales momentum that we are seeing in Software Automation. The strong momentum was highlighted in our recent sector update, “Software Automation- Automating Intelligently” published on the 20th April. We continue to see this as a multi-year growth story and a multi-billion dollar end market, and we continue to expect further upgrades to market forecasts. We retain a Buy rating on PRSM and increase our price target to 2200p from 2000p.

Companies: Blue Prism Group

15 May 18

LIBERUM: Elegant Hotels* - Outlook improved with top-line growth accelerating

Elegant offers a 9% FCF yield, 5% dividend yield, and is trading at a 40% discount to NAV. The group has seen improvement in occupancy in all its hotels and revenue visibility for the rest of the year sits at 95%, with greater confidence in the outlook vs. the same time last year.

Companies: Elegant Hotels Group

16 May 18

£2 FOBT limit and self-help estimates

A £2 max stake, is a worst-case scenario for operators with betting shops, we estimate (table 1, p2) it will reduce operators’ revenues and profits significantly, though these estimates exclude any self-help initiatives available to management teams, such as shop closures, automation (SSBTs) and further omnichannel rollout to mitigate the impact of lower B2 limits. Furthermore, we estimate increasing POC tax from 15% to 20% for online (table 3, p4), would offset the taxes lost on FOBTs for the Treasury and help fund losses to the horse racing industry, the latter likely to be affected by the lower B2 limits. The increased POC tax would likely lead to further consolidation in a highly fragmented UK online market.

Companies: GVC WMH PPB PTEC

17 May 18

Multinational growth platform

Water Intelligence has reported a strong set of FY 2017 results with adj. EPS up 30% and a continued strong outlook. Indeed, the recent Q1 2018E statement detailed sales were up +40% and PBT up 50%. We have updated our target price to 309p (previously 263p) and reiterate our view that Water Intelligence has a differentiated offering in a large, growing market that is supported by regulation, underpinning very significant growth prospects.

Companies: Water Intelligence

23 May 18

Strong H1 2018 helps underpin targets

PCF Group (PCF) has delivered a strong set of interim results. Operating income increased 32% to £6.7m (2017: £5.1m) and PBT increased 20% to £2.1m (£1.7m) on a portfolio of receivables that grew 40% to £179m (£128m). Since launching its bank in July 2017, retail deposits had reached £108m at end March 2018. As expected, ROE fell to 8.7% (2017: 10.5%) reflecting the larger capital base and investment in the business. Our forecasts remain unchanged but we have upgraded our target price to 60p (0.6x forecast £215m receivables). Buy rating.

Companies: Private & Commercial Finance Group

22 May 18

Onwards and upwards

“Success breeds success” is a crucial, yet under-appreciated, concept when it comes to investing. You see, great companies devote substantial amounts of time/resource nurturing and maintaining high-performance cultures. Management obviously plays an enormous part – walking the talk, motivating employees, recruiting the right people and challenging the status quo.

Companies: Watkin Jones

21 May 18

Trading update & GCL acquisition

Gateley have confirmed strong progress for FY18 with revenue growth of at least 8% and EBITDA growth over 7%. The group have also strengthened the property activities acquiring GCL creating one of the largest residential development teams in the UK legal market. The acquisition will drive meaningful cost and revenue synergies and we estimate will enhance earnings by 4% in FY19. Gateley shares offer investors access to an established business model set to directly benefit from the changing structure of the UK legal market; an opportunity-rich landscape for ambitious mid-tier firms. Results since the float have clearly demonstrated a quality earnings stream and we believe the positive year end trading update aligned with the earnings enhancement from GCL should provide a catalyst for re-rating.

Companies: Gateley

17 May 18

Building a smarter future

Delivering infrastructure projects on time, to-spec and within budget has proved a minefield for corporates & politicians alike. Typically, 80% are late and 40% over-spent with little thought on how best to manage the asset once complete. Not exactly ideal, when total running costs over a property’s 25-40 year life, can be >4x the upfront capex. Luckily things are changing...and fast. Here technologies, such as data analytics, IoT, VR/AR, robotics & artificial intelligence, are transforming the $8 trillion global construction market. In turn helping to drive strong demand at Elecosoft (ELCO), a leading BIM (Building Information Modelling) software developer.

Companies: Elecosoft

16 May 18

Electrifying flight**

Electrifying aviation motivated by cost-saving potential and environmental implications – whilst electrification is profoundly impacting the automotive industry, there is a growing case for electrification in the aerospace industry. 40% aggregate powertrain energy cost saving potential, combined with clean sky initiatives is driving expanding research and investment across the sector. Rising urbanisation is creating congestion solutions focusing on electric Vertical Take-off and Landing (eVTOL) innovate technologies.

Companies: ABM AMC AAZ JAY bmn GEO KOD MKA PGM SOLG URU

18 May 18

On a joy-ride

It seems Ocado is on a partnership spree. The UK-based e-com grocer come technology firm has announced a fourth international partnership within a span of six months. The latest addition to its kitty is Kroger, the second largest food retailer in the US. Under the agreement, Kroger will have access to Ocado’s Smart Platform ‘OSP’ (a proprietary automated warehouse facility) for grocery and other food distribution related activities. The fee structure will be broadly similar to previous deals, except for a reduction in the initial capital requirements for Ocado compensated by lower ongoing fees. The US retailer will subscribe to 33,146,200 new Ocado ordinary shares (5% of the existing issued share capital) for £183m. This will bring the company’s total investment in Ocado to more than 6%.

Companies: Ocado Group

22 May 18

Banking on HomeSend

eServGlobal enters FY18 with a reduced cost base and a fully funded balance sheet; we are forecasting the core business to be close to EBITDA break-even in FY18. With access to Mastercard’s sales force and financial institution customer base, HomeSend has signed up a number of banks to use its cross-border payment platform. As these banks shift volumes onto the platform, this should drive strong growth in volumes and move the joint venture towards profitability.

Companies: eServGlobal

15 May 18

Opening up a significant market

The Supreme Court of the USA (SCOTUS) yesterday voted 7-2 in favour of repealing the Professional and Amateur Sports Protection Act of 1992. Seven justices voted in favour of repealing with the court quoting: “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own. Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution. PASPA is not. PASPA “regulate[s] state governments’ regulation” of their citizens, New York, 505 U. S., at 166. The Constitution gives Congress no such power. The judgment of the Third Circuit is reversed.”

Companies: GVC WMH PPB PTEC

10 May 18

Sector leading returns and earnings growth

Fulcrum is a leading provider of utility connection services across the UK. It has a strong recent track record, with adj. operating profit growing organically from £1.1m to £6.5m over the last two years. The Group has two segments, Infrastructure Services (high margin utility connections business) and Asset Ownership (recurring revenue at a very high margin as gas and electric flows through installed networks), and it recently acquired an electricity connections business named Dunamis. Fulcrum’s operating margin is sector leading at 17.2% in FY’17 vs. the construction peer group at 5%, and it operates a cash generative model. We expect continued growth as management implements its strategy to win market share and forecast PBT to grow to £12.4m by FY’20 from £6.5m in FY’17. We set our target price at 80p and initiate with a Buy recommendation.

Companies: Fulcrum Utility Services

17 May 18

Strong H1 and franchise remains robust

Numis has made good progress in the first half of 2018 with particularly strong revenues in corporate broking and advisory and a resilient result from the equities activity. Investment in people and platforms to support future growth and our expectation of lower portfolio gains restrains our earnings estimates for the moment but healthy deal pipelines, continued growth in the corporate client base and the strong balance sheet are positive indicators for the future, subject to market fluctuations.

Companies: Numis Corporation

23 May 18

Speeding up the restructuring, better late than never

M&S has released full year results below our estimates. Full year sales were up 0.4% at CER and exceptional costs have inflated by 17.5%. However, the company will speed up its restructuring plan with more store closures.

Companies: Marks And Spencer Group

23 May 18

DATAGROUP - EBITDA margins lift to 10.6% as acquisitions drive growth

DATAGROUP performed in line with expectations in H1, with revenue growing by 24%, including 1.5% organic growth, or 5–6% when adjusting for discontinued activities from acquisitions. Management conservatively maintained revenue guidance, despite 50% of this already being generated in H1, with ALMATO only contributing for one month in the period. While the rating looks fairly priced at c 10x EBITDA, DATAGROUP offers an excellent track record, high recurring revenues, a clear focus on the large German Mittelstand sector and an increasing number of key differentiators following the acquisitions of ikb Data and ALMATO.

Companies: Datagroup

23 May 18

LIBERUM: Premier Asset Management* - Strong underlying H1'18 results

H1'18 results look to be tracking marginally ahead of our expectations, which given the market weakness in February, is promising. Group AUM was +5% to £6.4bn, despite -2% due to market performance. Adj. PBT is +41% vs. H1'17.

Companies: Premier Asset Management Group

23 May 18

Stride Gaming - Looking beyond the UK

The entire UK gaming sector has been stung by recent regulatory changes and, like other operators, Stride’s strategy is to diversify its UK-centric model into international markets. In the UK, the company is gaining market share, with H118 adjusted revenues increasing 14% to £44.9m, driven by 25% growth in the proprietary platform. However, we have lowered our total FY18 and FY19 EBITDA forecasts by 16.6% and 28.7% to reflect increased costs associated with regulatory compliance and international expansion. The stock has fallen 18% year to date and trades at 8.3x EV/EBITDA and 13.4x P/E for CY18e.

Companies: Stride Gaming

23 May 18

LIBERUM: HomeServe* - Another step change in the US (more detail)

FY FD EPS of 33.1p in line, but DPS increased 25%, ahead of expectations. We continue to expect FY FD EPS of 36.2p and 40.1p for FY 2019 and FY 2020, but shift the mix from the UK to the US. We increase our FY 2019 net debt from £270m to £300m.

Companies: Homeserve

23 May 18

Assura - Full Year Results 2018

23 May 18

Ascent Resources - Operations update

23 May 18

Morning Note

NAHL (NAH): Corp Positive start to the year | OptiBiotix (OPTI): Corp FY 2017 results – transition to product-based company

Companies: NAHL Group Optibiotix Health

23 May 18

2018, a year of transition before growth resumes

In a year of major transition, results for FY2017 came in ahead of our revised forecasts yet were significantly below the prior year outturn, primarily due to much weaker trading at the Group's largest business, SpotCo, against a particularly strong comparative in FY2016. SpotCo still has operational challenges ahead and this, together with expected initial losses from the start-up in Amsterdam, will negatively impact our forecasts for FY2018 which are now expected to be in line with FY2017 trading. With the attainment of a year-end net cash position for the first time in many years, the legacy of a highly leveraged balance sheet is now confined to history. This coupled with a new, ambitious and highly experienced management team suggests to us that there are significant opportunities for growth from FY2019 onwards.

Companies: Reach4Entertainment Enterprises

23 May 18

Strong H1 2018 helps underpin targets

Companies: Private & Commercial Finance Group

23 May 18

GMP FirstEnergy ― UK Energy morning research package

Cabot Energy (CAB LN)1 ; Speculative BUY, £0.10: Operational update | Faroe Petroleum (FPM LN)6 ; BUY, £1.60: Additional well in the 2018 exploration programme in Norway | OMV (OMV AG) (not covered): 1Q18 results | Gulf Keystone Petroleum (GKP LN) (not covered): Payment in Kurdistan | Orca Exploration (ORC CN) (not covered): 1Q18 results

Companies: CAB FPM OMV GKP ORC.B

23 May 18

TradeTech Capital Markets Day

We attended the TradeTech (PTEC’s financial division) capital markets day yesterday. The presentation was well attended and it was an opportunity to meet senior management and to showcase technology.

Companies: Playtech

23 May 18

Northland Capital Partners Limited Morning Report

MOTIF BIO (MTFB.L)

Companies: Motif Bio

23 May 18

FLASH: Additional well in the 2018 exploration programme

Faroe Petroleum has decided to add the drilling of the Brasse East prospect to its exploration programme in 2018. The Brasse East prospect is estimated to potentially hold 15 mmboe gross Prospective Resources (FPM WI: 50%). The decision to drill Brasse East reflects recent seismic reprocessing and reinterpretation work. This well will be drilled after the Rungne exploration well.

Companies: Faroe Petroleum

23 May 18

Small Cap Breakfast

Block Energy— UK based oil exploration and production company whose main country of operation is the Republic of Georgia. Raising £4m. Mkt cap £9.3m. Due early June. Codemasters Group— video game developer and publisher, specialising in high quality racing games. Offer TBA. Seeking £15m in primary. Due 1 June. Strongbow Exploration (TSX:SBW) intends to dual list on AIM. Holds rights to the South Crofty underground tin mine, a former producing tin mine located in the towns of Pool and Camborne, Cornwall . The project is estimated to require the Company to raise £25 million over the next 18 months to progress to a production decision. Offer TBS. Due June. Maestrano Group, a software company with operations in Australia (main country of operation), the UK, US and the UAE, is looking to join AIM. Offer TBC, expected late May. Yew Grove REIT—newly formed Company will pursue its investment objective by investing in a diversified portfolio of Irish commercial property. Offer TBA. Due Late May

Companies: ARL PYC AURA NSH FST SCLP MDZ EME