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23 May 19

LIBERUM: Sirius Minerals* - On the cusp of a major de-risking event

The completion of $825m in equity and convertible financing now puts Sirius on the cusp of finalising the funding package for its WoodSmith mine. The company plans to issue a $500m high yield bond in the coming months which will unlock the remaining $2.5bn credit facility from JP Morgan, needed to complete the project.

Companies: Sirius Minerals

22 May 19

Settlement news flow, attractive returns

We believe the settlement in principle of a litigation project that was announced on 20 March 2019 will likely be confirmed on Monday 27 May, providing further positive news flow for the shares and demonstrating the attractive returns available if the right cases are selected.

Companies: Litigation Capital Management

23 May 19

Positive trading update, new factory progressing to schedule

We note the announcement this morning by Strix, confirming it continues to trade in line with market expectations, as previously announced at the time of the FY18 results (21st March 2019). It has also confirmed that the group has signed an agreement with the Zengcheng Government regarding a land purchase and construction of the group’s new factory is scheduled to start at the end of Q3 this year, this is in line with expectations. The impact of this new factory is already built into forecasts and its effect was discussed in a ZC note published on the same day as the FY18 results. Despite c. £25.0m of investment over the next two years, net debt will remain c. 1.0x EBITDA. Dividend growth of 10% to 7.7p in FY19 yields 4.8% with the shares trading on 10.6x earnings in FY20.

Companies: Strix Group

20 May 19

Cenkos: Falcon Oil & Gas Ltd - Full Steam Ahead

Falcon Oil & Gas is an international oil and gas company focussed on the acquisition, exploration and appraisal of unconventional oil and gas assets. Falcon has a 30% interest in three exploration permits in the Beetaloo Sub-basin, in the Northern Territories (NT), Australia - covering 4.6million gross acres and estimated to contain 496 trillion cubic feet (TCF) of original gas in place (OGIP) within the Middle Velkerri B dry gas shale play. As part of a transformational farm out to Origin Energy in 2014, the Company carries up to A$113m (US$80m) for the costs of the upcoming Stage 2 and 3 work programme to drill and hydraulically fracture stimulate four further horizontal wells and evaluate the potential of the Kyalla and Velkerri liquid plays before confirming commercial production flow rates in the most prospective play(s). On Friday, the Company conditionally raised gross proceeds of cUS$9m (c£7m) to primarily fund Falcon's share of the next cUS$100m of capital expenditure on the Beetaloo work programme and its ongoing G&A. By the end of the Stage 3 work programme, a total of US$300m would have been spent by Falcon and its partners in determining the commerciality of the Beetaloo. Through its transformational farm-out deals with Hess and Origin, we estimate Falcon's share of this gross cost to be approximately US$15m, or 5% of the total capex to date for its 30% working interest. Prior to development we would expect Falcon to monetise its interest and exit the play. Given the multi-TCF potential, strategic location and multiple commercialisation options, we believe Falcon offers early entry to a world-class play with potential upside far greater than any of its peers. We initiate coverage with a price target of 41p and a BUY recommendation.

Companies: Falcon Oil & Gas

21 May 19

Upbeat H1 & in line with FY19 estimates

One of the most reliable gauges of a company’s ‘competitive moat’, is (not surprisingly) the amount of money it generates. Not solely profits, but the return on invested capital after adjusting for financial gearing. On this measure Watkin Jones ranks as the industry’s #1 player (see below), delivering an anticipated FY19 unlevered Return on Equity of 44.2%.

Companies: Watkin Jones

14 May 19

Cenkos: Duke Royalty Ltd - Capitalising on more favourable terms

Duke has agreed modifications to the terms of three royalty agreements from the Capital Step acquisition. The effect is to unlock a minimum of £3.7m in additional revenues over the next 5 years. As a result, Capital Step's future revenue is expected to increase by 25%+ at no additional cost. This realises a key synergy from the Capital Step deal.

Companies: Duke Royalty

17 May 19

LIBERUM: Staffline* - Unscheduled statement: estimates reduced

We are reducing 2019 and 2020 FD EPS by 46% and 17%. We increase FY net debt from £52m to £85m (net debt /EBITDA of 3.0x) for FY 2019.

Companies: Staffline Group

24 May 19

IQE - Impact of Huawei ban is limited and short term

IQE has assessed the potential impact on its business of the decision by the US Department of Commerce’s Bureau of Industry and Security to prohibit the sale to Huawei, by certain of IQE’s customers, of products covered by the Export Administration Regulations without obtaining an appropriate export licence. Following discussions across its customer base, IQE estimates that its current maximum risk exposure with regards to this ban is less than 5% of its total FY19 revenue guidance. We therefore leave our estimates and indicative valuation of 91–99p/share unchanged.

Companies: IQE

17 May 19

Interim results – another beat

H1 Revenue is ahead of our not long ago increased expectation driving a better profit result. Cash is also £10m ahead. The business has good momentum and despite the ever present spectre of Brexit there is still significant scope for us to prudently raise revenue, EBITDA and EPS estimates. Acquisitions integrations and performances are on plan and the online advertising technology changes in place to benefit. The shares have re-rated again in line with the changing fundamentals. We see a path to 20x EBITDA leaving significant upside potential without the need for further upgrades.

Companies: Future

20 May 19

Earnings accretive acquisition

CentralNic has announced this morning the acquisition of TPP Wholesale, the leading Australian and New Zealand domain name and hosting reseller business for a consideration of $24m AUD, subject to financing. This acquisition is a good example of CNIC’s strategy to acquire high recurring revenue businesses, with potential synergies that exist in new markets. We leave forecasts unchanged for now, preferring to wait until the financing condition is satisfied, but management have stated that they believe this transaction will be immediately earnings accretive for 2019E with double digit earnings accretion in 2020E. This is the group’s third acquisition in 12 months as they continue to execute their consolidation strategy.

Companies: Centralnic Group

20 May 19

Cenkos: Collagen Solutions Plc - Strategic investor vote of confidence

Collagen Solutions has announced it has received a strategic investment of £4.2m from the private US company, Rosen's Diversified Inc (RDI). The company will increase the raise to ~£6.0m through a proposed equity placing and open offer. The associated shares will be issued at a price of 5.0p. We believe this investment supports the growth we see developing in the company and significantly de-risks the near-term cash position. Following the recent positive trading statement, we have upgraded our FY19E forecasts and introduce new numbers out to FY21E. The momentum we see in the company supports our forecasts and Buy recommendation.

Companies: Collagen Solutions

11 Apr 19

Quarterly Research Outlook

We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.

Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE DTG DEMG EMR FPO FST GTLY GENL GOR GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR PARK PGM PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF

21 May 19

Forecast upgrades

GYG has released a trading update this morning confirming that they have seen a positive uplift in trading at the start of the year and expect full year results to be ahead of current market expectations. The core refit business has seen continued improvements in the trading environment in the first four months of the year and further progress in the New Build segment has also contributed positively to the group’s performance. We are upgrading our forecasts as a result, and now expect adj. EBITDA in 2019E of €3.3m (vs. €3.0m previously) with adj. PBT of €1.6m (vs. €1.3m previously). In our view, this is an encouraging update and is further evidence that the trading environment in refit continues to improve as demand begins to normalise. Even on upgraded forecasts, our 2021E expectations remain 21% below the 2017 outturn at the adjusted PBT level highlighting the extent of a geared recovery on offer.

Companies: GYG

22 May 19

LIBERUM: Codemasters* - F1 and GRID trailers released

This week Codemasters has given trailer glimpses of key games F1 2019 and GRID both planned for release in coming months. The visual uplift, earlier release date and the Legends Edition could deliver record revenue for the F1 franchise, while the first new release of GRID for 5 years is backed by expected innovative game-play and a helpful launch window.

Companies: Codemasters

23 May 19

LIBERUM: NewRiver* - Bravo joint venture re-established

Against a challenging backdrop for retail property, NewRiver’s results were largely in line with our forecast with declines limited by its diverse portfolio mix, centred on affordable convenience & community assets. FFO was 2% below our forecast, with underlying FFO stable.

Companies: Newriver Reit

24 May 19

Good performance in Q1 19, uncertainty going forward

In Q1 19, AP Moller-Maersk had a good performance, globally in line with expectation. In Ocean (73% of Group revenue), the increase in average freight rates (+3.9%) more than offset the decrease in volume (-2.2%) impacted by North-South trade, total unit cost increased moderately (+0.2%) while unit cost at fixed bunker price decreased slightly (-0.4%) thanks to lower bunker consumption. The risk of additional tariffs related to the Chinese-US trade war has raised significant uncertainty on the $5.0bn of EBITDA in 2019.

Companies: AP Moeller Maersk

24 May 19

Bitesize briefing – Recovered grade vs grade plot uncovers an interesting anomaly

24 May 19

Deutsche Grundstücksauktionen - High tempo

Strong momentum in H218 has ensured yet another successful year for Deutsche Grundstücksauktionen (DGA). Boosted by a bumper €15m Q1 auction lot, 2018 saw a 30% rise in both net profit and dividend as surplus cash (DGA has no debt) allows full profit distribution. The current year has also started well with Q1 gross turnover and net commission slightly above the average of last 10 years and positive indications for Q2 auctions. While 2018 will be a hard act to follow thanks to that bumper sale, the offer of further high-value lots is not wishful thinking, given DGA’s good relationship with the Federal Bundesanstalt and excellent publicity as a reference sale. Therefore management’s target for 2019 gross turnover of €109m (average of last five years) may prove cautious.

Companies: Deutsche Grundstuecksauktionen

24 May 19

Fraport has increased its stake in Lima Airport

Fraport has increased its foreign presence in recent years by acquiring fully-consolidated stakes in 14 Greek and two Brazilian airports. Whereas it owns 73.4% of the former, it fully controls the latter investment. It has now decided to increase the stake in Lima from 70% to 80% without disclosing a payment price.

Companies: Fraport AG Frankfurt Arprt Svcs Wrldwde

24 May 19

IQE - Impact of Huawei ban is limited and short term

Companies: IQE

24 May 19

Simplification continues

Portfolio simplification continues through the sale of 9 million shares in Saint-Gobain and the partial divestment of Allied Universal. The discount to NAV stands at a high level (32%).

Companies: Wendel

24 May 19

BlackRock Greater Europe Investment Trust - Exposure to niche, attractively valued companies

BlackRock Greater Europe Investment Trust (BRGE) has been co-managed by Stefan Gries since June 2017. Since then, there has been a marked improvement in the trust’s investment performance. Gries is constructive on the prospects for the trust, suggesting it provides access to winning franchises in niche, attractively valued companies that ‘just happen to be based in Europe’. In aggregate, BRGE’s portfolio companies have a meaningfully higher return on capital and greater forecast earnings growth compared with the reference index (FTSE World Europe ex-UK), which the trust has outperformed over one, three, five and 10 years. It also offers exposure to the potentially higher-returning emerging markets in Europe.

Companies: Blackrock Greater Euro Inv Tst

24 May 19

Mothercare - In line FY19; second phase of transformation ahead

The key message from today’s FY19 results is solid transformational progress and delivery on the market’s financial expectations. This is a complex set of results, reflective of major restructuring e.g. CVA, fundraise, disposal programme, significant cost cutting and new vision/strategy/operating model. MTC is now moving towards the next step of its transformation plan to develop MTC as a global brand.

Companies: Mothercare

24 May 19

$700m share buy-back restarted

CNHI’s balance sheet shows substantial gross cash (c. $6bn) but a much larger amount of gross debt ($25bn). This latter number includes the refinancing of Financial Services, i.e. of financing and leasing contracts for its clients.

Companies: CNH Industrial

24 May 19

Cenkos: Diversified Gas & Oil Plc - Operational update

Last week, Diversified Gas & Oil (DGO) provided an update on its Appalachian Basin operations. Q1/19 net production averaged approximately 69,000boepd, with the Company's Smarter Well Management Programme continuing to deliver results, increasing April production to over 70,000boepd (90,000boepd including production from the HG Energy II assets). Ongoing integration of the HG Energy II wells into the portfolio is proceeding as planned, delivering net production of over 20,000boepd at the end of April. Strong margins of 55% in Q1/19 led to US$47m in debt reduction payments prior to the March dividend payment and amounts held in escrow for the HG Energy II acquisition. Net debt to adjusted-EBITDA remains unchanged from year-end at 1.8x, with the Company having a current liquidity of over US$330m. This morning, the Company announced the addition of David J Turner Jr as an Independent Non-Executive Director and Chairman of the Board's Audit Committee. We reiterate our BUY recommendation and maintain our price target at 169p/share

Companies: Diversified Gas & Oil

24 May 19

Cenkos: 88 Energy Ltd - Alaskan Update

Yesterday, 88 Energy provided an update on its operations on the North Slope of Alaska. At Project Icewine, a final decision is expected next month for the anticipated farm-out of the conventional portion of the Project Icewine acreage. Elsewhere, the ongoing analysis of the unconventional HRZ shale at Project Icewine has significantly enhanced the Company's understanding of the play, confirming that the HRZ is an excellent source rock with good economic potential. The analysis has also revealed that both Icewine wells were drilled just outside of the play fairway, but with the majority of the revised play fairway still captured within the existing Project Icewine acreage, with more than 50% of the acres under lease deemed to be prospective. Analysis of the HRZ shale play is ongoing, and as such, the formal farm-out process of the Project Icewine unconventional acreage has been deferred to H2/19, but with an informal farm-out process underway to interested parties. We are encouraged by yesterday's announcement, and reiterate our BUY recommendation and our price target of 3.1p per share.

Companies: 88 Energy

24 May 19

LIBERUM: CEO Video: Nicholas Mather, SolGold

In these seven short videos, SolGold CEO Nicholas Mather discusses the preliminary economic assessment and financing for the Alpala project and how he sees SolGold developing over the next twelve months.

Companies: SolGold

24 May 19

S&U - Encouraging update

S&U’s AGM trading update provides reassurance on the motor finance business, Advantage, where receivables growth is modest but in line with our expectation, while impairments and risk-adjusted yield are showing improvement. There is also confirmation of continued development of Aspen property bridging. The shares have shown strength recently, but are still modestly rated in terms of P/E and offer an attractive yield.

Companies: S&U

24 May 19

LIBERUM: U+I* - Planning for improved returns

While the short-term planning backdrop has toughened, U+I made good progress expanding its regeneration pipeline and adding to its potential through FY19. We expect this to continue in FY20, with two large opportunities pending.

Companies: U&I Group

24 May 19

(Almost) Daily Market News Update

Just like the Japanese Manufacturing PMI a day earlier, the German Ifo Business Climate index was hit by rising trade fears. The assessment of current conditions dropped unexpectedly from 103.4 points to 100.6 points in May. Expectations for the coming six months remained stable, but the pessimism about the current state of the German industry led to an overall index reading of 97.9 points, well below even the most pessimistic forecast of economists.

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