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14 Nov 19

Evolving investment case - the next phase

While the FY20 interims are in-line, this does not tell the whole story with the investment case for Volex evolving away from the recovery mode of the last few years to a growth business which now focuses on cash generative, higher margin customers in new markets. The business is substantially de-risked with the top three customers now accounting for 25% of revenues – down from 47% in FY15 and when combined with a re-iteration of our PBT growth forecast of 47% for FY20, an upgrade to our expected net cash estimate from US$17m to US$23m at March 2020, a restored dividend and with it trading on a FY20 PE rating of just 10x, we re-iterate our buy recommendation with a price target of 160p.

Companies: Volex

14 Nov 19

Strong interim results

Volex has announced results for the 26 weeks to 29th September 2019 that reflect management’s focus on operational efficiency, cost control and margin analysis to drive business at acceptable margins. Adjusted PBT and EPS(FD) rose 69.3% and 48.3% respectively with benefit captured from targeted acquisitions. The Group has also returned to the dividend list with the payment of a 1p interim dividend, the first since 2013. On a calendarised basis the shares currently trade at a 34% PER and 36% EV/EBITDA discount to a comparable peer group for 2020. The Board has reiterated its confidence in delivering its full year expectations and in its ability to drive shareholder value.

Companies: Volex

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

14 Nov 19

Prelims: consistency and opportunity

EBITDA of £10.5m (£10.4mE) was delivered from revenue of £49.2m (£46.7mE) with net cash of £24.1m, (as revealed in August), comfortably ahead of our £21.5m year-end forecast. Newsflow in the period included three acquisitions, the securing of a five year framework agreement for deployment of TRACS Enterprise with a major Train Operating Group, and the successful transition of the CEO role to Chris Barnes. The Group continues to deliver the proven mix of self-funded acquisitions and organic growth, demonstrating comfortable delivery of forecasts reiterated at interims, and a very strong balance sheet giving capacity to deliver much more of the same. With the new CEO able to deliver operational efficiencies to a Group already well versed in delivering successful acquisitions, we look forward to the next part of Tracsis journey. Target 775p reiterated.

Companies: Tracsis

15 Nov 19

FY’19 organic Media sales up 31% y/y

Future Plc’s FY results revealed the better than consensus growth noted in the trading update last week. Underlying group revenues grew 11% y/y, and 70% on a reported basis to reach £221.5m (FY’18: £130.1m), with organic Media revenue growth of 31% (reported: 134%) to £154.9m (FY’18: £66.3m). EBTIDA margins were 24.6% (FY’18: 15.9%) supported by increased scale and improving product mix. Regionally, US sales grew an organic 40% y/y with US ARPU still at a 38% discount to the UK (FY’18: 48%). EPS growth rose 95% y/y to 47.5p/share, whilst FCF rose >200% to £53.7m. Alongside FY results, management have announced the acquisition of Barcroft Studios (‘Barcroft’), a small independent studio that creates original video content for distribution across owned and operated social sites as well as mass media channels. Total consideration is £23.5m (9.4x LTM EBITDA), of which 40% will be satisfied in shares. Finally, management have also noted that, after a strong Q1, the Group now expects to be materially ahead of full year expectations. As joint broker to Future, we are restricted and can therefore provide factual comment only up to the conclusion of the General Meeting.

Companies: Future

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

18 Nov 19

Acquisition of Team Internet

CentralNic has announced the acquisition of Team Internet for a total consideration of $48m. The acquisition will be financed in part by a further €40m bond issue under identical terms to the €50m issue announced on 23 May 2019. Team Internet operates a ‘domain monetisation’ platform, allowing domain name owners to monetise dormant domains to generate recurring income to offset renewal fees and earn a profit. This provides a complimentary service to existing CNIC services: clients currently pay CentralNic subscription fees to register and renew domain names. Team Internet had revenues of $66.7m in the 12 months to June 2019, with EBITDA of $10.6m. We expect this transaction to have an immaterial impact to 2019E due to timing and be 43.8% accretive to 2020E earnings. Post completion, we estimate net debt:EBITDA will be 2.1x in 2020E falling to 1.6x in 2021E.

Companies: Centralnic Group

19 Nov 19

Substantial deal both transformational and significantly earnings enhancing

In a deal which will have a profound effect on the prospects for the group, Kape has announced the proposed acquisition of LTMI Holdings, the holding company for virtual private network provider Private Internet Access (PIA). PIA is a Denver-based security software business, the addition of which will transform the size of Kape by doubling group revenues (including a stronger recurring revenue base) and increasing adjusted EBITDA by around 2.5 times in FY 2020E. Reflecting that, our earnings estimates increase by around 90% for FY 2020E while our new FY 2021E estimates build strongly on that much larger base. Total consideration is c. US$95.5 million with an enterprise value of c. US$127.6 million. The deal is expected to complete within 45 days and is anticipated to be immediately earnings enhancing. The transaction will create a significant player in the digital privacy market and will enable Kape to expand its footprint in North America with a broader product offering.

Companies: Kape Technologies

15 Nov 19

LIBERUM: Frontier Developments* - Trading update, future games, CMD

Frontier has provided a trading update which highlights that the strong sales of recent launch Planet Zoo underpins FY20 forecasts and in the same statement provides a number of positive updates on existing and future games. The main takeaways for us are the strategically important expansion of Planet Coaster onto console (FY21), the confirmation of a major paid-for release for Elite Dangerous (FY21), and news of two major releases coming in FY22 including the licensed IP launch in FY22 which will be multi-platform. The update drives changes in some of our game release assumptions but we leave headline revenue and profit forecasts unchanged. We retain our Target Price of £18 and our view that Frontier is a core holding in a UK SMID fund.

Companies: Frontier Developments

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

19 Nov 19

IQE - Continued impact from supply chain disruption

IQE’s reduced guidance for FY19 revenues of £136–142m (vs £140–160m previously) reflects primarily the greater than anticipated disruption to its major US wireless customers as a result of the US/China trade war. There is good evidence to support a recovery in the medium term: the qualification of products and tools in the Asian supply chain for both 3D sensing and wireless RF is encouraging, while exposure to 5G remains attractive. However, the timing of a recovery is difficult to gauge and with Q120 expected to be seasonally quiet we downgrade our FY19 and FY20 revenue estimates by 5.3% and 15% respectively, with FY19 EPS reduced from a 0.5p profit to a 0.8p loss and FY20 EPS reduced from 2.3p to 0.3p.

Companies: IQE

15 Nov 19

DCB for YouTube in the USA

Bango has announced the launch of Direct Carrier Billing (“DCB”) payment services for Google’s YouTube TV Service, with the initial launch via a “leading” but unnamed US Mobile Network Operator (“MNO”). With the ongoing growth in US Over The Top (“OTT) video services continuing to cannibalise the Cable TV operators, we believe DCB for YouTube TV is a strong offering in a large market. The release is light on detail as to the potential value to Bango, and we make no revisions to forecasts. Nevertheless, the launch represents a further win in an area of strategic focus for the group. It also confirms the integration of a major new merchant service into the Bango Platform.

Companies: Bango

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

19 Nov 19

How to have your cake and eat it

Often investors are faced with the difficult decision of having to choose between growth and value. Rarely is it possible to get the best of both worlds, but we think Watkin Jones is one such stock. Not only do the shares trade on a FY20 adjusted PER (ex cash) of 12.0x and pay a 3.6% dividend yield. But also the firm is benefiting from long term tailwinds in its 2 key markets of Build to Rent (BtR) & student accommodation (PBSA). In turn, offering opportunities much larger than we’d previously thought.

Companies: Watkin Jones

21 Oct 19

Quarterly Research Outlook Autumn 2019

Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.

Companies: ABBY AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CDM CSRT TIDE CYAN DTG DEMG ELM EMR FPO FDEV GTLY GENL GHH GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KAPE KEYS KWS KCT KGH LAM LIT LOK MACF MANO MOD OXIG PCA PANR APP SRE PHC PMO RBW RMM RBGP REDD RSW RNO ROR SUS SCPA SEN SHG SOLG SOM SUMO TM17 INCE TWD TRAK TRI VNET VTC ZOO ZTF

20 Nov 19

LIBERUM: U+I* - H1 trading gains in line; on track to meet FY targets

U+I’s first-half results confirm trading gains of £3.6m, broadly in line with management’s expectations. Guidance has been re-iterated for the FY at £35-45m.

Companies: U&I Group

20 Nov 19

LIBERUM: Origin Enterprises - Water-logged UK fields trigger profit downgrade

Origin Enterprises's 1Q20 trading update confirms wet weather in the UK has prevented farmers planting winter crops. There will consequently be a shift towards lower-yielding spring-planted crops in 2020 which typically attract reduced agronomic spend by farmers.

Companies: Origin Enterprises

20 Nov 19

Cenkos: Breedon Group Plc -- Standing firm, standing out

With the share price off 16.5% over the past month and virtually 25% of the company's equity having been ‘re-housed' over the past quarter, investors are probably craving a period of stability. In trading terms that's exactly what Breedon is delivering. The latest update (to end-October) is reassuring and firmly underpins valuation. As noted very recently (see ‘Stick with the fundamentals', 7 November 2019), Breedon shares have never been as cheaply rated in their entire history; the prospective 2020E EV/EBITDA being c6.4x, PE c11x and a healthy FCF yield of over 9% with nominal FCF sweating debt by over £90m per annum, or helping to support its proven accretive add-on acquisition strategy. In our view, this recent, technical, bout of price depression represents an excellent buying opportunity.

Companies: Breedon Group

19 Nov 19

Admedus Ltd proud to unveil its valves publicly for the first time in London

19 Nov 19

Executive interview - Canadian General Investments

19 Nov 19

American weakness vs. Chinese strengths

L’Oréal has unexpectedly announced the best quarterly growth in more than a decade, after a slowing Q2 19, by showing strong business resilience. Although the sluggish demand in the US make-up market has persisted, we believe that the strong appetite of Chinese consumers for luxury cosmetics and the booming dermo-cosmetics market could offset the weakness in the US. Most importantly, we are upbeat about China’s rising demand for fragrances.

Companies: L'Oreal

19 Nov 19

Redx Pharma's chief scientific officer talks grant funding for its fibrosis project

19 Nov 19

POIZ has ambitions to become top CBD wellness vape brand in Europe

19 Nov 19

Picton Property Income - Executive interview

Picton Property Income is an internally managed UK REIT that invests in a diversified portfolio of commercial property across the UK. It aims to be one of the consistently best-performing, diversified, UK-focused property companies on the Main Market of the LSE. IT has outperformed the MSCI Quarterly Property Index over one, three, five and 10 years, and in the most recent reporting period (the six months ended 30 September 2019) it delivered an ungeared property total return of 3.5% compared with the Index return of 0.8%. To achieve this, Picton pursues a total return-focused strategy while giving a heavy focus to income returns. In this interview, chief executive Michael Morris discusses the interim results and the outlook.

Companies: Picton Property Income

19 Nov 19

IQE - Continued impact from supply chain disruption

Companies: IQE

19 Nov 19

Weak health leads to FY19 guidance cut

Reckitt Benckiser’s Q3 19 revenue came in at £3.29bn, up 1.6% lfl, largely in line with street estimates but marginally above our estimates. The growth in IFCN (+7%) and HygieneHome (+4.5%) was offset by weakness in OTC (-6.8%) and ‘Other Health’ (-2.5%). The management cut its FY 19 guidance to 0-2% growth (vs 2-3% earlier) and an operating margin decline (vs flat earlier) compared to FY 18. Given the slower than expected recovery in Health, we will trim our estimates marginally.

Companies: Reckitt Benckiser

19 Nov 19

OTC Markets Group - Revenue progress across group

OTC Market’s (OTCM) third-quarter results were consistent with our expectations and showed healthy revenue progress in each segment. This is a year of investment for the group in people, IT, a new headquarters and acquired businesses. Earnings are set to fall as a result, but we expect growth to resume in FY20 with longer-term benefits also likely to flow from the enhanced capabilities and infrastructure.

Companies: OTC MARKETS GROUP INC-A

19 Nov 19

Updated financial model confirms complete disconnect between market price and underlying value

Argo Blockchain plc is a global data centre business that provides a purpose-built and flexible platform for the mining of leading cryptocurrencies in the enterprise-scale and institutional sectors worldwide from operational centres in Quebec, Canada. Following a change of strategy earlier this year the company is now focused on mining cryptocurrency for its own book and providing an enterprise level Mining as a Service (MaaS) product.

Companies: Argo Blockchain

19 Nov 19

Executive interview - Picton Property Income

19 Nov 19

Mondo TV - Growing library in a content-hungry world

Mondo TV’s Q3 results continued in the more positive vein established in H1, with the flow of new content and licensing agreements carrying through into Q4 across a good range of properties, including new titles in the German JV with Toon2Tango. In October, the group announced new licensing deals in Russia with Gazprom Media and PJSC MegaFon for the streaming of Mondo TV library content. These deals help rebalance group revenues, historically heavily biased to Asia. Management’s business plan for FY19–FY23 (to which we have built in a degree of contingency) is unchanged, as are our forecasts.

Companies: Mondo Tv