Most popular equity research this week | 11 - 15 Sept

"We take another look at lithium, where there is a growing realisation that the forecast massive increase in demand is already upon us. This realisation has been matched by an awareness that there is no shortage of lithium in geological terms. However, there is still a considerable degree of ignorance about which types of lithium mineralisation are commercially valuable using current processes and technologies; this will require the development and proving of new processes. In this note, we look at what attributes are required for a lithium-bearing deposit to be attractive for development into a successful mine in the present technical and economic environment."

"The key take away from the L&G interim results was that ‘base’ mortality experience for LGR’s annuity book has been greater than expected for a number of years. This led to a change in base mortality and a consequent release of £126m from reserves. L&G have flagged the possibility of further releases being recognised over several years and as such we have increased our 2017/18 Operating EPS forecasts by to 27.4p (+20%) and 28.0p (+14%) respectively. We maintain our Buy recommendation and flag the 2018F 6.5% dividend yield and 9.1x PE multiple based on Operating earnings. We have increased our target price to 325p from 305p previously to reflect the increased earnings."

"Epwin, the low maintenance building products manufacturer, has issued interim results for the six months to Jun-17. First half revenues and earnings were “in-line” with management expectations (slightly ahead of PG forecasts). We now have greater clarity on trading issues at its two largest customers (highlighted in the August update). As a consequence, we are amending our FY17 and FY18 forecasts to reflect the anticipated impact (PBT downgrade 8% FY17, 18% FY18). That said, the dividend remains well covered, leverage is low (0.8x Dec-17E) and the progressive dividend policy is being maintained. Therefore, the 9% dividend yield is likely to attract investor interest."

"Proactis Holdings is a provider of software for Spend Control and eProcurement, systems which are used by most large organisations to manage the way they transact with their supplier base. In recent years Proactis has been gaining market share, within a growing market, delivering a 35% CAGR in revenues, and 62% in EPS. The trading update (Aug 22nd) confirms that progress remains positive. Meanwhile, the share price has gained 10.4% in the last 6 months, and 664% over the last 4 years. So, is there further headroom for growth from here? In this report, we argue that the acquisition of Perfect Commerce (announced July 7th) is a transformative move which takes Proactis to a new level – comprehensive solution set, truly global footprint, and sufficient scale to make Proactis relevant for the ‘Tier 1’ client base. In the coming years, we believe the company can sustain or even exceed its previous level of progress."

"Interims reveal £7.1m EBITDA from revenue of £63.8m, fulfilling 47% and 44% of amended forecasts respectively. The strategic intelligence of the policy of greater vendor diversification is apparent this half, executed through the acquisitions of Azzurri (Skype for Business, Mitel, and the Icon platform) and Intrinsic (Cisco), given the evident pressure on the Avaya-led pipeline. Avaya's protracted Chapter 11 protection has led to the postponement of customer decisions regarding some very large projects, which has temporarily affected prospects. Maintel's success with large project wins is undoubted, with multiple contract wins involving more than 2,500 cloud UCaaS seats against expectations of merely several hundred per customer. However, forecasts for Avaya-led Managed Services come down and FY17 group forecasts are reviewed -5.4% for revenue; -9.5% for EBITDA; -6.5% adj dil. EPS (FY18: revenue -4.7%, EBITDA -5.2%, EPS -4.4%). Target 1250p unchanged, with Avaya expected to restructure and come out of Chapter 11 around calendar year-end and vendor diversification preserving customer choice of best-of-breed supplier once the vendor environment is clearer."

"StatPro has secured a £1.5m two-year contract extension with a large European asset manager for its Delta service. This deal alleviates any concern over potential client churn post-StatPro’s acquisition of Delta, highlights the value of the Delta service to its users, and confirms StatPro’s ability to strengthen relationships with existing clients. We make no changes to our forecasts, recommendation or target price."

"Harvey Nash is an international recruiter specialising in the technology sector. The group has a strong portfolio of powerful brands and operations spanning more than 40 countries. In its AGM statement in June, it announced a transformation plan aimed at streamlining the business, with £700k in savings already identified for FY18. The Group has a solid balance sheet and has utilised this morning by acquiring UK based Crimson IT, which is expected to increase PBT by >£2.0m on an annualised basis (potential for >£3.0m). The business is cash generative and offers an above average dividend yield of 5.2%, which we feel is secure given the Group’s low gearing and a cover building to 3.0x by 2019E. Harvey Nash trades at a substantial discount to other UK listed recruiters; an FY18 EV/EBITDA of 4.5x and a PER of 7.6x equates to a 45% and 37% discount versus its UK listed peer group."

"Warpaint’s interim results show that W7 has continued to grow sales in all regions and that the strategy for e-commerce and launch of new products has been implemented. As, when it was a private company, management remains focused on increasing margins/profits rather than sales. Thus, while we have slightly reduced our sales projections we have made no changes to our profit or dividend forecasts. With H2 2017 having started well and the infrastructure now in place to deliver global sales growth, we keep our 300p TP and Buy rating."

"FinLab’s results combine relatively stable income from management fees and dividends received from the asset management subsidiaries, Heliad and Patriarch (total income at €1.76m vs €1.88m in H116), and sizeable revaluation gains (Kapilendo, Heliad) of €2.52m (vs -€0.3m in H116). The recent share issue and improved operating cash flow increased the company’s net cash position to €4.28m from €0.97m at end-2016. This puts FinLab in a strong position to execute further fin-tech investments. Following the recent positive share price performance, FinLab’s shares trade at an 18.9% premium to last reported NAV."

"Positive news of corporate activity from Gym Group this morning. It is acquiring 18 gyms from Lifestyle Fitness for a cash consideration on £20.5m, effectively adding 20% to unit capacity. The acquisition multiple of c6x historical EBITDA (ex central costs) is a low and attractive, albeit this rises to c.7.5x when the requisite catch-up investment in the sites is factored in. Management is signalling the deal to be “significantly earnings enhancing by 2019” subject to lifting membership of the acquired sites. We will review our numbers post speaking to management but strategically view this as a positive move and see consolidation of weak players as a welcome feature of the investment case. We are currently cautious on the stock on sector capacity issues and lack of LFL growth considerations, but expect a favourable share price reaction today."