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Companies: BUR, CVSG, ENT, IMM, IQE, MEGP, PTEC, PURP, SFR, VCT, WMH, XAR, ZYT
Retail shake-up of B2 machines provides opportunities
by Whitman Howard, 11 Dec
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GVC | William Hill | Playtech
"A shake up of UK retail betting shops or LBO’s is pending the final outcome of a consultation on 23 January 2018. Limits on B2 (FOBT) machines proposed at £50, £30, £20 or £2 a spin. We estimate at £2 limits earnings for WMH and LCL would fall by c. 49% and c. 57% respectively (assuming no self-help or mitigating factors). We estimate the market is pricing a £20 limit outcome.
The retail shake-up provides the opportunity for further consolidation in the sector and M&A is back on the agenda with GVC bidding for LCL at a price of 160.9p, 9.8x our FY18 forecasts (and a further consideration subject to final B2 limits). The deal looks a good deal for GVC shareholders, given the online growth at LCL, the additional synergies from the Coral deal, commitment to 2x dividend cover and multi-channel traction. We estimate ex-B2 lower limits the deal would enhance earnings by c. 67%; at a £2 limit it would enhance earnings by c. 13%. The deal is likely to precipitate further interest in the sector."
IQE (IQE)
Apple investment in VCSELs highlights upgrade potential | N+1 Singer, 14 Dec
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"Apple announced yesterday that US optical components manufacturer Finisar (NASDAQ: FNSR) will receive $390m from its Advanced Manufacturing Fund. The award will be used to increase Finisar’s R&D spending and high-volume production of VCSELs. We had always expected Apple to dual source VCSEL components when possible, so we see the fundamental IQE investment case as unchanged on the back of the investment, however, we are highly encouraged by the accompanying commentary on Apple’s Q4’17 VCSEL volumes. We believe that IQE is the only volume source of VCSEL wafers currently available. IQE was one of our key picks for 2017 and has served us well (+325%). With a recently strengthened balance sheet and further positive newsflow expected, we remain highly positive on the stock and retain our Buy recommendation."
Burford Capital (BUR)
Downgrade to HOLD post business update | Liberum, 15 Dec
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"We continue to believe in the longer term growth story for Burford, as the leader in the burgeoning litigation finance market. However, based on the combination of 1) downgrades to 2017/18 forecasts, largely due to the timing of performance fees, 2) today's disappointing news that the GKC principals will be leaving the business and 3) recognizing the incredibly strong share price run YTD, up 110%, we believe the shares are now trading around fair value."
ImmuPharma (IMM)
Magic bullet with butterfly wings? | finnCap, 12 Dec
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"Immupharma (IMM) is a drug discovery company whose lead product Lupuzor, is in Phase III trials for the treatment of Systemic Lupus Erythematous (SLE). Previous IIb trial demonstrated both efficacy and safety through novel immune system modulation that offers benefits to the only approved treatment, a monoclonal antibody (mAb) called Benlysta with £400m annual sales. Phase III pivotal study readout (n=200) expected Q1-18 (finnCap est. approval of 63%) follows on from Lupuzor being given Special Protocol Assessment (SPA) status by the FDA with existing global patent protection until 2032. Blockbuster status (sales >$1bn) could be achieved within 8 years and historical licence deal (Cephalon, 2009) suggestive of licence/partner agreement potential. Unusual upside potential from binary readout leads us to initiate coverage with a Buy recommendation and 237p price target (increasing 87% on +ve Phase III, which excludes the value of potential upfront (c.50p) and milestone payments that could amount to c£500m or 386p per share)."
Zytronic (ZYT)
Further strong cash generation; Dividend increase | N+1 Singer, 12 Dec
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"The final results were in line with expectations and ongoing strong cash generation led to a 32% increase in the full year dividend to 19.0p, 14% ahead of forecast. We retain our FY18 forecasts, other than cash and dividend expectations which are both increased. Net cash is now up to £14.1m and we expect this to drive ongoing strong growth in dividends, with the prospective yield now a healthy 4.4%."
Photo-Me International (PHTM)
H1 results | finnCap, 11 Dec
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"Single-digit underlying revenue and PBT growth in H1 is already captured in our FY forecasts and the CY H1:H2 split is in line with PY patterns. With accretion from Inox offset by restructuring of Photo-Me Retail, we leave existing forecasts and 215p PT (22x FY18 adj. EPS) unchanged. Forecast DPS growth for FY18 remains an attractive 20%.
Flat underlying revenue growth YoY (CCB, excl. acquisitions) reflects strong growth from laundry operations mitigating anticipated volume decline from photobooths. Underlying EBITDA excl. exceptional items and Inox was +3.6% on a CCB (margin -80bps) and underlying PBT was +0.6% on a CCB. Strong cash generation from photobooths underpinned a £5.4m increase in adj. net cash to £44.8m, despite £30.2m of capex and dividends, and DPS was +20%, in line with FY forecasts."
3D Printing and Advanced Manufacturing - Exciting prospects for growth
by N+1 Singer, 13 Dec
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"At our 3D Printing and Advanced Manufacturing lunch on Monday three companies updated us on the developments and significant opportunities for their business in this exciting new area. We were pleased to welcome speakers from Xaar, Victrex and unlisted group Metalysis. Each company gave a 15-20 minute overview of their existing activities in 3D printing and how they are continuing to develop their offer to capitalise on the strong growth and value creation opportunities ahead. Brief summaries are listed below, with more details inside, along with the slides presented by each company. All three of the groups have strong prospects and we are happy to arrange further contact."
Purplebricks Group (PURP)
Interims show strong growth | Zeus Capital, 13 Dec
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"Interim results to 31 October are impressive. They echo comments made at the AGM in September. Net cash at end September was £64.4m (August: £65m). UK – continues to grow fast & profitably - Revenues rose 118%: “more than double the same period last year”; - Average revenue per instruction rose 14% to £1,138; - Gross profit margin rose to 56.5% (1H17: 55.6%; 2H17: 56.4%); - Administration overhead rises to £9.3m (1H17: £3.8m; 2H17: £5.3m); - Media spend of £10.1m as guided; 2H spend to rise to £13m; - UK Adj EBITDA was £4.7m (1H17: £0.3m; 2H17: £1.1m); Australia – developing faster than UK (at similar period of development) - Revenues of £6.8m (1H17: £0.4m) are “many times ahead” of last year; US – launch in September 2017 is “ahead of schedule” - Launch in January of San Diego, Sacramento & Fresno with 18 LREEs. The CEO’s commentary updates revenue guidance for the UK from £80m to £84m and refers to Purplebricks “overseas expansion progressing well."
Severfield (SFR)
Strength in diversity | Edison, 11 Dec
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"Strong H118 results and positive order book development cause us to raise estimates, especially for the current year with better dividend prospects also. UK economic uncertainty will provide challenges but we believe that Severfield’s sector diversity and some pipeline project opportunities should allow the company to continue to grow. Further order book gains and the application of surplus cash balances (via investment or distribution) can be catalysts for further share price recovery.
Management had previously flagged a stronger H1 weighting in the current year and H118 results (21 November) showed a good increase in revenue (+16%), around three-quarters of which was volume-driven. Underlying margin performance was very strong with good progress on ongoing and completed projects. The UK order book has increased versus last reported and there appear to be some reasonable pipeline opportunities also. JV and associate companies (JSW Severfield Structures, India and CMF, respectively) both made positive profit contributions in the period. The H1 dividend was increased by 29% y-o-y. "
CVS Group (CVSG)
Still top pedigree | N+1 Singer, 11 Dec
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"We use this note to address some concerns weighing on investor sentiment post the AGM update. We conclude these are overplayed and detract from the excellent work done by management to position CVS for sustained value accretion. The 15% de-rating is overdone on fundamental analysis and relative to major sector deals. Overall, we see the current share price weakness as a rare buying opportunity."
