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  • 17 Nov 17
title

Most popular equity research this week | 13 - 17 Nov

  • 793 views
James Rippon

Contributing Editor

 
Semiconductor
Strap line

See what's trending this week...

Companies: ABDP, AVON, PRSM, CCT, DGNYF, EYE, ELM, IDOX, IQE, KAPE, MWE, NWT, XAR, ZOO


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IQE (IQE)

Funds raised to support VCSEL ramp-up | Edison, 14 Nov 

Free Access

 

"IQE has announced its intention to raise up to £95.1m (gross) through a placing of up to 67.9m new shares at 140p/share. The funds will enable IQE to expand capacity to support multiple VCSEL volume ramp-ups from FY19 onwards. We expect the share issue to be earnings neutral in the near term and are encouraged by this signal of confidence from management as it prepares for the next step change in output.


The funds raised will be used to purchase an additional 40-60 new MOCVD reactors over the next three to five years (IQE currently has around one hundred, but these are used for a different mix of epitaxies). The reactors will be used to make epitaxy for multiple VCSEL programmes as they move into volume production. Towards the end of H117 IQE began to deliver volume VCSEL epitaxy, which we infer was for the new iPhone X. It is currently working on a range of programmes that have potential to become volume contracts in future. Some are for other phone manufacturers wanting to emulate the capabilities of the new iPhone. Some are for other consumer applications including hand and body tracking, automotive applications, data comms and industrial applications such as heating, InP (indium phosphide) wafers for high-speed data networks and GaN (gallium nitride) wafers for radio frequency and power applications."

 

 

Zoo Digital Group (ZOO)

Ramping up | finnCap, 13 Nov 

Paid Access

 

"Revenue of $12.7m is in line with September’s update and confirms a strong H1, with sales growth of 63%. We lift FY18E sales from $21m to $26m (implying 58% YoY growth) while reiterating essentially unchanged profit expectations, reflecting greater investment than anticipated. We also introduce maiden FY19 forecasts and upgrade our price target to 97p.


 In H1, ZOO continued to scale its Localisation business rapidly. In our view, this provides further evidence of the factors benefitting the company, namely a large and growing addressable market, valuable customer relationships, and an attractive service offering. A notable highlight was the launch of ZOOdubs, which materially increases the company’s addressable market and enables greater wallet-share from existing customers. An early validation of the service was the successful completion and delivery of dubbing projects for a global entertainment client."

 

 

Blue Prism Group (PRSM)

Revenue forecasts up/ PT up to 1750p retain BUY | Whitman Howard, 15 Nov 

Paid Access

 

"PRSM has released a trading update this morning and the strong momentum of H1 has actually increased. We are upgrading our revenue forecasts substantially and we are increasing our PT to 1750p from 1250p.


In terms of trading in the second half, the Group secured 400 software deals; of which 206 were new customers, 181 were upsells to existing customers and 13 were renewals. The total number of software deals secured during the financial year to 609; of which 324 came from new customers, 264 from existing customers and 21 from renewals. The Group achieved a 100% renewal rate in the financial year and all new customers were sourced indirectly via Blue Prism’s global partner channel. H2 on H2 revenues will grow 163% YoY on our new forecasts up from 132% in H1.


In terms of numbers, management expect revenue for 2017 to be comfortably ahead of the c£22m forecast. EBITDA loss is expected to be in line, as they use this extra revenue and gross profit to invest more heavily in the business. They expect revenue for the current year to above the upper end of the range (ie above £37m)."

 

 

TMT Update

by Allenby Capital, 13 Nov 

Paid Access

 

Crossrider | Eagle Eye Solutions Group | Character Group | Newmark Security | MTI Wireless Edge

 

"MTI Wireless Edge Ltd (MWE.L, 31p/£16.0m) Contract win and Q3 results: Further military contract (13.09.17 & 09.11.17). New contract, worth c. $1m, for the development and manufacturing of military antennas that are being integrated into a disposable application. MTI started to work with this customer in September 2016 and this represents the fourth contract to date totalling >$2m, with c. $0.5m recognised in revenue. As the system is deployed over the next two to three years, management expects to receive significantly larger orders in the future.

 

The Character Group plc (CCT.L, 398p/£84.2m) Products feature in influential Xmas guides (08.11.17). Two Character Options' products (Stretch Armstrong and Laser X) included in the highly regarded 'Dream Toys dream dozen' from the Toy Retailer Association. The list is based on the opinions of large chain retailers, small multiples and independent retailers across the UK and provides good insight on what children want for Xmas."

 

 

Avon Rubber (AVON)

A new chapter with a bright future | Edison, 15 Nov 

Paid Access

 

"Avon Rubber has delivered a confident FY17 performance and has set out a clear threefold strategy to drive medium-term growth. The core business is buoyed by strong order activity in Protection while dairy market trends look set to stay positive into 2018. Cash performance has also been solid, which underpins selective future acquisitions.


Reported FY17 orders of £173.9m were 6.6% ahead of reported FY17 revenue of £163.2m (FY16: £142.9m). This equated to 4.5% revenue growth at constant currency and against consensus of £165.4m and Edison’s estimate of £168.9m. Reported PBT of £25.6m (FY16: £20.7m), was marginally ahead of consensus of £25.0m and Edison’s estimate of £25.0m. FY17 adjusted EPS was 82.8p (FY16: 71.9p) and the final dividend of 8.21p gave a total dividend per share for FY17 of 12.32p (FY16: 9.48p). Going forward, the Avon Protection division is bolstered by a building order book and ongoing proactive negotiations with the US Department of Defense (DoD) to drive business beyond FY18. Trends in the law enforcement market also remain supportive. Meanwhile, improved milk prices and low feed costs both build into a better dairy market for the milkrite | InterPuls division. Programme changes and a currency headwind prompt us to revise down our FY18 estimates. We now forecast the top line largely flat on FY17, with the improved product mix and operational leverage driving EBIT margin improvement. We forecast a return to top-line growth in FY19."

 

 

IDOX (IDOX)

Pre-close trading update | N+1 Singer, 14 Nov 

Paid Access

 

"Idox has seen a delay in the sign off on some contracts, particularly in its Health and Transport businesses, due to customer disruption in the wake of June’s General Election. Due to the timing impact, the group now expects FY’17 EBITDA to be c. £23m, a 15% shortfall against our expectations. Whilst we expect these contracts to close in the early part of 2018, we are keeping our FY’18 forecasts unchanged out of prudence and believe the group is set for a strong H1’18 as a result. The shares are already trading on undemanding 2018 multiples based on our unchanged 2018 forecasts - 9.0x EV/EBITDA and 12.9x P/E, providing support to the shares. Overall, we believe the group’s strategy of helping the public sector become more effective and efficient through digital transformation will give it continued opportunities for growth and value creation."

 

 

Dignity (DTY)

Q3 Trading update | Panmure Gordon & Co, 13 Nov 

Paid Access

 

"Expectations for the year are positive and remain unchanged.


The number of deaths grew 1%* to 440K, very slightly below our estimate at 441.7K, but operating profit at £79.4m represents some 76.2% of our FY forecast, this is 1.7pc points higher than the position at this time last year, strongly underpinning our profit forecast for FY’17. Management note that “expectations for the year are positive and remain unchanged”. 


 Whilst pre-arranged and crematorium businesses (one-third of profits) are “performing strongly”, ongoing pricing pressure and competition remain extant in funerals. Our forecasts are struck of FY price increases only just above the trough level of 3.7%, with a modest increase on that level in FY’18. Management highlight £1m of incremental costs in 2017 that will recur, which – again – we have accounted for in our 100bps and 50bps forecast margin declines in FY’17 and FY’18 respectively."

 

 

AB Dynamics (ABDP)

Strong Growth + Scarcity Value = Melt Up | Panmure Gordon & Co, 17 Nov 

Paid Access

 

"We are upgrading our forecasts, target price and recommendation on AB Dynamics. Thanks to a growing portfolio of unique testing products that are critical to developing and launching increasingly sophisticated autonomous driving in shortest possible time, we now believe that AB Dynamics can grow at 28% per annum over the next three years. This is much superior growth to Renishaw, the top-rated UK robotics/automation stock, which has a consensus forecast CAGR of 8% over the next three years. Applying Renishaw’s 2018 EBITDA multiple of 23x to AB Dynamics generates a minimum valuation of 1,030p per share. We, therefore, raise our target price to 1,030p and recommendation to BUY. Frankly speaking, for UK investors starved of mainstream self-driving/electric car plays there are very few alternatives.


As in the past, our top-line forecasts for AB Dynamics are driven by growth being reported by Continental, the leading European supplier of ADAS (Advanced Driver Assistance Systems). As the table below shows, growth in Continental’s ADAS has accelerated to 41% in the first nine months of 2017. We are, therefore, forecasting sales of AB’s Track Testing Systems to grow by 35% (vs 20% previously) in FY18, followed by 20% p.a. growth in FY19 and FY20."

 

 

Xaar (XAR)

Further operational developments | N+1 Singer, 15 Nov 

Paid Access

 

"Xaar has announced two operational developments which strengthen its capabilities and demonstrate its continued momentum. The first is the signing of a European distributor, COMEC Italia, for the digital products of its US Engineered Printing Solutions business. The second is a collaboration with BASF to improve the Photopolymer Jetting process for 3D printing, to produce parts with better properties at lower costs. While these announcements have no near-term impact on our forecasts, they represent further steps in Xaar’s transition towards more diversified and resilient revenue streams, more effective leverage of its IP, and progress towards its 2020 vision."

 

 

Elementis (ELM)

Share price drift presents buying opportunity | N+1 Singer, 17 Nov 

Paid Access

 

"Elementis’ shares have drifted recently, underperforming peers despite reporting a very solid Q3 performance just three weeks ago. The shares now trade at a marked discount to the peer group, having de-rated since the start of the year. We expect an in-line outturn to FY17 and believe Elementis is well set to deliver continued profit growth in FY18 with the potential for non-core disposals to enhance cash generation. End market conditions are generally favourable in Specialties (US and China coatings exposure both positive, oilfield recovery continues, personal care growth well in excess of GDP). Meanwhile, Chromium looks to be through the worst of a challenging competitive environment. We consider recent share price weakness a buying opportunity with the shares now trading on an FY18 P/E rating of <17x, a 10% discount to the peer group."

 


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The information contained within this post is based on personal experience and opinion and should not be considered as a recommendation to trade nor financial advice.

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