See what was trending this week...
Companies: ACSO, BLTG, CLIG, CVR, EMR, IQE, PCF, SFE, TSTL, ULVR
Photonics ramp up begins in earnest | N+1 Singer, 20 July
"IQE’s H1’17 trading update confirms a strong first half, with multiple photonics programmes ramping up, which should deliver very strong growth in Photonics revenue in future periods. The group has confirmed that it has secured multiple, multi-year contracts for VCSEL wafers, which we believe relates to 3D sensing opportunities, the most high profile of which is the 10th anniversary iPhone. In order to deliver the expected increase in demand, the board has authorised a capacity expansion plan, which initially includes c.£15m of tools orders. The group has also agreed heads of terms for the lease of new premises in South Wales with the Cardiff City Region. IQE is one of our key picks for the year and we believe the group is in the very early stages of a significant ramp up in Photonics. Management is guiding to modest upgrades in FY’17 and FY’18 this morning, however, we believe that eventual EPS upgrades to the FY’18 exit run rate could be closer to 75% (40% on a fully taxed basis)."
Blancco Technology (BLTG)
Taking on water | finnCap, 17 July
"In the recent FY trading update, it appears that sales, EBITDA and net cash will be in line with our bottom of the range forecasts; however, when also considering the £2.2m provision, profit is considerably below. Out of the three metrics, poor operating cash conversion is our principle concern – estimated at just 15%, rising to 43% excluding £2.6m of exceptional costs. Furthermore, what’s alarming is that we do not know the source of this: are credit terms on new contracts exceptionally long? Or is aggressive revenue recognition a wider theme than the statement highlights? In view of provisional results, we downgrade both FY18 and FY19 forecasts after reviewing our cost assumptions: FY18E EBITDA £9.1m (prev: £11.0m), meaning that (ex-provision) EBITDA will be flat y-o-y. Furthermore, we expect continuing cash pressure, with expected FCF of £-3.8m in FY18 vs. £-5.2m in FY17, suggesting that Blancco might need an additional £4m cash in FY19. In view of revised forecasts, we adjust our target price to 80p and reiterate our Sell recommendation."
Accesso Technology (ACSO)
Updating forecasts post TE2 acquisition | Whitman Howard 19 July
"The acquisition of The Experience Engine (TE2) looks like a good fit in the expanding Accesso product set. Accesso continues to move towards, through acquisition and internal IP development, providing a ‘frictionless’ customer experience. TE2 is growing fast ($2.2m to $12.7m 2015-16) and already has a number over lapping clients with Accesso (Cedar Fair & Merlin Entertainments). Even without the potential cross-sell, we expect TE2 to continue its growth trajectory. We upgrade our forecasts and retain our BUY."
US market squarely in the cross-hairs | Equity Development 19 July
"One golden rule of investing is not to ‘count chickens’. A prudent view that we’ve adopted when modelling Tristel’s application to the EPA/FDA to launch chlorine dioxide (Clo2) based infection, hygiene and contamination control products in the US. Whilst our approach is admirable, there is nonetheless a danger of us being too conservative for too long. Especially when, in Tristel’s case, the opportunity of accessing the world’s biggest healthcare market is now almost within striking distance."
Strong FY17 results ahead of expectations, integration on track and confident outlook | Zeus Capital, 17 July
"Following on from the positive trading update in May, Conviviality today reports a strong full year set of results. Group sales increased 85% YoY to £1,560m, while adjusted EBITDA doubled to £60.9m, 5.2% ahead of our forecast of £57.9m. Adjusted PBT increased 111% to £45.8m, and adj. fully diluted EPS of 21.0p was also ahead of our forecast of 20.2p. FY17 was a transformational year for Conviviality and significantly the integration of the recent acquisitions are running ahead of plan. Management remains confident in the outlook for the business, reflected by the 33% increase in the full year dividend to 12.6p that is covered 1.7x, as well as increased guidance on synergies in FY19."
Fully fledged bank | Panmure Gordon, 19 July
"PCF has this morning announced that the regulatory restrictions relating to the bank mobilisation have been lifted and the group can now commence taking in deposits as a fully operational bank. The mobilisation process concluded within seven months (max 12 months allowed) without impacting the business momentum. Indeed, new business originations were up 20% YoY in 3Q17 with the quality of loan book improving with the introduction of prime business trials. Management now expects FY2017 profits to be slightly ahead of previous expectations. This update reinforces our view at 1H17 that good cost control and impairments are likely to more than offset slightly lower loan and revenue growth as management focus on maintaining their credit underwriting discipline. We maintain our TP of 38p, implying a 2017E P/B of 2.1 which we think is fair for a bank in its infancy and in the medium term targeting RoE of 17.5% and loan growth of 35% CAGR."
Safestyle UK (SFE)
Taking share in a challenging market | Zeus Capital, 18 July
"Today’s trading statement confirms the difficult market conditions commented on at the Group’s AGM statement in May, with FENSA data showing market volume decline of more than 10% in the first five months of the year. Despite this backdrop, Safestyle has continued to grow its order intake, up 2% YOY, an encouraging performance that implies significant market share growth. We trim our forecasts for the first time since the Group came to market in December 2013 with modest revisions that reflect Safestyle’s continued outperformance. Our FY17 revenue and PBT forecasts move -4.9% and -6.4% respectively to reflect the weak market backdrop and management’s more cautious outlook for the second half. We maintain our dividend expectations, reflecting the Group’s strong cash flow generation and solid balance sheet with £16.2m net cash forecast in FY17. A dividend of 11.8p gives an attractive 4.6% prospective yield for a well-run business that is solidifying its market leadership thanks to its differentiated proposition."
Q2: cost efficiencies result in margin boost | AlphaValue, 20 July
"Q2 update: underlying sales were up +3% at constant FX (cons. +3.2%) and +3.4% excluding Spreads, with flat volumes and pricing at +3%. Q2 USG by division: PC +2.2% (price-driven, impacted by Brazil, Indonesia and the GST introduction in India), HC +2.5% (price-driven), Foods +1.2% (still negative volumes), Refreshments +6.7% (excellent performance driven by new innovations). By region in Q2, Asia/AMET/RUB delivered +4.3% USG, the Americas delivered +3.7%, Europe stood at + 0.3%. Emerging markets progressed +4.8% (uniquely price-driven), whereas developed markets were up +0.7% (both price- and volume-driven). Overall, in H1, underlying sales were up 3%. On reported figures, sales were up 5.5% (FX: +1.7%, net acquisitions: 0.8%). The underlying operating margin in H1 was up +180bp to 17.8% (cons. +16.8bp). All divisions recorded progress in margins: PC +240bp, HC +110bp, Foods +100bp, Refreshments +230bp. The gross margin improved by 30bp to 43.1%. FCF is up 65%. The FY guidance is maintained for the top line (3-5%), whereas the underlying operating margin should improve by at least 100bp (80bp previously) on the back of innovation and cost efficiencies (C4G)."
H117 trading update | Arden Partners, 21 July
"No change to forecasts following H117 update; our forecast equates to earnings growth of 23% in FY17. We believe a PE valuation around 10x remains inconsistent with current trading, geographical alignment and delivery of the strategy to acquire niche growth businesses such as Rishworth and ConSol. We anticipate an ongoing narrowing of the discount to its peer group as superior growth rates compensate for size/liquidity and cash generation drives a rapidly improved balance sheet. A rating of at least 13x is a realistic short term expectation providing scope for meaningful share price outperformance from current levels."
City Of London Investment (CLIG)
FuM +7% in Q4, modest positive earnings surprise, better final dividend | N+1 Singer, 19 July
"City of London Investment Group (“CLIG”) has issued a FY trading update indicating that FY17e earnings are expected to be 7% ahead of our forecasts and that FuM grew by 7% in Q4. FY17e PBT is expected to be £11.6m when final results are reported on 18th September. The board has recommended a small increase in the final dividend to 17p (FY16 16p). FuM grew by 6.8% to $4.7bn over the final quarter driven in the main part by positive underlying benchmark performance. We will update our forecasts for the positive earnings indication. We recognise that CLIG shares offer a healthy dividend yield (6%+) but net inflows are not being sustained. We remain at HOLD."