See what's trending this week...
Companies: ABZA, AKR, AGY, DVL, AGL, AVCT, BVXP, COG, CNSL, CTH, DOTD, EMR, IHC, LDRUF, MEGP, GLE, MTFB, OTB, OPTI, PRM, RTHM, SDI, SFR, STX, SGM, SDY, SYGGF, TCG, TSTL, TUIN, XAR, YGEN
Housebuilding - Weighing up the housing budget
by N+1 Singer, 23 Nov
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MJ Gleeson | Sigma Capital Group
"Housing, as expected, was front and centre of yesterday’s budget and the removal of stamp duty for most first time buyers dominates today’s headlines. In our view, this will make a difference (despite a very pessimistic analysis by the OBR) but it does not address the chronic undersupply of affordable housing in England. An additional £15bn has been made available with the intention of doing just that by stimulating the supply of new housing to a level not seen for almost 50 years. If this is to be achieved, it will require more land to be made available as well as innovative methods of housing delivery. For the volume housebuilders, the budget represents something of a mixed bag: help to buy preserved but lower UK growth forecast; relaxed planning rules but the threat of government intervention to prevent land banking. That said, we consider it a positive budget for MJ Gleeson whose unique positioning we have championed for some time. We remain of the view that no listed housebuilder is better aligned to political housing priorities in England."
Rude Health
by finnCap, 21 Nov
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Abzena | Akers Biosciences | Allergy Therapeutics | Alliance Pharma | Angle | Avacta Group | Bioventix | Cambridge Cognition | CareTech | Inspiration Healthcare Group | Lidco Group | Motif Bio | Omega Diagnostics Group | Optibiotix Health | Premaitha Health | Proteome Sciences | Scientific Digital Imaging | Shield Therapeutics | Synairgen | Tristel
"The AIM Healthcare index has shown positive returns in all but three out of the past 11 years (2007, 2008 and 2011), growing at a CAGR of 7.6% over the period. This compares with a CAGR of -0.3% for the broader FT AIM All-Share, +0.6% for the AIM 100 and +3.5% for its more senior FT All Share Health index. Sector growth and relative performance to the AIM All-Share index has accelerated over the past five years; the sector having risen 19.19% CAGR since 1 Jan 2012. This compares with 6.8% growth in the AIM All Share and 6.1% in the FT All Share. This outperformance can be attributed to the increasing success amongst the Healthcare constituents which have progressed their business plans to a point where substantial value has been/is being created and where many companies have successfully scaled their businesses to sustain future growth.
We highlight four companies that have different business models but exemplify the opportunities that are increasingly becoming evident within the sector."
Taking a break: On the Beach & Thomas Cook to HOLD; reiterate SELL on TUI
By Panmure Gordon & Co, 20 Nov
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On The Beach Group | Thomas Cook Group | Tui
"We revisit the tour operators ahead of upcoming FY results. Thomas Cook, TUI and On the Beach shares have performed well YTD, to varying degrees, navigating multiple industry challenges. We take a closer look at what the market now prices in, triggering a downgrade of On the Beach to HOLD (from BUY), an upgrade of Thomas Cook to HOLD (from SELL) and a reiteration of our SELL rating on TUI.
Tour operators have been on the winning side of incredibly polarised share price performance across the Travel & Leisure sector this year. Amongst the many reasons, we feel avoiding earnings risk has been the overriding investor theme. This has played out for each of Thomas Cook, TUI and On the Beach – but for quite different reasons: On The Beach (+45% YTD) has showcased its credentials as a fast-growing digital disruptor; Thomas Cook (+30%) has re-rated as Condor restructuring progress begets confidence that forecast downgrades have plateaued; and TUI (+14%) is well set for another year of double-digit EBITA growth, supported by capital investment."
Severfield (SFR)
Upgrading forecasts after a strong set of interims | N+1 Singer, 23 Nov
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"We are upgrading our forecasts after a solid set of interims, with our adj. EPS forecasts increasing by 11% and 3% in FY18 and FY19. This is driven by increases in both our revenue and operating margin forecasts. We have introduced a new FY20 forecast which assumes the achievement of the Group’s medium-term target to double PBT by FY20 from £13.2m in FY16. The outlook remains positive, with a healthy order book, a strong pipeline of future projects and further self-help initiatives to enhance margins. Trading on an FY’18 P/E multiple of 11.8x and yielding 3.3%, we believe that Severfield is attractively valued vs. peers. Given the Group’s strong net cash position (£31m at H1’17) we also see the potential for a special dividend."
Rhythmone (RTHM)
Revisiting BUY case | Whitman Howard, 24 Nov
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"R1 has been very weak recently and they have substantially underperformed their closest peers over the last year. We believe this is mainly due to share flow back from recent deals and has nothing to do with fundamentals. Recent trading has been in line with expectations and they have announced 3 earnings enhancing deals this year. 3rd party industry commentators such as Comscore and Pixalate continue to score RhythmOne very highly, with a No1 rank in the US, and No2 internationally for Pixalate. The share on a pro forma basis including YuME to March 2019E now trade on an EV/Sales of 0.3X, EV/EBIT of 3.1X and a PE of 4X and FCF yield of 14%. We retain our BUY and 770p price target.
RhythmOne issue trading statement for H1 2018 on the 17th October. Performance was in line with management expectations and revenues are expected to be $112-114m vs H12017 of $67m. These numbers are not LFL as they include Perk for the half and RadiumOne for a quarter. Gross profit margin was 38% which is up from last year and in line with my FY2018 expectations. The gross margins at Perk and RadiumOne are higher than old R1. Adj EBITDA is expected to be a profit of $1.5m -$2m. Cash is $37m impacted by cash paid to RadiumOne of $20m, higher than usual working capital investment of $7m, $6m in exceptional charges, restructuring charges of $5m, $5m of capex. This is expected to largely unwind in H2. They will go into detail re this point at the H1 results. Clearly, cash generation is a core part of the investment case and we will need to see this coming back in H2."
Photo-Me International (PHTM)
Snap it up | N+1 Singer, 21 Nov
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"PHTM is at an inflection point. We see new technology and rapid expansion in a complementary segment as key factors behind an imminent step-up in profit growth. The stock also provides a substantial level of exposure to recovering European economies, especially France (c45% of PBT). In our view, consensus significantly underestimates these improving profit dynamics and emerging growth in Photo/ID, Laundry & Kiosks. Our base case assumes a 3-yr EPS CAGR of 10% (vs cons c5%) and our analysis suggests scope for this to be 18-23%. We initiate with a 225p target price and highlight a 2-3 year bull case of 350p (10x cal20 EBITDA). Interims are on 11 Dec.
Photo-Me is the leading global operator in automated instant-service equipment with almost 50,000 vending units worldwide. It is the leader in its target markets, with high service standards. Innovation and R&D are also a key differentiator and technology upgrades in digital printing and especially cutting-edge photobooth ID security are central to the profit growth strategy. Our analysis indicates scope to add up to £25m incremental profit over 3 years."
Empresaria Group (EMR)
Trading update | Arden Partners, 21 Nov
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"Empresaria is an international staffing group operating a multi-brand strategy and addressing both permanent (FY16 revenues 40%) and temporary (FY16 revenues: 60%) recruitment markets. We have today reduced our forecast expectations. We have today reduced our forecast expectations primarily relating to issues in German and the Middle East and we have also taken a more conservative stance given general market conditions in the UK. Our PBT reduces by 13% in FY17 and 15% in FY18.
The largest subsidiary in the group is Headway in Germany that is focused on Logistics and standard temporary businesses. The German market has been significantly impacted over the past decade by the deregulation of temporary agency work as part of the Hartz reforms. This allowed for divergence in pay between permanent staff and agency workers. The provision of temporary personnel is strictly regulated by the German Temporary Employment Act (“AÜG) whereby the agency is the employer and supplies the temporary employees to the hirer; i.e the contractual relationship only exists between the agency and the temporary employee."
Dotdigital Group (DOTD)
Accretive acquisition extending capability | N+1 Singer, 22 Nov
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"Dotdigital announced the acquisition of Comapi, an omnichannel messaging and cloud communications provider, for £11m in cash to be funded through its existing cash reserves. The deal extends the group’s omnichannel marketing capability and opens the door to attractive cross-selling opportunities. We upgraded our FY’18 EPS by 5% (7-month contribution) and FY’19 EPS by 14%. We see the shares as a core holding in the sector, offering visible growth in a structurally attractive market.
The Group announced it has completed the acquisition of the Comapi group of companies, a fast-growing business focused on the omnichannel messaging and cloud communication market, for cash consideration of £11m. Like dotdigital, Comapi generates highly visible revenues through its SaaS business model, is growing well and is profitable. The transaction is equivalent to 1.1x EV/sales cal’18 as compared with Dotdigital’s current valuation of 5.3x sales."
Xaar (XAR)
Lowered expectations due to Ceramics & Graphics | N+1 Singer, 20 Nov
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"Xaar has issued a trading update downgrading expectations for 2017. This has been driven by lower sales of the 2001 printhead in the competitive Ceramics market, as well as a slower ramp-up of the new 1201 printhead for Graphic Arts due to supply constraints. Management is guiding to H2 17 sales broadly in line with H1, which we have reflected in our estimates, along with reductions for the following years. This has driven cuts in our adjusted PBT forecasts of 31% for 2017, 15% for 2018 and 5% for 2019. These downgrades are disappointing.
However, it is notable that the issues relate to the decline of Xaar’s legacy Ceramics business, along with short-term issues in meeting demand for the new Graphics product. Demand continues to grow for the portfolio of new products introduced in the last two years, as previously reported. The group’s transition continues towards more diversified and resilient revenue streams, and more effective leverage of its IP, albeit with more volatility than had been hoped. The group’s new and broader product portfolio offers exciting growth prospects, with management’s vision unchanged of £220m sales by 2020."
Speedy Hire (SDY)
Attractive Powered Access acquisitions | Liberum, 24 Nov
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"Speedy has announced the acquisition of two regional Powered Access players, Prolift Access and Platform Sales & Hire, for a combined outlay of £21.1m. As well as a strong strategic rationale for the deals, we believe that they look attractive from a financial perspective. Even excluding the likely synergies we see the deals as highly accretive and increase our FY19 PBT forecast by 6%. Importantly we also expect the deal to support management’s attempts to improve the group’s financial returns and forecast RoCE reaching 11.9% in FY19. We continue to believe the financial improvement being delivered by the company is underappreciated by the market and we reiterate our BUY rating and increase our target price to 74p (from 71p).
From a strategic perspective, we believe that these assets will fit nicely into the group's existing portfolio, complementing its own low-level access fleet. It should also enable Speedy to bring in-house some of its existing rehire revenues at higher margins, as well as providing the business with a platform to grow its Powered Access offering going forward. Given the regional bias of both of these businesses we would expect incremental scale to be created via target acquisitions and or organic investment."
