Most popular equity research this week | 25 - 29 Sept

"Purplebrick’s AGM trading update confirms that it has made a “strong start” to the current financial year to 30 April 2018 and “trading in the UK and Australia remains on course to meet full-year guidance provided at the Final results in June: revenues of £80m for the UK and £12m for Australia”. Net cash at 30 August 2017 was £65m.

Interim results to 31 October, due on 13 December, should be impressive:  UK – 19% growth in LPEs in the past 3 months - LPEs have increased to 640 (June 2017: 540); - Revenues probably “more than double the same period last year”;  Australia – 30% growth in LPEs in the past 3 months - LPEs increased to 100 (June 2017: 77); - Revenues will be “many times ahead” of last year;  US – “ahead of plan”, “encouraging initial response” - “Website visits and valuation booked exceeded both UK & Australia at the same period in their development”; - “First buy-side mandate soon after launch went live”. 

Gold Access

"The interim results confirm another excellent half year for Boohoo, with EBITDA growth of 68% including only a modest contribution from PLT where growth rates remain very compelling and where FY guidance has been raised to +150%. Overall group sales guidance has been raised to +80% for FY18, which compares to our forecast of +75% (and similar for consensus). Note that overly conservative guidance of +60% had largely been ignored. Due to further reinvestment, though, and greater participation from PLT (lower profitability), the higher sales forecast may not yield upgrades today, or at the very most 5%. Pending further clarity on this and insight into important platform and warehousing changes we make no alterations to our target price and maintain a hold recommendation."

"We remain extremely positive about the impact of software bots on productivity, job satisfaction and ROCE for businesses deploying them successfully. As a result, we believe this is already a substantial market which will grow rapidly for many years to come.

In this note, we examine the market drivers, the challenges and solutions on offer and start to identify some of the best-placed companies. We continue as buyers of Blue Prism and raise our price target to 1250p on the back of stronger long-term growth. We also identify AntWorks* and Thoughtonomy as accomplished and innovative newer entrants. 

As the industry grows it is giving rise to a range of new competitors, many with new skills and approaches, but we believe more strongly than ever that the market is large enough to create a number of large (>$100m revenue), profitable players."

"Virtual Reality devices provide consumers with access to fully immersive 3D worlds, as well as the ability to interact within a virtual environment as if they are physically present, creating a new consumer proposition for video games, immersive entertainment, social interaction and virtual teleconferencing. Mark Zuckerberg was recently quoted as saying that “Virtual Reality will be the world’s next major computing platform”. VR devices are currently being produced by leading technology companies such as Facebook, Google, HTC, Microsoft, Samsung and Sony PlayStation, and over the last four years, over $15bn has been invested in the development of VR technology, with a further investment of $50bn expected between now and 2025.

 EVR’s wholly owned subsidiary, MelodyVR, is a global music platform that has created the world’s largest library of original VR music content. It is the only VR music service to be licensed by music rights holders including the world’s three major record labels, Warner Music, Universal Music and Sony Music Entertainment. The agreements with these record labels provide crucial access to the world’s top-tier artists and license the company for the creation and distribution of VR content providing a mutually beneficial structure for the monetisation content that MelodyVR creates."

"Unilever (ULVR LN, HOLD, T/P 4350p) CFO Graeme Pitkethly hosted sell-side analyst roundtables in London, Friday 22nd September and expressed confidence that margins will increase from their current level, 16.4% (FY2016 restated underlying operating margin which is before restructuring costs). We believe there should be ample scope for them to do so – a view supported by chief comparators.

Unilever is due to release Q3 sales data on 19th October. No trading update was given at the roundtable. But the relatively easy sales comparisons with 2016 H2 were noted. Last year, USG was 3.2% in Q3 and 2.2% in Q4. First half 2017 USG was 3.0%. Overall volume may be expected to strengthen in H2, partly offset by weaker pricing. 

Confidence that margins should increase seems sensible. The extent to which this might come from radical changes to supply chain and more outsourcing is unclear. But we note that Unilever’s 16.4% underlying operating margin in 2016 was beneath both the 17.6% average for US food peers General Mills, Kellogg, Kraft-Heinz and PepsiCo and the 19.4% achieved by HPC peers Clorox, Estee Lauder, Kimberley Clark and P&G."

"Topic of the quarter: Since our first quarterly at the end of 2015, 12 of the 59 companies we included in our valuation tables have been bid for. Given those tables were simply designed to show the range of companies present within the sector, not a hit-list of undervalued opportunities, the fact that 20% of them have been taken over is worth looking at in more detail.

At a time when warnings and share price collapses from the likes of Interserve, Carillion, MITIE, DX and Capita and Serco have dominated newsflow, it should be remembered that the sector is broad and highly varied both in terms of business model and performance. If the troubles of a minority of the sector drag down wider valuations then the evidence is that there is an army of potential bidders (reinforced by the weakness of sterling) ready to take advantage.

 The sector has outperformed the wider market by 4.7% in the year to date. Larger companies outperformed by 10.1%, driven by the bid for Berendsen, and smaller companies by 3.7%. The best-performing sub-sectors were Distributors (relative +21.7%) and Recruiters (+20.3%). Logistics was the worst-performing sub-sector, driven by a continued poor performance by DX and Connect."

"Lombard Risk is a niche provider of regulatory reporting and collateral management software with a strong position in a fast-growing market. It is halfway through a two-year plan that has already delivered a step change in revenue performance, accelerated the delivery of key new products and resulted in the creation of a world-class development centre in Birmingham. Objectives for the current year include further development initiatives, transitioning development capabilities into the Birmingham office and cash profitability.

We expect comfortable double-digit annual revenue growth and a return to cash profitability over the next few years. This will be delivered by new product sales, partnership successes and cost management. In our view, the current valuation fails to reflect this positive outlook, good revenue visibility and reducing earnings risk. We initiate coverage with a Buy and 16p target price."