Most popular equity research this week | 4 - 8 Sept

"PI world interviews Robert Mundy, co-founder of Research Tree, to understand how MiFID II legislation, coming into effect from January 2018, will affect the research available to the retail investor."

• How is research currently paid for? - 0:39
• How will MiFID II change how research is paid for? - 1:46
• How will MiFID II affect the retail investor? – 2:57
• Will the private investor still be able to get forecasts (PTP, EPS, Rev) on the various investor platforms? – 5:41
• Will private investors be able to get the full broker notes, through Research Tree, or through our broker? – 8:19
• Does Brexit make MiFID II null and void? - 10:38
• Who are the winners and losers of MiFID II? – 11:30
• Conclusion: the net effect of MiFID II for the private investor in mid and small caps: 14:36.
  

"IQE’s interim results confirm a strong start to the year, as indicated at the trading update in July. Group revenue grew 12% to £70.4m, driven by a 17% increase in wafer sales. Photonics delivered strong growth (+48%), helped by the early phase of a significant ramp in VCSEL wafers, which we believe is related to the iPhone 8. Adj. EBIT fell 2% to £10.6m reflecting the expected reduction in licence revenue. We welcome the positive news flow on VCSEL technology but are equally interested in the encouraging comments around GaN-on-Silicon for base stations and full-service DFB lasers. Investor focus is on the large 3D Sensing opportunity, which we expect to drive significant near term upgrades, but we continue to believe that IQE’s technology will be adopted in a wide range of high volume use cases, providing continued strong news flow throughout our forecast period. Our published bull case scenario includes only potential VCSEL related upgrades. As such we believe the shares remain attractive and retain our Key Buy recommendation."

"Having cautioned on the H1 revenue split, Gear4music (G4M) has achieved close to our previous expectation, based on European outperformance. Strategic costs and the significance of H2 mean that we leave profit forecasts unchanged, though with added confidence. As our valuation is predicated on the speed of European share gains, this better than expected result appears positive.

G4M reports H1 revenue of £31.2m, exceeding our expectation by c 6%. Underlying momentum is strong both in the core UK market, up 30%, and particularly in the strategic focus market of Europe, up 70%. The two new distribution centres in Sweden and Germany, which opened either side of the calendar year end, have rapidly improved the proposition to European customers, contributing to market share gains across Northern Europe."

Abzena | Advanced Oncotherapy | Allergy Therapeutics | Alliance Pharma | Arbuthnot Banking Group | Avacta Group | Burford Capital | Chamberlin | Collagen Solutions | Diurnal Group | Evgen Pharma | Morses Club | Murgitroyd Group | Non-Standard Finance | Obtala | Omega Diagnostics Group | Oxford Biomedica | PPHE Hotel Group | Premaitha Health | Primary Health Properties | Purplebricks Group | R.E.A | Real Good Food | Scancell | Surface Transforms | Tissue Regenix Group | ValiRx

"In the September edition of the Hardman Monthly Newsletter, Dr Martin Hall - based partly on his personal experiences as a long-standing investment analyst - addresses various accounting issues that are highly relevant to today's investors. In particular, he concludes that measuring company cash flow - and especially projecting future cash flows - is pivotal to undertaking rigorous financial analysis, irrespective of how individual companies may present it.

In terms of share trading, Provident Financial's shock announcement on August 22nd saw its shares plunge by a staggering 66%. Its smaller comparators, NonStandard Finance and Morses Club - both featuring in this Newsletter - stand to benefit accordingly: the latter's shares rose by over 20% during August 2017 alone.

According to the US Securities and Exchange Commission, “Cashflow statements report a company’s inflows and outflows of cash”. This is such a simple and obvious statement. Unfortunately, the failure of accounting bodies around the world to adopt a consistent reporting method means that the derivation of operational cashflows, is anything but simple and consistent. To highlight the issue, a survey of the companies that comprise the FTSE 100 shows that the ‘indirect’ approach is used by the majority (70%) of companies. There is recognition for the need to improve with a discussion paper issued by the UK Financial Reporting Council entitled ‘Improving the Statement of Cash Flows’."

"Stadium’s first half was in line with expectations and the outlook confirms that the Group remains on track to achieve forecasts which imply 26% year on year growth in PBT. The order book has also risen strongly once again, which supports the ongoing growth story. The shares have recovered somewhat in recent months but remain inexpensive, in our view, at a P/E of only 11.7x FY17 earnings, falling to 9.5x FY18."

"RTHM has confirmed the acquisition of quoted US video specialist YuMe for $185m. The deal makes good strategic and financial sense to us, broadening RTHM’s position in video, and adding strong relationships with advertisers and agencies, plus a geographic position in LatAm. Financially it looks very attractive, with a 15% ROI on our estimates, and EPS accretion of 48% in FY19E, 35% in FY20E. The RTHM equity story continues to evolve rapidly, and this deal adds more management change, further scale, and a US registration for the shares. We continue to view the shares as materially undervalued, and raise our Target Price from 93p to 100p, based on 1.25x FY20E revenues."

"The shares have been very strong on the back of the announcement of Jurassic World Evolution (JWE) which has received major global interest and highlighted the long-term potential of the franchise business model. The Tencent investment will accelerate the opportunity in China.

Full Year results show the encouraging performance of the first two franchises under a now proven self-publishing model. We leave our forecasts conservatively unchanged but raise our target price to 1250p given the potential major upside to revenues from the third franchise and beyond."

"Accelerating organic growth (ex-currency) drives upgrades to forecasts and TP.

LOOP – the premium remote meetings solution provider – has posted a stronger 1H organic number than in FY’16 or FY’15: momentum is demonstrably increasingly at the top line, but EBITDA margins are also c.380 bps ahead at 18.6% as the number of pods (sales teams) grew by 24% to 7.7 (average), but each pod cost only 0.6% more than in FY’16 while generating broadly similar new annual recurring revenues per pod. Net cash is £1.6m (Jun’17) after paying down a final debt instalment in Jan’17. Significantly, the business delivered this highly creditable performance while absorbing only £666K of cash (post-capex, post-working capital) leaving the path clear to potentially material free cash generation in FY’18."

"The Fulham Shore Plc (“FUL”) has reported a trading update stating that the Group experienced a slowdown in trade in July and August. This slowdown, combined with a rising fixed cost base as the Group expands its number of restaurants, has led the Board to expect FY 2018 headline EBITDA to be below expectations. Whilst the slowdown may prove temporary, given the struggles being felt across the UK casual dining sector we assume a longer-term impact and have reduced our 2018 and 2019 headline EBITDA forecasts by 11.8% and 16.9% respectively. We continue to believe that FUL is very well placed to handle the headwinds facing the sector - driven by FUL’s straight forward product offering, value price point and an experienced management team. However, the market will likely want evidence that this slowdown is indeed temporary before positive momentum returns to the shares."

"Blancco has today announced yet another profit warning and the exit of CEO Pat Clawson. “Blancco Technology Group plc announces that, following matters that have recently come to the Board's attention, the Board has decided to reverse £2.9m of revenues represented in two contracts that had previously been booked during the financial year ended 30 June 2017.”

The last warning was a post close update on the 6th July for the year to June 2017. They have today lowered those numbers by another £2.9m taking revenues down to £29m from £32m. Profits are reduced again from Adjusted Operating Profit of £5.5m and EBITDA of £7m to £2.6m and £4.1m. They say there is no cash impact.

Given the continued uncertainty and management change we are putting both our recommendation and price target under review."