See what equity research was trending this week...
Companies: ALD, PRSM, GATC, RTHM, RKH, SOG, TSCO
By Panmure Gordon & Co
Our Q2 portfolio reflects our outlook for additional caution during Q2 as the enthusiasm of the reflation trade runs into the stark reality of political deadlock in the US and geopolitical risk in the Eurozone. We remain positive on the prospects for the UK economy where economic uncertainty has been countered by August’s stimulus package from the Bank of England, a looser fiscal stance from the Treasury and a 21% peak-to-trough reduction in the Sterling Exchange Rate. Despite recent moves higher, low nominal fixed income spreads continue to provide a valuation underpin for global equities...
Historical accounting fines pulled down Tesco's profit
Tesco (TSCO) | AlphaValue, 12 April
"Tesco released its FY2016/17 results which showed 2.7% organic sales growth yoy to £55,917m and underlying operating profit of £1,280m, i.e. a 2.3% margin. During this year, Tesco succeeded in enhancing its UK lfl growth, although rather stunted in the Q4. This has sustained its domestic business profitability, improving by 50bp to 1.8% the underlying operating margin. The latter contributed 63% vs. 53% to the group’s underlying operating profit. However, Tesco has taken a total exceptional charge of £235m in respect of the Deferred Prosecution Agreement (DPA) of £129m..."
Positive trading update
Blue Prism Group (PRSM) | Whitman Howard, 12 April
"Ahead of the April half year close PRSM has updated the market as they expect the Full Year results to be significantly ahead of market expectations. Software deal momentum continues to be very strong. They have signed 151 deals in the 5 months to March which compares very favourably with the 2016 full year of 189 deals. Half year results will be released on 27th June..."
Trading update – profit and cash ahead
Rhythmone (RTHM) | N+1 Singer, 12 April
"RhythmOne has finished FY17 with EBITDA and cash ahead of expectations. Last year RTHM lost over $10m, this year it has made a profit ($1.2m), and is on track to achieve our FY18 estimate of $15m of EBITDA. The H2 profit was $3.8m with only a small contribution from the acquired profitable Perk business. This provides a very reassuring base for our FY18 expectation. The Company recently confirmed that it had completed the exit from non-core activities. It has also reviewed the Perk business and made further adjustments to product range without affecting profitability. With these actions in mind we expect consensus revenues to settle around $220m for FY18. This equates to c15% organic growth (we estimate FY17 organic growth was 20%). Cash was c$75m at year..."
Solid Full Year Results
Aldermore Group (ALD) | Panmure Gordon, 10 April
"Aldermore is a relatively low-risk business model driven by its diverse mix of mortgages and SME lending which provides the group with multiple levers for growth which is supported by a scalable digital operating platform and strong distribution channels. The full year results demonstrated the growth potential of the key BTL and Asset finance segments with opportunities to further broaden the offering in areas such as vendor financing. We believe that the recent share price underperformance caused by the 15% stake reduction by AnaCap in March 2017 and downgrades in FY2017 earnings expectations due to higher guided upfront regulatory costs offer a good..."
Sector Note | Hardman & Co, 10 April
"Baron King of Lothbury, also known as Mervyn King former Governor of the Bank of England, is married to Barbara, a Finnish lady. She was his girlfriend in 1970 but distance and steam-driven telecoms conspired to keep them apart. Barbara went on to marry someone else and divorce - before being reunited with King in the late 1990s. They married in 2007 and King, who had never had children, was presented with two step-children and four grandchildren; and, in a Sunday Times interview, he quoted the Finnish apothegm “Grandchildren are the dessert of life”..."
Rockhopper Exploration (RKH) | Edison, 12 April
"Rockhopper’s (RKH) full year 2016 results do not reveal any material news, but do help underline the progress the company made in 2016 with the acquisition of production assets in Egypt and the continued lowering of costs at Sea Lion. Net production of 1,350boe/d helps to offset general costs and maintain the substantial cash balance (end of year $81m). Most importantly, perhaps, is that the board considers the Sea Lion development to be “sufficiently robust to be sanctioned in the current environment, assuming the required capital investment can be secured”. Therefore, focus continues on working with the operator (Premier) in getting the project to FID. We point investors to our recent note on the mechanisms that the partnership can follow and the impact on RKH’s value. Our NAV is 73p/share..."
Continued uncertainty and greater investment lead to expected “10-15%” reduction in FY17 PBT
Gattaca (MTEC) | Equity Development, 13 April
"Although there are some promising pockets of demand (eg City recruitment) returning to the UK jobs market post BREXIT, this has not yet fed through into Gattaca’s more specialised Engineering and Technology verticals - with continued “uncertainty” resulting in “elongated hiring decisions and projects being delayed”. Here we suspect some of the headwinds have been caused by temporary scheduling difficulties at Network Rail and Highways England, along with recent softness in Telecoms (Re Ericsson and Huawei exposure). Indeed we understand Q3 LFL NFI growth (constant currency) is presently tracking at similar levels to Q2’s -2% decline, albeit encouragingly “the medium-term outlook remains positive with some signs of confidence in recent weeks..."
Statpro Group (SOG) | Progressive Equity Research, 10 April
"StatPro has announced the acquisition of UBS Delta, the investment bank’s portfolio analysis and risk management cloud-based system that enables clients to measure risk and performance across fixed income, commodities, equities and FX. It is front office focused and noted for its fixed income risk and attribution capabilities. StatPro is paying €13 million in cash over three years, funded by additional committed facilities from Wells Fargo; the price equates to around 4.5x to 5.5x estimated EBITDA. UBS will continue to operate and support the UBS Delta service for its clients until StatPro has enhanced its StatPro Revolution platform such that it ‘reaches functional parity with the UBS Delta service’. We view this as a material deal which adds impetus to the Group and represents a very good strategic and tactical fit. StatPro expects the deal to be earnings enhancing in the current financial year. We increase estimates to reflect the deal with Adjusted EBITDA rising by 29% and 53% in FY 2017E and FY 2018E respectively..."