See what's trending this week...
Companies: ABBY, BDEV, BWY, BKG, BVS, BTG, CRN, CCT, CSP, CRST, DTY, EHG, FEVR, FLO, HCM, INL, IOM, IQE, JOG, LGEN, MCS, GLE, PSN, PLUS, PHD, PURP, RDW, TW/, TEF, TRMR, W7L, WJG, WEY, XPP
by Research Tree, 12 Oct
"Back in January, we released a series of articles which outlined some of the companies the users of our (then offline) Stock Pick League had chosen as their Stock Picks for 2017. The articles covered sectors including Tech and Software, Construction and Finance, Hospitality and Household Goods, as well as Energy and Pharma/Biotech.
Our pool of core investors in which we aggregated the picks was mainly made up of Sophisticated or High Net Worth private investors, who we invited to play our Stock Pick League for a bit of fun whilst in beta mode. The Stock Pick is now live, and you too can now play along. By joining our Stock Pick League you can discover the stocks each player has chosen and how they've all performed.
As it stands today, some of their picks from January have performed exceptionally well in 2017, and some not so much. There is also a few stocks that flew under the radar of our early Stock Pick Leaguers that have made it onto our list of best performing AIM-listed stocks for 2017 so far.
We thought it would be a good idea to revisit these lists and see which of our market-savvy investors were on the money, literally.
At the time of writing (October 2017) these 8 companies, who cover several sectors including education, tech, oil and gas, pharmaceutical and digital media, have averaged 199% growth rate this year so far. The median growth rate for these companies is 160%. Not bad."
Highly prudent view of turbulent short-term backdrop = FY18 PBTe -28% | Panmure Gordon & Co, 11 Oct
"An already difficult trading backdrop in recent weeks, materially exacerbated by Toys “R” Us (accounting for c8% of CCT’s total sales) falling into Chapter 11 bankruptcy protection on September 18th, has caused our FY18 PBT expectations to fall by 28% to £10.5m (£14.5m), with a base knock-on effect to our FY19 PBT forecasts which are reduced by 19% to £12.5m (£15.5m). The deleveraging effect of lower sales with little cost mitigation that can be implemented in the short-term gives rise to the pressure on profitability. Looking ahead, our model assumes that FY19 PBT sees a return to profit growth, reflecting CCT’s recently significantly boosted growth opportunities. With tougher market conditions having persisted and indeed worsened into the key-for-profits October-December period, CCT is taking a highly prudent view on the difficult environment likely to continue from now until the end of the first half of the calendar year 2018. We are therefore also lowering our TP to 550p.
In an unscheduled trading update today, CCT has reported that conditions in its markets, particularly internationally (c25% of CCT’s FY17 sales), are turning out weaker than expected, leading CCT to guide market consensus FY18 PBT forecasts lower. At a general level, with consumers' discretionary spend already under pressure and low consumer confidence feeding into changing purchasing behaviour, retailers are exercising relatively high caution in their commitments to place orders with suppliers. In the toy industry, the recent Toys “R” Us bankruptcy situation has added further significant disruption to the retail environment.
As we noted in our September 20th research note, FY19’s year-over-year profit growth has been convincingly further underpinned recently by a significant strengthening of CCT’s toy portfolio (e.g. Teletubbies’ license extension, and the new Pokemon distributorship). Since then, the toy industry press has reported that CCT has renewed its Master Toy license (in place since 2004) for Peppa Pig (historically c20% of CCT’s annual sales) for another 3 years from January 2018, thereby adding further assurance to our new FY19 forecasts."
by Panmure Gordon & Co, 9 Oct
"In this note, we present three ideas that investors should consider given the long-term demographics in the UK. Whilst people are generally living longer and that trend is set to stay, the Faculty of Actuaries has identified a more recent phenomenon of increasing mortality since 2001. We examine the main beneficiaries in the healthcare, consumer services and financial sectors, where we believe the likely impact of changes in demographics and mortality have not yet been fully reflected in share prices.
In our view, the life insurers that provide annuities for life are the obvious beneficiaries of a slowdown in the rate of life expectancy. It took a while but the Institute of Actuaries has finally accepted that the higher number of deaths this century isn’t simply a blip but a long-term trend. The increase in mortality is being driven by a number of factors including a stabilisation in the number of smokers and increasing obesity.
Whilst most life insurers look set to benefit from increasing mortality it is L&G that looks set to benefit the greatest given that it has the largest UK back book of annuity business. At 30 June the annuity book was £55.6bn (£34.1bn Bulks and £21.5bn Individual/Retail) but this figure is likely to be much closer to £60bn currently.
Having released a surprise £126m in H1 2017 from reserves for base assumption changes we are forecasting a further release of £175m in H2 making £301m net of tax reserve releases for the current year. We also believe that L&G is currently considering over what timescale and which of the newer versions of the CMI models it should move to. It currently uses the CMI14 tables but we suspect that it will move to CMI15 tables at year end which, importantly, is still more conservative than the latest CMI17 tables. As a result, we have assumed that further reserve releases will be made in 2018 and 2019 of £250m in line with the commentary about releasing reserves over a number of years.
Having released a surprise £126m in H1 2017 from reserves for base assumption changes in September we increased our forecasts to take account of an anticipated further release of £175m in H2 making £301m net of tax reserve releases for the year.
The shares are currently on 2017/18F Operating PE multiples of just 9.6x and 9.4x respectively creating what we believe to be an excellent buying opportunity. In addition, it is delivering a very attractive 2017 and 2018F dividend yield of 5.9% and 6.3% respectively. Buy."
by Hardman & Co, 10 Oct
Abbey | Barratt Developments | Bellway | Berkeley Group | Bovis Homes Group | Cairn Homes | Countryside Properties | Crest Nicholson | MJ Gleeson | Inland Homes | Mccarthy & Stone | Persimmon | Redrow | Taylor Wimpey | Telford Homes | Watkin Jones
"The $64,000 Question.
In mathematics, 64 is a superperfect number and one of only four less than 100. It is also the number of squares on a chessboard, total positions in the Kama Sutra, a famous Beatles’ song (prefixed by “When I’m”) and my age last birthday - during Q3, the quarter under review here.
However, it was first monetised by the US radio show ‘Take It or Leave It’ in the 1940s on which seven questions were asked with the prize money (and level of difficulty) doubling each time from $1 to $64. Also, the contestant could bail and take the money (i.e. $8) at any time after a successful answer to Question 4.
In 1955, the programme made its move to television with massively inflated prize money and the re-jigged moniker ‘The $64,000 Question’.
This expensive interrogatory entered Anglo Saxon and, indeed, international vernacular as did the original programme name: “Take It or Leave It” - and the incipient risk manager’s exhortatory “You’ll be sorrr-REEEE”.
64,000 times 640,000 is also the current monetary worth of the UK Housebuilders i.e. on the first trading day of Q4, the market value rose 2.7% to £41 billion. This is 38% more than a year ago with Persimmon at circa three times book value. Similarly, while consensus earnings growth is forecast at 13% this year and next - the score is 2% in 2019."
Trading update | Zeus Capital, 12 Oct
"Elegant has this morning released an encouraging trading update essentially confirming the company continues to trade in line with market expectations. The company has also confirmed that the Treasure Beach Hotel is on track to reopen for business at the start of the peak tourist season and that bookings for the current financial year are tracking ahead of last year. The Company intends to announce its full-year results for the year ended 30 September 2017 on Tuesday 9 January 2018. We remain comfortable with our FY expectations and are therefore leaving these unchanged. We believe the shares represent good long-term value trading at a c.54% discount to NAV (175p).
The company has confirmed that trading patterns since the interim results in June have been positive and remain in line with market expectations. Treasure Beach hotel is on track to reopen for business at the start of the peak tourist season. Treasure Beach is a 4-star, 35-room hotel in Barbados which the Group acquired in May 2017. The project of refurbishing, repositioning and ultimately repricing the property is progressing to plan. Once Treasure Beach is reopened four of Elegant’s properties will account for a continuous 300m stretch of the West coast of Barbados. Treasure Beach further grows Elegant’s room capacity and share of the premium room stock on the island.
The Group continues to trade in line with expectations, we are therefore leaving our forecast expectations unchanged. While they are only 11 days into the current financial year bookings are tracking ahead of the same period last year, which is encouraging.
We believe the valuation remains undemanding trading on a P/E of 9.7x to 2017 EPS falling to 7.8x in 2019E. The shares have significant asset backing and are trading at a c54% discount to NAV (175p). We, therefore, continue to believe there is good long-term value in the shares at current levels backed with a dividend yield of 8.8% based on current assumptions."
Outgrown its valuation and deserves a re-rating | Panmure Gordon & Co, 10 Oct
"While iomart’s share price is roughly where it was in 2013, it has since then doubled revenue and profits through a combination of organic growth and bolt-on acquisitions. Including potential future acquisitions (not in forecasts), we think it should maintain mid-teens growth in revenue and EBITDA consistent with the past few years making the shares attractively priced at 9.4x FY’18 EBITDA. This compares to other UK Technology midcaps at 16.0x on the same expectation of 15% EBITDA growth p.a. We initiate with a buy rating and price target of 430p.
Our checks in the industry confirm that iomart has an established role to play in the cloud computing market segment, which has recently been dominated by hyperscale public cloud vendors Amazon (AWS), Microsoft (Azure) and Google (GCP). This is echoed by public cloud provider’s offerings in the marketplace which are more tailored to larger companies.
Despite the share price being only slightly higher than it was four years ago, iomart has doubled revenue and profits (both pre-and-post tax) and seems to have settled into a consistent level of high single-digit organic growth, complemented by acquisitions
While we think iomart could grow faster if it wanted to, it only takes business where it can add the most value which thereby keeps its margins high. Now that the company is tipping the £100m mark in revenue, we think it could become more attractive to a private equity buyer.
Since FY’14A, the amount of capex it spends has been decreasing as a portion of revenue as it gets more out of its datacentre assets with a focus on higher quality revenue and has also produced increases in free cash flow.
With 90%+ recurring revenue, c40% EBITDA margins, expected growth in the mid-teens, a 7.5% maintenance FCF yield and a 2.0% dividend yield we think iomart's shares are attractively valued at 9.4x EBITDA. Our initial price target of 430p equates to 12x FY’18 EV/EBITDA and is supported by discounted cash flow analysis and a comparable company analysis. Our valuation does not include the value of potential future acquisitions and we, therefore, feel it is conservative."
Prelims on track; strong pace of deal synergies | finnCap, 11 Oct
"Solid prelims pre-acquisition FY17 (July) show the ongoing development of visibility and consequent quality of earnings; increasing number of customers, and ensuing cross-sales potential; margin development; and success in identification and execution of complementary acquisitions. Results are in line with the August trading update, forecasts unchanged, which include dramatic uplift from the August completion of the Perfect Commerce acquisition, more than doubling revenue and EBITDA – and significantly expanding the corporate opportunities in the position as sixth-largest global pure play in spend control. Synergy delivery has already reached an annualised £2.5m in just over two months, well on track for annualised full-year synergies of £5m by year-end. 250p target reiterated.
EBITDA of £7.9m was delivered from revenue of £25.4m, including a 2H EBITDA margin uplift to a very strong 35% (2H16: 26%; 1H17: 26%). Net debt of £-1.0m improved upon £-1.9m expectations. Forecasts are unchanged.
Revenue visibility development is evident over a multiple of metrics: recurring revenue increased to a year-end run rate of £22.6m, 89% of FY17 revenue. Forward contracted revenue of £28m (FY16: £26.1m) includes £4.1m (£6.8m) of contract value
Customer adds of 54 (63) included the Millstream acquisition, with a larger number of new and cross-sold deals (110 vs 95) at lower ticket value, as noted in August. Supplier network progress continued tentatively, the Perfect Commerce acquisition advancing strategy in that respect by three to five years.
Proactis has reported on its year to July 2017, confronting a potential tier 2 target customer base focused on the UK public sector, with a nascent supplier network/APF solution. Proactis enters the year to July 2018 with the additional functionality and reach of Perfect Commerce, opening up tier 1 private and public sector customers in the US and Europe, with an established supplier network and unexploited advanced payment facility potential. Annualised synergies of £1.4m by 22 August have risen to £2.5m, delivering immediate uplift – we look forward to hearing of further developments."
Further acquisition drives growth of PMC division | Zeus Capital, 12 Oct
"Flowtech has announced its fifth major acquisition and sixth in total this year. Group HES Ltd has been acquired to continue the build out the PMC division adding c. £10.0m in revenue. This follows the recent addition to the division of Hydraulic Group BV, the first acquisition by the current management team in mainland Europe. On a normalised basis, Flowtech has paid c.6x trailing EBITDA, in line with its stated strategy and other completed deals. The £4.1m consideration is being settled with £3.1m in cash and £1.0m in shares, equating to the issue of c.670k new shares. Forecasts increase reflecting the addition of HES with revenue increasing c.12% and PBT c.7% in both FY18 and FY19. Flowtech continues to trade at a discount to the other UK-listed distributors at sub 10x FY18 earnings, the first year the full earnings impact of today’s acquisition will be felt. Should the valuation discrepancy continue as the business grows Flowtech could become an attractive acquisition target for a larger distributor.
HES trades through the brands Hydraulic Equipment Supermarkets and Branch Hydraulics and has recently established specialist distributor brands. The business will eventually be integrated into the PMC division taking the divisions revenue to c. £50m, larger than the core distribution business. HES is complementary to the existing PMC operations and will extend the technical offering whilst deepening the relationship with important suppliers. The headline EV of £4.9m includes £0.5m of debt relating to a large project in the installation stage. Post completion net debt is expected to revert to a normalised level of c. £0.1m. On the adjusted net debt, the price paid equates to c.6x EV/EBITDA.
Our forecasts move higher to reflect the contribution from the acquisition. The impact in FY17 is minimal with less than a 1% increase in earnings, as we are less than three months from the period end. FY18, the first full year the acquisition will impact, revenue increases c.12% leading to c.7% increase in PBT and 5% in earnings. Group gross margins decrease marginally, 30 bps, due to lower margins at HES. The uplift in FY19 is similar. Net debt increases to £14.0m (prev. £11.9m) in FY18 equating to 1.5x EBITDA, this falls to c.1.1x in FY18 as the annualised earnings benefit from the acquisition is felt. A summary of forecast revisions is presented in Exhibit 1 below.
Flowtech is scheduled to provide the market with a Q3 trading update on the 17th October. Whilst the operating environment will inevitably have remained tough we expect Flowtech to have continued to outperform that market.
Trading on a PER of 11.5x, current year earnings, falling to 9.8x in FY18 Flowtech’s shares offer value relative to its UK-listed peers. The 3.7% yield is also attractive and well covered by earnings. The business could become an acquisition target should the valuation gap not close as it grows."
Demand remains strong; earnings upgraded | Edison, 3 Oct
"Hot on the heels of its recent US acquisition, XP Power’s trading update confirms that strong trading continued into Q3. Q3 revenues were 35% higher than a year ago, with nine-month revenues up 34% y-o-y and 21% in constant currency. We revise up our revenue forecasts to reflect much stronger than expected trading in Q3, which results in normalised EPS upgrades of 5.7% in FY17e and 7.1% in FY18e.
XP generated revenues of £43.7m in Q317, +35% y-o-y and +8% q-o-q, and ahead of our £37.4m forecast. For the nine months to 30 September, revenues grew 34% (21% in constant currency). Q3 order intake also remained strong at £44.1m, +26% y-o-y and -5% q-o-q, to result in a book-to-bill of 1.01x for Q3. For the nine months, orders grew 44% y-o-y (+30% in constant currency). The company saw particularly strong demand in North America, from semiconductor equipment manufacturers enjoying this year’s upturn in chip demand and healthcare companies placing orders for new programmes.
After paying $23m/£17m for Comdel at the end of the quarter, the company ended Q317 with a net debt position of £10.8m (vs net cash of £8.0m at the end of H117). The company announced an 18p dividend for Q3 (1p ahead of our forecast) to be paid on 11 January to shareholders as at 15 December. Management anticipates that FY17 results will be ahead of expectations outlined at H117 results. We have revised our forecasts to reflect the stronger than expected revenues and bookings in Q317. We raise our revenue forecasts by 4.7% in FY17 (28.5% growth y-o-y) and 5.3% in FY18 (7.4% growth). This results in an increase in our normalised EPS forecasts of 5.7% for FY17 and 7.1% for FY18.
The stock is up 62% year to date and 17% in the last three months, reflecting multiple earnings upgrades over the course of the year. On our revised forecasts, XP is trading on 19.4x FY18e EPS. This is in line with its UK electronics peer group and at a small premium versus international power supply peers. Cross-selling and a reduction in manufacturing costs for Comdel have the potential to provide upside to our forecasts."
World of Warpaint | Edison, 10 Oct
"Warpaint London is a creative design-focused cosmetic brand proposition delivering high-quality cosmetics at affordable prices. Its focus is to develop its flagship brand, W7, while capitalising on the growth potential of e-commerce and international expansion. Consensus forecast revenue growth is underpinned by the implementation of the e-commerce strategy and broadening of international operations.
Warpaint’s strategy to grow focuses on the continuing development of the W7 brand. The disruptive potential is the ability to move from idea to market in 3-5 months, which is beyond the capability of larger cosmetics houses. W7 is an innovative, design-focused brand proposition, predominantly selling to high street retailers and independent beauty shops. A global growth strategy sees it now in 56 countries, with a key focus on the US and China. Additionally, the online channel is a growing contributor to revenue and highlights the scope for further sales growth. Management is also progressing opportunities for other brands such as Taxi.
The colour cosmetic market is valued at c $52bn according to a global industry study and forecasts suggest this will rise to $80bn by 2026, a CAGR of 4.8%. Warpaint aims to build internationally recognised brands, starting with W7. Exports of W7 are 58% of revenue as UK dependence reduces. By enhancing distribution and marketing platforms to incorporate social media and e-commerce, the offering should become more widely available to an international audience. W7 has recently launched a new range of ‘Very Vegan’ cosmetics, which has shown encouraging sales traction. In addition to other brands, including Outdoor Girl, it has a close-out division, which buys and sells close-out and excess stock of branded cosmetics.
Warpaint’s joint CEOs have been working together for 25 years and have deep experience of their market. The own-brand division (83% of revenue) enjoyed over seven years of revenue growth before IPO, and consensus forecasts are for meaningful revenue and profit growth to continue. At interim, PBT before plc costs rose 6% but with a strong Christmas order book, consensus expects FY17 PBT to grow 13% inclusive of plc costs in 2017. Warpaint’s progressive dividend policy is reflected in the forecasts, with dividends per share increasing y-o-y from FY16 to FY18. Net cash of £3.5m in FY16 is expected to grow to £7.0m in FY17."