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Strix has announced the strategic acquisition of LAICA a family owned business in Vicenza, Italy for €19.6m in a mixture of cash and shares. It will be earnings accretive in FY21 and is scheduled to complete by the end of FY20, with just Italian government approval outstanding. ZC operating profit estimates are unchanged in FY20 but increase by c. 8% in FY21 to reflect the contribution from the deal, the impact on earnings is smaller due to the issue of shares and higher tax in Italy. Management believe significant synergies, both cost and revenue, will be derived from the deal over the next 2-5 years. The interim results had been well flagged in the comprehensive trading update in late July and today’s statement confirms that profitability remains in line with the guidance of achieving a flat performance yoy in FY20. The interim dividend of 2.6p is in line with last year and in keeping with the commitment to at least meet the 7.7p paid in FY19. Unlike most peers, Strix has maintained guidance as well as its commitment to pay a dividend and today’s acquisition unpins the continuing strategy of diversifying the business into areas offering greater growth.
Companies: Strix Group Plc
Strix has published reassuring interims and announced the acquisition of LAICA, conditional upon approval from the Council of Ministers in Italy. Against a backdrop of global disruption caused by COVID 19, Strix’s H1 performance is in line with expectations. Net sales down 21% YoY, with a much smaller impact on net profits on the back of strong cost management. Encouragingly, FY 20 profit expectations are now underpinned, at around £28.9m PAT. Taking into account the LAICA deal, we provisionally upgrade FY 21 PAT/EPS by 6%. The shares are already up materially YTD, but the Strix growth story remains compelling.
Results were slightly better than expected, boosted by the acquisitions of Booth Industries and Energy Steel in 2019 with a solid performance despite COVID-related headwinds. Some supply chain and order delays did affect underlying revenues. Turnaround action has resulted in a strong profit improvement from the former HTG operations. Yesterday, Booth announced that it had won a landmark £36m contract to supply high integrity cross passage doors for HS2. This is a major multi-year boost and follows a spate of other recent contract wins. This helps give confidence, as does a pledge to return to paying dividends this year. We reintroduce forecasts with a TP of 330p based on a FY21 target P/E of 16.5x. The shares continue to look undervalued even after yesterday’s reaction to the contract win.
Companies: Avingtrans Plc
The company's trading update post-Interims (in July) can only be described as impressive, being reassuringly positive on dividends, on revenue and margin recovery, and on the resilience of cash flows/net cash. Any trepidation that the recovery in its markets (and consequently TClarke's performance) from COVID lockdown would prove slow or even elusive can now be dispelled. The revenue run rate in H2/20 is within 20% of 2019's level – and sequentially better MoM - while margins are forecast to track back, and be sustainable, at the group's targeted rate of 3%. The order book at c£410m has also be held stable and this combination of factors has encouraged the Board to pay an unchanged interim dividend for 2020. It really is testimony to management how flexible and efficient the business has been through these most demanding of times and to see it emerge with strength intact, and the prospect of resumed growth in 2021 and beyond. Offering a prospective FY21E EV/EBITDA of sub-3x, a PE of c5x and 5% yield plus net cash, the shares are significantly undervalued in our view.
Companies: TClarke Plc
Byotrol’s FY 2020 full-year results are inconsequential, given the dramatic and positive impact that the COVID-19 pandemic has had to product sales since the year-end. However, year-end cash was £0.1m above forecast at £1.7m and when combined with positive cashflow since year-end, Byotrol is well-resourced to finance its ongoing operations and steady growth. With the order-book remaining strong (c.£1.1m at 31 August), despite summer lull, and demand likely to persist for some time, given the emerging second wave of coronavirus, we upgrade EBITDA to reflect lower costs and higher licensing income. If, as we suspect, the demand curve has shifted sustainably to the right, this leaves room for further upgrades. Consequently, we raise our target price to 11p, at which level the stock would trade on EV/Sales and EV/EBITDA of 4.1x and 26.9x, respectively. Future revenues and milestones from licensing deals will be largely additive.
Companies: Byotrol Plc
The company has announced that its recently acquired subsidiary Booth Industries has won a landmark multi-year contract for the supply of high integrity protection doors for HS2 worth £36m. This contract also with other recent contracts validates the group’s acquisition of Booth. No change to forecasts in advance of tomorrow’s full year results. Clearly, today’s news will be very well received, with the shares looking undervalued.
In-line with its trading update, Avingtrans has reported record results for FY2020 despite the impact of COVID-19 which resulted in a number of delayed orders and challenges, particularly in the Oil & Gas sector, where exposure remains relatively low. Order intake has been building across the summer however and the Group now has 85% cover for FY2021E and, consistent with this time last year, 40% cover for FY2022E. Management has made significant progress with Energy Steel and Booth Industries, both acquired in distressed condition in June 2019. Booth announced a long term £36m multi-year contract for HS2 yesterday, underlining the view that these acquisitions will create significant shareholder value. Guidance is being reinstated and we now reintroduce cautiously framed forecasts that anticipate adjusted EPS growth of 17% and 10% in FY2021E and FY2022E, including the benefit of cost reduction measures. Having made use of government support during FY2020 a return to the dividend list is expected with the FY2021 interims. The shares trade on a prospective 0.8x EV/sales which is below comparable growth industrials.
Eden Research has reported interim results for the 6-months to June 2020, reporting product sales up 63% to £0.73m, within revenues of £0.75m. Operating loss was £1.0m. Year to date the company has announced a number of product approvals and a one-year evaluation agreement with Corteva Agrisciences, a leading market player. Operationally, the company is investing the capital from its successful raise in Mar-20, establishing new lab facilities and in-house capabilities, making new senior personnel hires, and pursuing the development of entirely new product categories. While COVID-19 uncertainty remains, we maintain our Under Review recommendation.
Companies: Eden Research Plc
Management confirmed that Ince is on track to meet the expectations the board set in July when the annual accounts were signed off, and that it is confident in its positioning to take advantage of a return to normality. As we discussed in our Full Year Results Note, the balance sheet is strong enough to carry the business through another winter of turmoil, should it come to that. Lateral hires in the UK and abroad have continued apace, with new partners starting to generate revenue in the period.
Companies: The Ince Group plc
Today’s AGM Statement highlights further progress during H1. As anticipated at the final results on 6th August, trading has now returned to pre-COVID levels, with a particularly strong recovery in housing market activity. As at 31st August, the order book has increased by 5% to £69.4m from £66.2m at 31st, with contracts secured across the Group’s end markets. The Company has invested in its sales team and back office functions in order to support the recovery, though management continues to monitor costs given the near term uncertainty presented by COVID-19. In the absence of more restrictive lockdown measures, we would expect activity to continue to improve in the near term and the medium term prospects of the Group remain encouraging, supported by the UK’s net-zero target, which will require substantial investment in the UK’s utility networks. Fulcrum has also announced the appointment of Jennifer Cutler as CFO from 19th October, whose most recent role was Direct of Finance at Harworth Group Plc. The shares have justifiably outperformed since the full year results and today’s statement is supportive of this increase. Forecast guidance continues to be withdrawn given near term COVID uncertainties, but we anticipate reintroducing forecasts at the interim results.
Companies: Fulcrum Utility Services Ltd.
Directa Plus is a commercially proven graphene supplier with a unique production process that creates high quality materials that are already used in a wide array of products internationally across multiple verticals. We expect the company to reach EBITDA positive in FY22 with existing cash reserves, leaving material upside in our expectations from some of its recently developed products such as the Co-Mask and Gipave.
We see Directa Plus as an underappreciated, undervalued and more mature and lower risk play in the UK listed graphene and speciality nanomaterials space and initiate with a Buy recommendation and 122p target price.
Companies: Directa Plus Plc
Spectra Systems, a leading provider of advanced technology solutions for banknote and product authentication markets, has announced a solid set of interim results. Moreover, significant H2 visibility, notably from central banking customers, yields upgrades to our FY 2020 and FY 2021 estimates with adjusted PTP increasing 17% and 16% to $5.8m and $6.1m respectively. In terms of H1 numbers, revenues increased marginally to $6.5m (H1-19: $6.4m), and adjusted pre-tax profit came in flat at $2.3m. The balance sheet retains its robust state which, even after the $4.1m FY 2019 dividend, distributed June 2020, still holds $10.9m (H1-19: $11.1m) of net cash (excluding restricted cash of $1.3m, H1-19 $1.1m). Our Sum-of-the-Parts valuation indicates a risked fair value more than 200p.
Companies: Spectra Systems Corp.
Xaar has issued an update highlighting that trading for the six months to 30 June has been in line with the Board’s expectations and that good progress is being made in implementing the new strategy. H1 revenue is noted to be £23.7m, a 7% decline relative to H1 FY2019, but sequentially in line with H2 FY2019. In the Printhead business, sales are no longer being made through distributors and OEM customers are now re-engaging with the group. New product development in printheads remains key to reversing market share losses over the last few years. Product Print Systems is marginally ahead in revenue terms in the first half, which is below plan, and Xaar 3D is noted as making good progress in testing despite lockdown restrictions. The balance sheet is strong with cash and cash equivalents of £23.9m. Financial guidance remains withdrawn, given the shorter term uncertainties, with the Board focused on a return to profitability in FY2022. The shares trade at c.0.6-0.7x EV/sales, excluding cash ring fenced in Xaar 3D of $7.25m at 19 November 2019 and the potential payment of $33m should Stratasys exercise its call option over the 55% of Xaar 3D that it currently doesn’t own.
Companies: Xaar Plc
The Ince Group has released a trading update ahead of its AGM today, indicating that the Group remains on track to achieve the Board's expectations as set in late July when the annual accounts were approved. Solid trading along with a continuing focus on cash and costs has positioned the Group well for future market recovery. We keep our forecasts withdrawn at this time with no guidance for this financial year provided by the Group.
The Group has delivered an FY2020 adjusted operating profit performance that is modestly ahead of our expectation and strong cash generation, with net cash of $32m, excluding $10.9m of IFRS16 lease liabilities. The business has benefited from its diverse customer base, products and operating geographies, and exposure to medical devices, EV charge cables and high speed datacentre products. Good progress has also been made with operational efficiencies, lowering product costs and with selective acquisitions. Whilst revenues in the 4 months to May 2020 are up 4% to $126.2m on the comparable period, the Group is seeing weakness, primarily in medical equipment installations and delays in the EV sector. With a broader range of potential outturns in FY2021E, the Group has withdrawn financial guidance. We have recast our forecasts to reflect an expectation of broadly flat revenues with a recovery into FY2022E as customer stock levels normalise and impacts from Covid-19 diminish.
Companies: Volex Plc