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Following the announcement of a business restructure and temporary cost reduction measures to reduce costs by A$12m, we have updated our forecasts for Seeing Machines. We believe that the significant measures taken by the management offset a weaker revenue outlook, as the impact of COVID-19 looks likely to continue for longer than anticipated. The net result is a similar to previous expectations in terms of cash, which we believe remains sufficient to see the company through FY22 ahead of profitability in FY23. The long-term effects of the business restructure is expected to be positive for shareholder value as demonstrated by our DCF based valuation which increases to 7.2p (from 7.0p).
Companies: Seeing Machines
Resuming with a Buy rating on expected resilience
Companies: Crimson Tide
Oxford Metrics has delivered solid 1HMar20 results, with sales of £15.0m (PY: £16.1m) and adj. PBT £0.3m (PY: £1.7). Within this, Yotta demonstrated continued ARR progression (up +15% to £6.8m) while at Vicon, the division added additional bluechip customers, further validating its industry leading position. Progress was, however, held back by lockdown restrictions. £1.1m of expected orders slipped to post period, but have now largely been fulfilled. Had they occurred as expected group sales would have been flat y/y. Looking ahead, CV19 related uncertainty leads us to withdraw forecasts. At this stage we expect disruption to be short-lived. As such – and considering OMG’s persuasive track record - we continue to view the company as a long-term winner in this growth industry.
Companies: Oxford Metrics
Seeing Machines has announced the implementation of a business restructure alongside a range of temporary cost saving measures in response to the COVID-19 pandemic. This is in response to a reduction in the rate of sales growth compared with the same period last year across all divisions. These initiatives are expected to result in significant ongoing cost savings for the business, estimated at approximately A$12m over the remainder of FY2020 and FY2021, thereby helping preserve Seeing Machine's balance sheet strength. The initiatives include:
The Panoply’s trading update reveals the business entered FY 21E with a £15m order backlog and that the group expects to report a strong trading performance for Q1 21E, having recorded £9.5m of new contract wins since the start of the year. A further positive is confirmation of a $5.2m contract win with a global philanthropic organisation by the group’s FutureGov unit (included within the £9.5m total). Against an ongoing backdrop of COVID19 driven uncertainty, this is a very positive announcement in our view. Noting that c70% of group turnover is now generated by public sector clients, we continue to believe The Panoply is well-placed to weather the COVID-19 pandemic and we maintain estimates following the release.
Companies: The Panoply Holdings
Synairgen (SNG.L): Preliminary 2019 results | Yourgene Health (YGEN.L): COVID-19 testing service launch and business update
Companies: Synairgen Yourgene Health
When in doubt about pandemics, ask an expert. One of the best being former FDA Commissioner Dr Scott Gottlieb (non-exec director of Pfizer & Illumina), who has been calling for widespread COVID-19 workplace testing for some time. Today came news that there is now one such test available for all American businesses, freelancers, ‘gig’ workers &/or sole traders. This new tech-enabled solution is powered by CLSU’s ClearContact, ClearID and Virtual Badge (strategic partnership) applications, in conjunction with Clinical Reference Laboratory’s (CRL) expertise in blood/antibody & saliva tests.
There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
Companies: AVO AGY ARBB ARIX ASAI DNL GDR HAYD NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE TRX TON SHED VTA
This morning's announcement from PEN highlights significant mitigations of some of the Covid-19 risks identified in its recent Report & Accounts, notably where cash and working capital are concerned. From this perspective it is highly reassuring that major invoices to the tune of £2m in relation to PEN's contract with General Dynamics (GD), delayed by the practical issues around milestone meetings during the pandemic crisis, have now been raised, with help from virtual technology, and that written confirmation has been received from the client that the equipment milestone has been met. Formal agreement by GD to the £1.5m pricing adjustments which PEN had applied for is also excellent news, and as a result a contract which initially was expected to be valued at £7.3m is now worth at least £13.5m, with more potentially to go for. Moreover, on the back of the re-scoping of last year's Middle East contract and the GD agreement combined, over £4m of positive working capital is expected to flow into the current year, resulting in a significantly improved cash situation.
Companies: Pennant International Group
Today’s update is a positive one and acts as a reminder of DOTD’s solid and recurring business model. Such visibility, combined with excellent profitability (30% AOP margin) and strong cash resources (£22.6m net) means the company is strongly placed for a challenging macro environment, and worthy of attention in view of indiscriminate SP weakness. At a time, when many companies are seeing sales fall, DOTD has today revealed that demand continues to grow – evidencing DOTD’s secular growth drivers and omnichannel opportunity. New business is however taking longer to convert, as events and businesses have seen disruption. Offset against this, retention has improved, as customers’ digital transformation plans have slowed. Related to this, we also highlight that key customer risk is very low, as no customer represents >1.5%/sales, furthermore sector exposure is diversified. In view of today’s update, we therefore reduce FY20E sales by £2m to £46.8m, but flag that this still implies 6% growth in H2. DOTD has meanwhile identified savings (by reallocating its marketing budget) such that FY20E profit remains unchanged. Notwithstanding the company’s solid (90% recurring) business model, we view it conservative to withdraw FY21&22 estimates, given the potential for prolonged disruption. Despite this, much confidence can be taken from the company’s strong financial profile and growth opportunities, which (we view) will be unaffected longer term.
Companies: Dotdigital Group
Results from PEN this morning for the year to December 2019 are fully in line with expectations, with £1.6m of EBITA from £20.4m of revenues, also £1.6m PBTA. Net debt at £2.2m is likewise well aligned to expectations. Successful fulfilment of the major Qatar contract is a powerful reflection of PEN's specialist technical capabilities and client-orientated model. In addition, a key challenge for 2019, the successful re-scoping of the General Dynamics contract, was also met. Before, the bulk of PEN's £2.4m EBITDA was made by its Technical Training division; however the Integrated Solutions activity was further strengthened following the year end by the acquisition of Absolute Data Group, which should be a good move for the company, given both its repeat revenues and the synergies with the pre-existing Omega PS product which has been marketed successfully in Australia and Canada. PEN was also successful in renewing its sizeable, $C30m, five-year contract with the Canadian government. Most importantly, the £33m order book remains a key platform for future progress as well as a reflection of the group's success in bidding for contracts in previous periods.
Interims demonstrate group revenue growth of 30% (including 7% organic) from increasing revenue quality as recurring revenue hits 74%. With an increase in ARR of 20% over only 6 months (+10% organic and +10% acquired), SaaS revenues have grown 76% year-on-year, from a 48% increase in SaaS bookings. The strategic execution remains impeccable, with two acquisitions in the period, integrated through Ideagen’s internal 72-point plan, leading to both revenue growth and margin expansion, from cross sales and synergies. Net debt of £18.0m represents less than 1x forecast FY20 EBITDA, with an expectation of net cash by FY21 and clear balance sheet capacity for further acquisitions ahead of the current income statement. Forecasts are unchanged and, with the General Election expected to release a log jam of decision making by acquisition targets, as well as providing a flurry of additional red tape as a post Brexit UK invents its own regulation standards in addition to target trading markets, we lift our target price to 200p in anticipation of acquisitions.
The delayed FY 2019 results are a slight beat on YE guidance, but more importantly they reflect a change in the business model as the maturing PTRO is able to persuade customers to sign recurring revenue contracts rather than buying one-off licences; deepening its relationship with its customers as it deepens their connections to their subscribers. By changing its model, PTRO is sacrificing the growth from upfront revenue and cash, in return for much greater quality and security and in fact more revenue over the full lifespan of the contracts. In the long term, this is an excellent and necessary shift; however, it does have that near-term impact on growth and cashflow. Otherwise, PTRO is reporting ‘business as usual’ for its customers despite COVID-19. PTRO is operating home working and benefits as its USD-denominated revenue rises, travel costs are curtailed and mobile telecom usage increases across the world. We adjust FY 2020 forecasts for the results but continue to expect revenue and earnings growth.
Thankfully pandemics don’t come around very often. The last one of such virulence as COVID-19 being the ‘Spanish Flu’ in 1918-20. So how is ClearStar faring? Today’s 2019 results (see below) were in line with our revised expectations - reporting adjusted EBITDA (post SBPs) of $370k (-$108k LY) on turnover up 14.1% LFL to £23.0m ($20.1m). Driven by strong top line growth from Medical (+21.4%, MIS) & Direct (+31.9%), together climbing 26.2% to $16.5m (71.8% of group). Albeit partly offset by an 8.3% contraction at channel partners (non MIS), which reduced gross margins to 54.1% vs 56.4% LY, reflecting adverse divisional mix.
Cerillion has reported H1’FY20 results in-line with its trading update on the 20th of April, with sales up 46% YoY and a sharp improvement in profitability. The order backlog of £24.2m was up 57% YoY, providing good H2 visibility. Net cash rose 86% to £4.8m, and the interim dividend is raised 9% to 1.75p. The new business pipeline is up 19% YoY with no significant Covid-19 impact. We expect Cerillion to comfortably meet our forecasts for FY20, with the year-end backlog also likely to support a healthy outlook into FY21. Despite recent re-rating, the stock remains at a discount to the peer group. We raise our target price to 295p from 225p, reiterating our Buy recommendation