Leclanché has accepted a binding conditional offer from Eneris Group, a Polish company dedicated to environmental protection, to create two JVs: one manufacturing battery cells, the other assembling battery modules. The transaction gives the group the finance it needs for capacity expansion and to fully fund its business plan until mid-2021 without dilution to shareholders as it works through an order book of over CHF90m (excluding the St Kitts project). Our estimates remain under review until there is greater visibility regarding the St Kitts project, which management intends to build under a ‘build-own-operate’ (BOO) model.
Initial data on Leclanché’s FY19 performance shows the adverse impact of delays to the St Kitts stationary energy storage project and suspension of cell manufacturing during August which caused deliveries in the e-mobility segment to be delayed. The order book for delivery during FY20 and FY21 exceeds CHF90m, excluding the St Kitts project which management now intends to build under a ‘build-own-operate’ (BOO) model. Our estimates remain under review until there is greater visibility regarding this project.
LeclanchÃ© has announced an agreement with US-based investment company Yorkville Advisors for a convertible loan facility of up to US$40m (c CHF39m). FEFAM, LeclanchÃ©âÂ€Â™s majority holder and long-term backer, has also agreed to provide a CHF25m working capital financing convertible facility. Our estimates remain under review until there is greater visibility regarding the St Kitts battery energy storage project.
Leclanché has announced an agreement with US-based investment company Yorkville Advisors for a convertible loan facility of up to US$40m (c CHF39m). FEFAM, Leclanché’s majority holder and long-term backer, has also agreed to provide a CHF25m working capital financing convertible facility. Our estimates remain under review until there is greater visibility regarding the St Kitts battery energy storage project.
Leclanché’s H119 performance was adversely affected by delays in completing financing for the St Kitts project. Management had expected construction to start in Q219 but it has been pushed back to Q419. Given the scale of this project, which is the largest the company has undertaken to date, our estimates remain under review until there is greater visibility on when different phases of the project are scheduled to complete. We note that this project pushes the order book above CHF100m, with an additional CHF166m qualified pipeline projects for delivery between 2020 and 2023, including lithium-ion battery systems for Bombardier trains. Management is seeking CHF70m funding to realise this potential.
Leclanché has announced that Ellen, the world’s largest all-electric ferry, for which it provided a 4.3MWh customised lithium-ion battery system, has made its first commercial voyage. This is a key application area for the company, with an estimated 50MWh of orders for marine applications contracted for delivery in FY19 and FY20. Our estimates remain under review until there is greater visibility on when different phases of the St Kitt’s battery energy storage project are scheduled to complete.
Leclanché has announced that it is working with the state-owned St. Kitts Electric Company (SKELEC) to build a solar generation plus storage project on the island of St. Kitts. Combining a 35.6MW solar farm and 44.2MWh battery storage facility, the project will be the largest in the Caribbean and Leclanché’s largest project so far. Given the scale of this project, our estimates remain under review until there is greater visibility on when different phases of the project are scheduled to complete.
Management achieved its goal of delivering a cumulative total of 100MWh of operational projects by the end of 2018, thus doubling the installed base and revenues in the space of a year. Near-term growth is underpinned by e-transport programmes, with CHF42m of the CHF60m order book for this sector. We reinstate our estimates and indicative valuation, which is CHF2.16/share.
Leclanché has announced that it expects FY18 revenues in excess of CHF47m, ahead of our CHF42.5m estimate. This is more than double the CHF18m reported in FY17. We place our estimates under review until the full FY18 results are announced in early April.
Now that it has solved its financing issues, Leclanché has started delivering on its pipeline of projects to supply battery energy storage solutions for utility-scale, microgrid and e-transport applications. Revenues more than doubled during H118. However, some significant contracts that were pending at end June have been delayed while third parties await project funding, so we revise our FY18 estimates downwards and cut our indicative valuation from CHF2.51/share to CHF2.33/share.
As flagged in Leclanché's March trading update, FY17 revenue development was held back by lack of funding. Management has recently completed a sequence of financing transactions that it estimates will be sufficient to take the company through to an EBITDA-positive position in FY20. We reinstate our estimates, which were withdrawn following the March trading update.
Leclanché has recently signed an agreement with Enel Green Power, which is the renewables division of the Enel Group, and wind energy supplier Enertrag, to form a JV to construct a €17m battery storage plant in Cremzow, Germany, for completion by the end of 2018. The terms of the JV and the value of the contract to Leclanché have not been disclosed. Together with a smaller (2MW/4MWhr) project with NRStor in Canada and a 15MWhr project with swb in Germany, this 33MWh/22MW project represents 37% of the 140MWh of capacity we model for delivery in FY18, underpinning our estimates, which we leave unchanged.
Over the last three years, Leclanché has been transformed into a vertically integrated group. It has begun work on a multi-million contract for one of the world’s largest stationary battery energy storage systems to date, supplying not only the battery modules but also the system integration and engineering, procurement and construction (EPC) work. It has also established a presence in the e-transport sector, for example partnering with Skoda Electric on battery solutions for e-buses. Completion of the ongoing financing round is required to enable the group to deliver against its pipeline totalling over 450MWh of energy storage, scheduled for delivery during FY17, FY18 and FY19.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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The ongoing pandemic only serves to underline business models that are robust, and those that aren’t. This morning’s trading update from UPGS puts them firmly in the winners’ category. As the company approaches the final weeks of FY2020, it not only reports “better than expected progress” against an uncertain business backdrop, but also that revenue and key profit measures for the year should be ahead of current market expectations. Furthermore, online as a portion of total business should record a fourth consecutive increase, providing additional flexibility and strength in the case of a second wave.
Companies: Up Global Sourcing
Edison Investment Research is terminating coverage on ADMIE Holdings (ADMIE), AJ Lucas Group (AJL), Australis Capital (AUSA), Elbit Medical Technologies (EMTC), Focusrite (TUNE) and PPHE Hotel Group (PPH). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Previously published reports can still be accessed via our website.
Photo-Me was trading in line with expectations until COVID-19 hit in the final months of FY 2020. FY 2020 sales declined by -5.6% to £215.4m including £22.7m sales lost due to COVID-19 as consumer activity was impacted significantly. The Board believes that activity levels could take a long time to return to pre-COVID-19 levels; a thorough review of the business is underway and restructuring programmes are being implemented to better align operations to the current trading conditions. Net cash at April 2020 was £7.9m, comprising gross cash of £66.5m and drawn debt facilities of £58.5m. A €30m additional credit facility was received in May and June.
Companies: Photo-Me International
Walker Greenbank has a tangible strategic impetus under its new management team with a clear business model migration plan. While COVID-19 related market effects are affecting near-term trading – and the decision not to pay an FY20 final dividend – they are also presenting opportunities. Our estimates remain suspended for now ahead of the AGM on 29 July when an update on trading and the financial position can be expected.
Companies: Walker Greenbank
Today’s year end update confirms that FY20 has concluded in line with current market expectations, with no surprises just three weeks on from the last update. As we have heard recently from other listed housebuilders, demand appears to be coming back strongly (net daily reservations now at 80% of pre-COVID levels) and build activity is steadily improving (currently at 60% of pre-COVID levels and expected to reach 80% by September). The most striking feature of Gleeson’s update is the ambition to resume previous site opening plans (25 new sites targeted for FY21) and, thereby, to fulfil the strategic plan of completing 2,000 homes p.a. in FY22.
Companies: MJ Gleeson
Portmeirion has provided an AGM trading update this morning effectively covering 20 weeks of H1. Online commentary is upbeat and export demand has sufficiently picked up for management to partially reopen the ceramics factory. Unsurprisingly the core retail demand in UK/USA remains subdued but we should stress Q2 (Apr-June) accounts for c25% of sales – 60% of sales and 80% of profits are made in H2. Investors should also take huge comfort around the balance sheet. Pro-active actions to minimise cash outflow means a significantly low cash burn of <£1m for the whole of Q2, whilst liquidity headroom of c£15m on our estimates is highly reassuring in the current climate. Management remain committed to reinstating the dividend once deemed prudent to do so. N+1 Singer currently has no formal forecasts in the market and will initiate coverage in due course. The stock has recovered from its 240p low in March and trades on a historic P/E of 7x and 4.5x EV/EBITDA with a >10% FCF yield and a NAV of 452p. Fundamentally the legacy brand portfolio is an attractive cash-cow with broad international appeal and significant brand equity. We feel this provides the foundation to support an exciting NPD/online/Wax Lyrical led strategy recently unveiled by the new CEO. The share price at the current depressed level presents an attractive entry point for investors looking for deep value, asset backed plays on a mid-term basis.
Companies: Portmeirion Group
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
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UPGS released an unscheduled trading statement this morning which confirms better than expected numbers for FY2020 sales revenue, profitability, and net debt. A more encouraging outcome than previously envisaged when the company reported its interim results on 30th April.
GaaS and eSports a welcome boost; Buy
Whether we know it or not, advanced materials are a core component in the everyday life of the everyday person. They are the key material in items we often disregard, such as printer inks and lotions, to objects which defy the laws of gravity like the Airbus A380 and London’s Shard. Furthermore, these materials are not only essential to many objects and structures, but, due to their superior qualities, are the key to the advancement of many industries. One such example is the use of carbon fibre which offers five to ten times more rigidness, stiffness, and strength than its aluminium counterpart. As a result of these impressive qualities, motorsport and athletics have improved ten-fold since their mainstream use and new records are broken every year.
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Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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Churchill China has had another strong trading period and this is articulated in today’s H1 trading update. The business continued to sustain good export momentum, led by Europe, whilst UK Hospitality also moved forward despite Brexit uncertainty. We are lifting our 3 year EPS forecasts by 3.5%-4.0% this morning and see the risk on the upside as the year progresses. The shares currently trade on a 2019 P/E of 20x falling to 18x. On a 12m view we see fair value >1850p (22.5x FY20 P/E). Overall, today’s news further reinforces Churchill’s ongoing value creation and growth attributes. Non holders should take a close look at this high quality small-cap stock operating in an attractive global market with secular growth features.
Companies: Churchill China
Games Workshop’s (GAW) interim results are ahead of expectations. The highest rates of revenue growth were achieved in the channels with the highest operating margins, ie Trade (40% margin) and Online (64% margin). This has produced a strong improvement in free cash flow generation and ROCE has improved from 96% to 111%. We upgrade our forecasts for FY20 and FY21 by a further 3% following the 9% upgrade in November. Our DCF-based valuation increases by 11% to 5,748p.
Companies: Games Workshop Group