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 Forecast guidance continues to be withdrawn given near term COVID uncertainties, but we anticipate reintroducing forecasts at the interim results.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
FY20A results are broadly in-line with forecasts set prior to Covid-19, evidencing a far stronger H2A delivery to the year. Fulcrum has now refocused on a number of growth opportunities based on long-term strategic priorities for the UK, including the move to a net zero economy. MoM momentum is building so far in FY21, such that pre-Covid trading levels are expected to be met in Q2/21. Given this, a record order book and strong balance sheet, we see a brighter future for Fulcrum ahead.
The FY20 results report that after a challenging H1, the Group’s performance had started to improve, with a substantial increase in order inflow. This was disrupted by the impact of COVID-19, which impeded operations towards the end of FY20. Despite this, EBITDA (postIFRS 16) of £4.6m was broadly in line with pre-COVID-19 guidance (c.£5m). Given continued economic uncertainty, guidance is still withdrawn. Whilst valuation is challenging in the absence of forecasts, if management can deliver a recovery in earnings to historic levels, we believe the current valuation looks undemanding. We see no reason why the improving trajectory of the business should not resume once the economy is on a more stable footing. Indeed, trading has started to improve, with revenue expected to return to pre-COVID-19 levels in Q2, and medium term prospects are positive.
Fulcrum has reached an agreement with Harwood Capital and Bayford regarding the composition of the Board. Harwood has agreed to withdraw the proposed Tender Offer announced on 9th April 2020. The Company intends to appoint Jeremy Brade (Partner, Harwood) and Jonathan Turner (CEO, Bayford) to the Board as NEDs in short order following final due diligence. As a condition of their appointment to the Board on behalf of Harwood and Bayford respectively, the Company has entered into a relationship agreement with each of Harwood and Bayford in order to provide the Company with customary protections along with these Shareholders’ rights of Board representation. In addition, the Group intends to appoint two new independent NEDs prior to the 2021 AGM, with Philip Holder (Chairman) and Stephen Gutteridge (NED) stepping down upon their appointment. Lastly, the Company is proposing to amend the Articles of Association in order to incorporate additional protections typically available to UK public companies under the Code.
Fulcrum has issued a detailed further response to Harwood’s proposed tender offer. The Board continues to regard this as an opportunistic manoeuvre against the backdrop of market uncertainty and share price volatility resulting from COVID-19. It has received letters of intent to support the Board and management from shareholders representing 39.87% of the share register, accounting for the majority of institutional shareholders, as well as management. The Board reiterates its recommendation that shareholders should take no action and neither accept the Tender Offer, nor sell any shares to Harwood at or below the Tender Price.
There are signs of Fulcrum's recovery through H2/20E in today's update, but the UK's shutdown in response to Covid-19 has now put progression temporarily on hold. With the majority of projects currently delayed, trading over FY21E is likely to be adversely affected. The group's recent asset sale to ESP was opportunely timed, securing balance sheet strength to ride out the disruption. Given the current uncertainty and removal of FY21E guidance, we place our recommendation Under Review.
Today’s year end update highlights that FY20 trading was broadly in line with expectations. The Group has experienced a reduction in demand over the last week as a result of the implementation of more stringent lock down measures. In response, management has postponed all non-essential work, furloughed staff, and deferred 20% of the pay of employees who have not been furloughed, including management. These actions have materially reduced the monthly overhead. The update also confirms receipt of £16.8m of proceeds for the asset disposal, leaving the Group with a cash balance of £5.6m (pre-IFRS16) and no debt. We believe the Group is very well positioned to navigate the impact of COVID-19 and well placed to benefit from a more positive medium term outlook as the market backdrop improves.
Fulcrum has confirmed that it has met all of the conditions associated with the ESP asset sale, which is expected to complete in FY20. The deal will significantly strengthen the balance sheet, generating £17m of initial proceeds, with further significant proceeds to follow as the order book is built out. The Board also confirms that it expects FY20 trading to be in line with expectations, implying a significant bounce back in H2 trading (FY20E EBITDA of £1.4m/£3.6m in H1/H2). The outlook is supported by recent contract wins (see below) and further profitable growth is expected in FY21. We expect this improvement, alongside the value generated from the ESP deal, to provide positive catalysts for the shares.
Fulcrum has announced the appointment of Daren Harris as CEO with immediate effect. Terry Dugdale (COO since March 2019) will also join the Board. A process has begun to find a new CFO. Daren has been instrumental in managing the business since he joined as CFO in June 2019, not least in negotiating the utility asset sale and partnership agreement with ESP. We consider Daren to be a strong appointment as the Group seeks to deliver a recovery. After recently challenging trading, the outlook is improving, supported by the capacity market reopening and increasing political certainty after the general election. The appointment of Daren as CEO provides further certainty. We believe that both the recovery potential in the connections business (which is becoming more visible) and the value generated from the recent deal with ESP will provide positive catalysts for the shares. We continue to see long term attractions in Fulcrum’s end markets given the long term recurring income stream from the utility asset portfolio and growing demands on the grid.
Intention to float by Gemfields Group. No Capital Raise. Currently listed on JSE. (GML:JNB) at circa £122m. The Group's key producing assets, the Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) and the Montepuez ruby mine in Mozambique (one of the most significant recently discovered ruby deposits in the world), are both expected to have long mine-lives with potential for expansion. Also owns the Faberge brand. Due Valentines Day 2020.
Companies: THR CPT ERGO FAB EKF FCRM EMR WPHO POLX OCI
Fulcrum has entered into a conditional sale and purchase agreement to sell its domestic customer gas connection assets, including the order book and associated meters, to ESP (backed by 3i Infrastructure). The net consideration is £33m in cash, representing more than half of the market cap. £17m will be paid as an initial consideration, with the remainder paid in tranches as assets are built out and exchanged over the next four years. This is a strategically important deal for the Group, realising significant value in the utility asset portfolio (average premium to book value of c.25%-30%) and significantly strengthening the balance sheet. Fulcrum will also partner with ESP as an asset adopter in certain future tenders under similar terms to the sale (improving as certain milestones relating to the number of connections are met). The proceeds of the sale will be used to reduce debt and to undertake a share buyback programme to return up to £4m to shareholders (this is expected to track sales proceeds). The FY20 interim dividend will be deferred until completion (expected Q1 cal. ‘20). Separately, Fulcrum has announced its interim results which highlight a difficult H1 trading period. H1 was impacted by economic and political uncertainty as well as the Capacity market suspension (now lifted) and a lower level of smart meter installation activity. This is in line with commentary from other listed peers exposed to construction activity. Adj. EBITDA was £1.4m and adj. PBT was £0.3m in H1. Whilst this is disappointing, the second half of the year has started well, with average monthly sales order intake in H2 to date up around 40% vs. H1. We will update our forecasts and valuation in due course, but expect to decrease our current year EBITDA forecast to c.£5.0m (-26%) and PBT to c.£2.5m. The utility asset sale will generate significant cash for the Group, which should allay any concerns about the balance sheet and allow investors to focus on earnings recovery potential. We believe a strong recovery in FY21 and beyond is achievable.
Fulcrum has today announced the sale of all its domestic (residential) asset portfolio to E.S. Pipelines Ltd for a net consideration of £33m. The transaction will see Fulcrum revert to a less cash consumptive, more connections-focused offering, while the net proceeds will be used to fully pay down debt and provide capital for growth investments. The company has also released weak H1/20E results, leading to a reduction in our FY20E forecasts, but has witnessed a pick-up in trading to date over H2/20E.
Fulcrum's FY19A results (and FY18A comp) are the first prepared under IFRS15, which has masked underlying results in-line with earlier forecasts. IFRS15's impact has reduced revenues by £8m to £49m (yet still up +20% YoY), while Adj EBITDA remains relatively unscathed (-£1.0m) at £10m (+17% YoY). The positive underlying results include strong growth in the utility asset portfolio and order book. However, the group has not been immune to recent weakness in the construction industry, which is delaying pipeline conversion and shifting business into FY21E from FY20E.
Alumasc Group plc, the prem ium building products, system s and solutions group, has announced its intention to m ove from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
Argentex a UK-based forex service provider founded in 2011 by its current management team which operates as a Riskless Principal for nonspeculative and forward foreign exchange as structured financial derivatives is looking to join AIM. Offer TBC, expected 25 June
Companies: SRB AVCT FCRM ADAM KAPE INSE SHG CTH LWRF LPA
Today's trading update highlights positive progress across the group with exception of certain larger, electrical projects, which remain subject to ongoing external challenges. Despite the headwinds, given its newfound breadth across various revenue streams, Fulcrum is still set to deliver revenue of c£57.0m (+28%) and adj EBITDA of £11.0m (+31%) this year. We feel the recent share price fall has overly discounted for risk relative to today's revisions to forecast adj EPS of -13% (FY19E) and -24% (FY20E).
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Tekmar’s H1 results were well flagged in the 30th October update. Revenue was slightly lower YoY at £15.2m (H1’20: £17.1m), with EBITDA of £0.8m (H1’20: £2.0m), reflecting the impact of COVID-19. Whilst there continues to be some short term disruption, the COVID-19 backdrop is improving and we believe Tekmar is well placed to return to growth as its markets recover. The balance sheet is robust, with net cash of £0.7m, and demand is strong, with the enquiry book increasing by 21% YoY to £225m. Industry forecasts point to significant long term structural growth in Tekmar’s end markets and new CEO Ally MacDonald is conducting a strategic review focused on positioning the Group to capitalise on this. N+1 Singer has been appointed joint broker and we will initiate coverage in due course. We believe the historic EV/EBITDA rating of 7.7x is undemanding and see the current share price as an attractive entry point given the scale of the growth opportunity and strong recovery prospects.
Companies: Tekmar Group Plc
Today's news & views, plus announcements from AZN, LLOY, WEIR, TATE, GFTU, INCE, DELT, SOLG, HYVE
Companies: LLOY SOLG INCE
Trading to date in FY 2021 has been positive, with no sign of an adverse impact from the second national UK lockdown. Net new business across both divisions is described by management as encouraging and the new business pipeline remains very healthy. With volumes better than expected and margins improving DX is on track to perform materially better than market expectations and we have, consequently, upgraded FY 2021 EPS by 29% and FY 2022 by 15%, driven by stronger assumptions in DX Freight. We have also raised our FCF-based target price from 29p to 33p and reiterate our view that the group is in a strong position to rebuild profitability by winning new business and improving efficiency, productivity and margins.
Companies: DX (Group) Plc
Ince has announced excellent interim results with promising trends for the near and medium term which bode well for the Group's earnings and cash progression. First half revenue has grown 6% YoY, a strong result considering the impact of COVID during the period.
Companies: Ince Group plc (INCE:LON)Ince Group plc (W1G1:BER)
Management is delivering right on cue to its resumed guidance as per the 1 October trading update. H2 revenue recovery is back close to pre-pandemic levels and operating margins have returned to target 3% in quick time – and are sustainable at that level too. Having upheld dividends through this challenging period and actually extended the order book (up 17% YoY and also c3% higher than last reported), TClarke is firmly re-establishing a growth trend on arguably more solid foundations. The share price is 10% higher since the last trading update but in our view remains significantly undervalued against a prospective FY21E EV/EBITDA ratio of 3x, a PE of c6x, yield 4.6% and double-digit FCF yield.
Companies: TClarke plc
Checkit has emerged from a period of corporate activity as a pure-play business focused on driving the adoption of its connected SaaS software, in particular its workflow management application. Checkit’s software is designed to enable smarter operations management, exploiting Internet of Things technology to connect people, processes and assets. With a proven ability to sign up blue-chip customers across a number of target verticals, growth in recurring revenues and an expanding customer base should help to close the valuation discount to software peers.
Companies: ECKTF CKT EKC
The new ammendments to the UK CfD renewable energy support scheme opens up an opportunity for tidal energy to compete against floating offshore wind. We think the two technologies can deliver similar costs but that tidal, and specifically the already permitted capacity at Atlantis’s MeyGen site, has a marginal advantage in terms of readiness.
Companies: SIMEC Atlantis Energy Ltd.
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
The Group's cash generation and profitability remained robust in H1/21A despite the onset of COVID-19. This enabled the Group to pay down a further £8.2m of term loan principal, resulting in net debt declining 44.6% to £34.9m. In light of improving visibility in industrial electricity demand we release prudent FY21E and FY22E forecasts. We believe OPG is undervalued, trading at a c50% discount to its peer Group. We move our recommendation from Under Review to Buy.
Companies: OPG Power Ventures Plc
SThree has released a brief update ahead of the scheduled Q4 trading update expected on 12th December. The key headline is that an improving trading backdrop over the last few months has driven a better than expected profit performance. Market consensus was clearly too light with the company now guiding for an FY’20 outcome above the top end of the range of expectations. We have updated our forecasts accordingly and now look for FY’20 PBT and EPS of £28.1m / 13.3p respectively – a PBT upgrade of +53% on our previous estimate. Although the company has not formally reinstated full guidance, we are taking this opportunity to publish our estimates for FY’21. SThree has shown good resilience through this pandemic. The combination of STEM industry specialism and the inherently higher short term visibility of the contract focus has afforded SThree management a greater degree of flexibility when it came to aligning the necessary cost actions with the strategic ambitions of building market share in the key, global STEM markets. Costs and headcount have been cut, but they have been targeted and selective. The net result has been an increasingly positive tone in trading commentary, culminating in yesterday’s explicit upgrade. Has this been fully priced in by the market? To an extent yes, with the shares now standing +57% above the May 2020 lows and outperforming the peer group year to date. However, despite this outperformance (share price and operational) SThree still stands at a material valuation discount to its peers. We continue to find the extent of this valuation gap hard to justify.
Companies: SThree plc
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
H1F21 revenue was £107m, down 14.8% y/y (H1F20: £125.6m) and down 11.9% sequentially (H2F20: £121.5m). Q2F21 revenue was up 5.3% y/y, indicating a trend to recovery in the post-lockdown period across both, Ireland and the UK. The strength of LTHM's business model is supported by the diversity of its customer base and the expanse of its product offering, allowing it to withstand fluctuations in demand across market sectors. We believe LTHM stock is a relatively low risk investment given the strong cash position (131.6p/share), no debt and a stable yield. The stock trades at 8x EBITDA, compared to its peer average of ~11.1x, on what are more compelling metrics.
Companies: James Latham Plc
We highlight this morning’s profit warnings from IQE (no coverage) and Nanoco (no coverage) as further support of: (1) our Year Ahead 2019 thesis to avoid hardware exposure as the most likely source of downgrades, and gain exposure to high-visibility recurring revenues and stronger balance sheets; and (2) the apparent end of the smartphone supercycle. We reiterate our Buy ratings on CloudCall* (CALL LN, PT 270p), Vianet (VNET LN, PT 142p) and Kape (KAPE LN, PT 120p) as our preferred names to exploit our key themes for 2019.
Companies: CALL VNET KAPE
Less than a fortnight after a major new contract announcement in West Africa, Capital has announced the expansion of its operations at Barrick Gold’s Bulyanhulu Gold Mine in Tanzania. The contracts include a five-year laboratory services contract for MSALABS, together with a two-year underground grade control drilling contract. Capital commenced operations at Bulyanhulu in February 2020, undertaking a deep hole delineation drilling program. The successful execution of this resulted in an expansion of services, with two underground rigs added to operations from May. The new contract will expand the underground fleet to four, utilising two rigs from the existing fleet and including the acquisition of a further two rigs.
Companies: Capital Limited
Today's news & views, plus announcements from AV, BVIC, PZC, RQIH, PMI, MUL, AEXG, INCE
Companies: AEX RQIH INCE