Fulcrum has announced that Daren Harris, CEO, is stepping down from the Board with immediate effect due to personal reasons. Terry Dugdale, who was appointed to the Board as COO in March 2019, will become CEO with immediate effect. Whilst Daren’s departure is unexpected, we have met Terry Dugdale on several occasions and rate him highly. Investor feedback has also been positive. Terry has been pivotal to driving operational efficiencies through the Group, improving utilisation and navigating the impact of COVID-19.
Companies: Fulcrum Utility Services Ltd
H1/21A results reflect a period where COVID-19 impacted Q1/21 trading, masking over early signs of progress from the company's new strategic plan. Given activity rebounded during Q2/21 to pre-COVID levels, we expect a stronger H2/21E delivery and a profitable FY21E on flattish revenues. In FY22E, we expect to see material signs of progress in trading from strategic growth initiatives (housebuilding/EV/smart metering etc). Given these long-term drivers, we believe Fulcrum should be viewed as an attractive growth, rather than prior earnings quality, investment case.
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 Forecast guidance continues to be withdrawn given near term COVID uncertainties, but we anticipate reintroducing forecasts at the interim results.
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 MHC 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.
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Capital Limited has released its Q4 and FY2020 trading statement this morning. Overall it shows 2020 was a strong year for the company with revenue growing 18% and most other operating metrics growing positively with it – see Fig 1. We have adjusted our forecasts accordingly and also to take into account the mining services contract for the Sukari Mine which the company won late last year. The latter is a game changer for Capital and its investment case in our view; turbo charging revenue growth, enhancing margins and diversifying cashflow all of which should lead to materially higher valuation multiples. We raise our PT to 127p.
Companies: Capital Limited
Although 2020 will probably go down in history as one of the most challenging years experienced during our lifetime, it will also likely be chronicled as one of the best years for the recognition and appreciation of science. As we entered 2020, the COVID-19 pandemic was in its infancy. However, it rapidly evolved through the exponential rise in infections and mortality globally. Much has been achieved during the past 12 months in the fight against COVID-19, but, as we enter 2021, there are considerable concerns about the emergence of a mutant version of the virus and the second wave that we are now facing.
Companies: AVO ARBB ARIX BBGI CLIG DNL FLTA ICGT OCI PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
2020 ended with two positive moves for carbon capture and storage (CCS) which should benefit Velocys clients. In the US, the signing of the COVID 19 stimulus bill extends and adds support for CCS in the US where the Bayou project is working with CO2 offtaker Occidental to deliver a negative emissions project. The UK government has also published guidance on CCS funding making this option an additional opportunity for the Altalto project. Velocys remains one of the very few opportunities for investors to play negative emission technology. We see both these moves improving the operating environment for the company’s clients and their projects, stimulating demand for the Velocys technology.
Companies: Velocys plc
XP reported a strong finish to 2020, with Q4 revenues up 24% y-o-y and 4% ahead of our forecast, driving FY20 profitability ahead of expectations. Order intake has normalised to pre-COVID-19 levels, reflecting continued strong demand from the semiconductor sector. We have revised our estimates to reflect strong Q420 performance and the weaker dollar, driving a 3.0% increase in FY20 EPS and a 2.3% cut to our FY21 EPS.
Companies: XP Power Ltd.
Avingtrans has announced that it has continued to perform well in H1 FY2021 and is trading in line with market expectations. Our cautiously framed forecasts anticipate adjusted EPS growth of 17% in FY2021E and 10% in FY2022E, including the benefit of cost reduction measures. The Group confirmed high levels of order cover for FY2021E at 85% at the end of September and orders taken since then will have provided further comfort. The shares have given ground YTD and now trade on a forward EV/sales multiple of 0.9x and prospective PERs of 13.8x and 12.7x for FY2021E and FY2022E respectively which are well below sector metrics. Management is also making great progress within the medical division where the potential for its small scale MRI is substantial.
Companies: Avingtrans plc
Today’s update confirms a strong recovery in H2 FY2020E as expected and a full year adjusted PBT at least in line with FY2019, despite a material impact from Covid and the depressed oil price resulting in a decline in Augean’s North Sea Services business. The FY2020E outturn demonstrates the resilience of the Group and the strong attractions of its growing EfW activities that now account for c.70% of Group profit. Augean is very well positioned in the EfW residue market and with c.40% of the UK’s hazardous landfill capacity. We forecast Group earnings growth of 15% and 21% for FY2021E and FY2022E, and expect further strong cash generation. EV/EBITDAs for FY2021E and FY2022E are 5.7x and 4.5x respectively, substantially below sector constituents and transaction multiples.
Companies: Augean PLC
Like many awful dreams, the Covid19 nightmare hasn’t quite finished, recently mutating into an ultracontagious super-bug. The risk being global transmission and infection rates spiral out of control, swamping healthcare systems again. However this time there is an answer. Hunker down for a few months, and inoculate as many vulnerable people as possible to reduce fatalities/hospitalisations. Plus, the Oxford/AstraZeneca vaccine is relatively simple to distribute (re 2°C to 8°C). Making rapid nationwide rollouts feasible, alongside ultimately bringing the curtain down on this dreadful virus.
Companies: Mpac Group PLC
Augean has proven to be resilient throughout the pandemic. In particular, the growth in processing incinerator ash residues from energy from waste (EfW) facilities continues unabated and additional new contract wins should drive improved returns in FY21. Management expects FY20 adjusted PBT to be slightly ahead of last year and we have marginally reduced our FY20 adjusted PBT and EPS estimates by 1%. Our FY21 estimates are maintained. Cash flow has been stronger than we expected, underpinning the indication that dividends should resume in FY21.
Initiating with a Buy rating. We initiate our coverage of Proton Motor Power Systems (“Proton Motor”) with a BUY rating and a target price of 201p. Our valuation equates to a market capitalisation of £1.47bn, compared to a current share price of 65.5p and a market cap of £479m.
Companies: Proton Motor Power Systems Plc
A £10m fundraising expedites the Protos project and opens the way for the £10.2m Peel warrant exercise in the current year. The funding will also give the company additional resources to pursue international opportunities. Adjusting for the raise and some timing differences, our UK only base valuation rises from 5.0p to the raise price of 5.5p and we see existing international opportunities taking this to 7.5p (from 6.9p) and including opportunities in Europe this could rise to 12.1p (from 11.2p).
Companies: Powerhouse Energy Group PLC
Directa Plus has released a trading update guiding to revenue for FY20 of approximately €6.5m. This is 9% ahead of the €6.0m in the trading update from 3 December and 18% ahead of our expectations of €5.5m which were set on 24 September 2020. The strong trading performance has been primarily driven by the sales of G+ enhanced face masks, including Co-Masks, and the strengthening performance of Setcar in the Environmental Division.
Companies: Directa Plus Plc
Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. Upon Admission to AIM, Nightcap will acquire The London Cocktail Club Limited (the "London Cocktail Club"), which is an award winning independent operator of ten individually themed cocktail bars in nine London locations and one location in Bristol. Offer TBC Due mid Jan. HSS Hire Group, HSS.L transfer from Main to Aim. Mkt Cap c. £70m. Recently raised £52.6m. Leading supplier of tool and equipment for hire in the United Kingdom and Ireland and has provided equipment hire services in the United Kingdom for more than 60 years, primarily focusing on the B2B market. Due 14 Jan. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb.
Companies: IUG CBP KAT APP RST DIS NICL BOKU CNIC HE1
AFC Energy (AFC) – Corporate – Strategic Partnership with Ricardo
Companies: AFC Energy plc
Today’s positive trading update provides further encouragement for investors. The shares have been appreciating steadily on the back of last month’s fund raise and acquisition, followed by a major contract win and the £2.5m sale of the remaining RTLS stake, which had previously been largely written off. Both FY20 revenue and adj. LBITDA are better than forecast and YE net cash is particularly healthy. The integration of OSPi is underway, with all staff already transferred. We adjust FY20 forecasts and reiterate future forecasts. Future cash expectations are lifted by the higher YE balance as well as the sale of the remaining RTLS holding.
Companies: IQGeo Group PLC
Seeing Machines has announced that it has licensed its Occula® Neural Processing Unit to OmniVision Technologies Inc. This advances the relationship from the MOU announced in September 2020 and builds on a relationship that is over five years old, with the two organisations having worked on multiple automotive programmes with a number of Tier 1 customers.
Companies: Seeing Machines Limited