In the last fortnight, we have surrendered some of the notable progress made over the last three months. That said, the optimism displayed by markets, driven by progress with vaccines and their rollout, persists. The recent direction of markets has been set by volatility in US markets, driven by specific retail market developments. Domestically, we have seen a broadly upbeat procession of results and trading updates/outlooks have, generally, been at least in line. The share price reactions have been commensurately positive. In addition to the results news flow, we have continued to see examples of M&A activity across a range of sectors. We have also seen a pick-up in IPO activity. Regarding the outlook, we have the Bank of England MPC Minutes on Thursday and Q4 2020 GDP numbers on 12 February. Most notably, we have the UK Budget on 3 March when the Chancellor will set out the next phase of the plan to tackle the virus and protect jobs. We will also have the latest forecasts from the Office for Budget Responsibility. That said, if signs of a greater than anticipated economic recovery are feasible in Q2 & Q3 and, potentially, only limited lockdowns are likely later in the year, grounds for greater optimism for UK small caps could lead to further outperformance in 2021, especially if M&A activity continues, in a world awash with cash.
Companies: AJIT ARW BPC BVC BAG BEG BON BWNG CLG CRPR EYE ECHO EPWN FDM FA/ GPH GNC HUW INSE KAPE KP2 MNZS NMCN NRR OBD PPC QFI ROL SAVE SCS SEN SOS SUR SNX TON TMG TGL TCN UEM VLS W7L WINK WYN
Construction and engineering services company nmcn has this morning announced the appointment of Lee Marks as CEO. He will join nmcn in H1 2021 from NG Bailey, one of the UK’s leading engineering and services businesses, where he has been Group Commercial Director since May 2013. This follows the appointment of CFO Alan Foster, who joined the Group on 4 January. In our view, the combined appointments will help refocus the group after significant losses in FY 2020.
Companies: nmcn plc
Construction and engineering services company nmcn has issued a trading update following an extensive review of major contracts. The Board now expects to report a loss before tax of £13.5 - 15.0m for FY 2020E, due to costs already incurred, with limited impact on cash. We have accordingly amended our estimate for the current year but have maintained our FY 2021E estimates, albeit with a cut in our forecast dividend. While a setback, we continue to believe nmcn is well placed to benefit from strong positions in key UK infrastructure priorities including water, roads and telecoms.
Construction and engineering services company nmcn’s decision to reinstate dividends demonstrates, in our view, the Group’s confidence in prospects following a largely promising first half, which was disrupted by Covid and operational challenges on the completion of a major infrastructure scheme. We are reintroducing estimates that assume a return to revenue growth and margin recovery, fuelled by the PM’s pledge to “build, build, build” across several of nmcn’s core infrastructure and building sectors.
Construction and engineering services company nmcn “continues to trade profitably” despite Covid-19, reporting a healthy order intake and cash position in today’s AGM statement. The Water segment, in particular, continued to perform strongly and we believe that nmcn’s activities will remain underpinned by the Government’s commitment to infrastructure investment. The Group intends to reinstate guidance, previously withdrawn in line with most peers, as “greater visibility” appears at the HY 2020 results.
Construction and engineering services company nmcn delivered a 32% rise in underlying PBT for year to December but, as highlighted in its Covid-19 update of 14 April, it withdrew financial guidance and suspended its final dividend among measures to preserve its strong net cash and “emerge as a strong contender in its markets”. The company is working on projects equivalent to up to 70% of its normal workload. We are seeing increasing evidence of the Government’s commitment to restart construction sites as soon as possible, particularly in infrastructure and other core nmcn areas.
Yesterday’s Covid-19 update from construction and engineering services company nmcn confirms that the majority of its water and built environment activities are designated as critical to the Covid-19 response and that it continues to work on projects where safe to do so. However, given the uncertainty it has suspended financial guidance and will not be recommending a final dividend for FY 2019E, among measures to preserve its strong net cash and “emerge as a strong contender in its markets”.
Water and built environment construction services group nmcn has announced that, following requests by the FSA and FRC for companies to delay the release of their preliminary results for at least two weeks, it will postpone the release of its FY results (to December 2019). These were scheduled for 26 March. The company will await further guidance from the FCA, but its current intention is to publish on 23 April. It has also issued what we view as a relatively positive appraisal of the current impact of Covid-19.
Water and built environment construction services group nmcn has acquired process solutions provider Lintott Control Systems (LCS) for up to £3.8m in what appears to be an attractive earn-out structure for nmcn. LCS’s technological and manufacturing expertise, in our view, takes nmcn further up the value chain with its main clients and reinforces its existing supply chains. We are not changing our estimates at this point but believe the deal could materially benefit our estimates for FY 2020E and FY 2021E.
Leading engineering and construction group nmcn has maintained its positive momentum and outlook in its interim results to June. Revenue, profits and cash rose significantly, while the order book grew by 11% despite near-term uncertainties in some end markets. The group – which addresses relatively sustainable markets including non-discretionary water and infrastructure investments – maintained FY guidance. Based on what we believe to be conservative estimates, the shares are trading on a FY 2019E P/E of 9.5x and yield of 3.7%.
We believe leading engineering and construction group nmcn will benefit from sustainable earnings growth, supported by environmental investment and a trend among customers seeking more stable, long-term partners after Carillion’s failure. The cash-positive group’s strategy prioritises margins, cash generation and risk management to prevent recurrence of loss-making legacy contracts. Based on what we believe to be conservative estimates, the shares are trading on a FY 2019E P/E of 10.3x and yield of 3.5%.
NB Private Equity Partners (NBPE) is managed by the private equity group of Neuberger Berman (NB) and focuses on direct equity and debt investments in private equity-backed companies, with investments made alongside private equity sponsors. This approach is more akin to direct listed private equity (LPE) models such as HG Capital, but the company makes these investments alongside a wide range of third party managers rather than just one. As such, NBPE is unique in the LPE space. The manager’s strategy has led to strong NAV total returns over the past five years (112% compared to the average for the directly investing peer group of 66%, albeit NBPE has benefitted from the strong dollar). NBPE has been an attractive option for those who want to add greater diversification to their portfolio as it has produced a correlation to the MSCI ACWI of just 0.12 in NAV terms over the past five years, the lowest of the peer group. This low correlation is borne out in the trust’s discrete calendar year returns, which have differed quite markedly from those of the MSCI ACWI, for example. The portfolio has a similar degree of concentration that one might find with a typical equity fund. The top ten equity investments for example, constitute around 27% of NAV, and no investment is greater than 3.5% of NAV (as of the end July 18). One recent development is the announcement of the manager’s intention to focus the portfolio, making fewer but larger investments. Wherever possible, they will be looking to invest “bite-sizes” of up to $20m per equity investment. Currently the average equity investment is valued at $6m (vs 2016 average of $6.4 million and 2015 average of $5.6 million), so if the managers are successful, making larger initial investments will markedly change the shape of the portfolio. Thanks to the implementation of a dividend policy in 2013, NBPE is now also an option for investors wanting to diversify their income stream. Its dividend has been partly funded by capital, due to the steady flow of realisations it receives on an annual basis. At 3.8%, its dividend yield is comparable with the AIC Global and UK Equity Income sector averages. In addition, while the underlying NAV has performed well, the board has undertaken several initiatives over time (as well as a new dividend policy) to reduce the historically wide discount. These have included a London premium listing and enfranchisement of Class A shares, shifting to a direct investment strategy, share buy-backs and, most recently, concentrating the trading liquidity of the company on the LSE by transferring the US Dollar listing to the LSE from Euronext and applying to delist the Class A Shares from Euronext. In contrast to peers, as at the end of August 18, the company is geared with an investment level of 117% of NAV.
Investors have become increasingly aware in recent years of the rich pickings which can be found among companies which are yet to see an IPO. Indeed, statistics show that the range of companies which have already listed on a stock exchange are less and less representative of all of the growth opportunities which exist in an economy. Investment trusts have been quick to respond to this trend, and an increasing number have come to market in recent years looking to invest into unquoted, private companies. Certainly, there are success stories – witness Scottish Mortgage’s investment in Alibaba way before it IPO’d. Naturally, examples like this can lead to investors worrying about missing out and, without addressing the private company investment universe, clearly investors are limiting themselves to only a sub-set of the complete opportunity set. For many investors the worry is that the companies they are ignoring, arguably, have the best long-term wealth creating characteristics. However, there are risks involved in unquoted stocks, and before getting carried away with the new trusts targeting them, it is worth bearing in mind that listed private equity sector, within which many trusts have demonstrated strong returns over various cycles, has for some time been focused exclusively on this area.
Companies: SMT PHI USA AUGM ICGT SLPE NMCN
Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Offer TBA. Due late Aug.
Vitesse Media (VIS) — To be renamed Bonhill Group. RTO of the trade and assets of InvestmentNews, a Business Information and Data & Insight brand supporting the US financial adviser and wealth manager community Due 17 Aug. Raising £18.6m at 80p. Mkt cap £26.7m.
Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
Companies: PYC EKF MTW CTP PRTC NMCN HCFT INSE SCLP
NB Private Equity Partners (NBPE) focuses on direct equity and debt investments in private equity-backed companies, with investments made alongside private equity sponsors. This approach is more akin to direct LPE models such as HG Capital, but the company makes these investments alongside a wide range of third party managers rather than just one. As such NBPE is unique in the listed private equity space, and is made possible by the sheer reach of the Neuberger Berman private equity platform, which has AUM of $50bn. Deal flow continues to be strong, allowing NBPE to invest $319m into new investments during 2017. In contrast to many other listed private equity funds, the company is now geared with an investment level of 113% of NAV. The portfolio has a similar degree of concentration that one might find with a typical equity fund. The top ten equity investments for example, constitute around 25% of NAV, and no investment is greater than 3.5% of NAV (as of the end 2017). One recent development is the announcement of the manager to focus the portfolio, making fewer but larger investments. As has been the case in recent deals, they will be looking to invest “bite-sizes” of up to $20m per equity investment where possible. Currently the average equity investment is valued at $7.8m (vs 2016 average of $6.4 million and 2015 average of $5.6 million), so making larger initial investments marks quite a change for the shape of the portfolio. This approach has led to strong NAV total returns over the past five years (88% compared to 54% from the sector average). Although sometimes regarded as a geared play on listed equities, NBPE has produced a correlation to the FTSE All Share and the MSCI ACWI of just 0.14 and 0.15 in NAV terms over the past five years. This low correlation is borne out in the trust’s discrete calendar year returns, which have differed quite markedly from those of the MSCI ACWI for example. Thanks to the implementation of a dividend policy in 2013, NBPE is now also an option for investors wanting to diversify their income stream. Its dividend has been (and at least in the short term will continue to be) partly funded by capital, but we would argue that paying the dividend from capital is a prudent option for a private equity trust, certainly compared to a traditional one, due to the steady flow of realisations they receive on an annual basis. At 3.6%, its dividend yield is in line with the AIC UK Equity Income sector average. In addition, while the underlying NAV has performed well, the board has undertaken several initiatives over time (as well as a new dividend policy) to reduce the historically wide discount. These have included a London listing, shifting to a direct investment strategy, share buy-backs and, most recently, listing on the Premium Segment of the Main Market of the London Stock Exchange. These have all helped the discount to narrow over recent times, though at its current level of 16%, the discount remains relatively wide compared to peers.
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Volex’s y/e update points to revenue and adj. operating profit of over $440m and $41m, 9% and 5% ahead of our expectation. Results have benefited from 187% revenue growth in EVs and strong consumer electronics demand. Operating margins grew to 9.3% (FY20: 8.1%) and, absent higher margin acquisitions, we now expect gradual progress towards management’s 10% target, as an appropriate balance is struck between revenue growth and profitability. The drive to be the lowest cost producer of quality product, leveraging the Group’s global platform, is a core objective underpinning growth ambitions. Our updated adj. EPS growth - 14% for FY22E and 9% for FY23E - is cautiously framed in the context of the increased investment now being committed to drive revenue growth. The recent DE-KA acquisition is performing strongly and alongside further accretive moves, Volex should continue to deliver.
Companies: Volex plc
Capital Limited (LSE: CAPD) this morning provided its Q1 2021 trading update. Q1 revenue is the strongest since the company's inception and is in line with our estimates, as are the other operational metrics.
Companies: Capital Limited
Clean FY20 EPS beat our expectations by 5%, but the real story of these results is that EBITDA came in ahead of our November 2019 forecast. EBITDA rose 64% through acquisitions, but management has extended its record of improving the returns of acquired businesses. We raise our EBITDA forecasts by c.10% across the forecast period to reflect only the recent Belgian transactions. We raise our target price to 92p per share, set at 10x EV/EBITDA. With these acquisitions now in place, the group has reached critical mass with four platforms and strong enough cash flows to self-fund acquisitions and other opportunities.
Companies: SigmaRoc Plc
Xpediator delivered a solid performance in FY20A, with +3.7% revenue growth and Adj PBT of £7.2m (+41% YoY) in line with our forecasts. After an initial slowdown in activity in the early stages of the pandemic, trading recovered strongly towards the end of FY20A, which has continued into FY21E. With Xpediator confirming it remains in line with expectations for FY21E, we leave these largely unchanged (Adj PBT remains at £7.7m). We release new forecasts for FY22E (Adj PBT £8.5m), which reflects continued growth in the business. With the stock trading on a FY21E EV/EBITDA of c5.8x, we reaffirm our Buy rating.
Companies: Xpediator Plc
In this report we provide an update on the developing customer interest for Ilika solid-state micro-batteries for medical devices and smart machinery sensors and the valuable IP it is building in Goliath cells for future EVs and cordless appliances. We illustrate there are few rivals for its millimetre sized batteries and few with a longer history in larger cells. We ascribe a higher value now to Goliath following recent progress in EV markets and validation for solid-state from leading car makers VW and Toyota and the much higher market capitalisation commanded by QuantumScape. TP now 320p (c£450m market cap).
Companies: Ilika plc
XPD is a profitable and well-established pan-European freight management and logistics operator. We selected the Group as one of our Top Picks for 20211. XPD has reported 2020a adjusted PBT up nearly 40% y-o-y. Margins expanded to 3.3% from 2.4%, driven by better trading, particularly in freight forwarding in Q4, and with cost savings from restructuring. XPD has rebuilt its senior management team, completed recently by Michael Williamson joining as CFO. The fundamentals are sound with £6.8m of net cash. Q1 2021e trading is reportedly ahead of management expectations but at this stage our estimates assume cautious growth through the year. More strategically, as Covid-19 disruption clears, we think UK and European customers will refocus on supply chain resilience, and Central & Eastern European (CEE) countries will become even more attractive as manufacturing venues. This strongly favours XPD’s capacity and expertise. Generally, as an experienced pan-European operator, XPD has plenty of opportunities to accelerate growth. Organically in forwarding, pallet networks and support services for haulage sub-contractors, and through selected acquisitions. Reflecting a more positive outlook for earnings, our valuation is lifted from 45p to 70p, c.20% upside to the current share price. XPD also offers an attractive dividend.
AfriTin* (ATM LN) – By-product potential at the Uis tin mine
Alba Mineral Resources (ALBA LN) – Phase 2 drilling underway at the Clogau St David's mine
ITM Power (ITM LN) - First Green Hydrogen for Glasgow Project planned capacity doubled to 20MW
Companies: ATM ALBA ITM
The UK market showed a continued recovery in the first quarter albeit the indices are still well short of their all-time peaks, unlike many of their international peers. The FTSE 100 has risen by 1,186 points (21.4%) since the end of October and the FTSE 250 by 4,304 points (25.0%). The comparable performance since the start of the year is less spectacular- the FTSE 100 has risen by 253 points (3.9%) and the FTSE 250 has risen by 1,070 points (5.0%). The factors behind the sustained rally are familiar. The belief that the roll-out of the vaccine and some relaxation of lockdown limitations will lead to a significant economic recovery, compared to the collapse seen in the first half of 2020, due to lockdowns. Indeed, the recent economic picture is becoming more optimistic than previous expectations. According to the ONS, the economy grew a little more than initially estimated in Q4 last year. This means GDP for 2020 as a whole contracted by 9.8%, revised up marginally but still the worst contraction on record. Markets, in general, have focused upon the potential scope and extent of the recovery. The sectors and stocks that have outperformed have been seen as ‘recovery’ plays with a rotation from stocks seen as ‘lockdown’ winners into those set to benefit from the ‘unlocking of society’ and/or exposed to the consumer. We expect 2021 will continue to be a “stock-picker’s” market. The sharp increase in the household savings ratio in Q4 highlights the scope for a recovery driven by expenditure. As further lockdown limitations are lifted, evidence of this growth will help to underpin the more optimistic outlook for Q2 and beyond.
Companies: AMYT ARBB BPC BAG BVC BEG BONH BLVN BRSD CML CWK CRPR EYE ECHO FDM FAR FA/ GPH GSF HUW INSE JDG KAPE KP2 MACF MPAC MNZS NESF NBI OTMP OBD PREM QFI RUA SCS SEN SOS SUR TON TOU TXP TGL TCN UEM VLS WYN
Anglo Asian Mining* (AAZ LN) - STRONG BUY – Quarterly production update and CY21 guidance
Botswana Diamonds (BOD LN) – Moving to a further stage of drilling at Thorny River
Capital Limited (CAPD LN) – Q1 2021 delivers strongest ever quarterly revenue
GoldStone Resources* (GRL LN) – Update paves way for production ramp-up at Homase
Kenmare Resources (KMR LN) - Q1 production rises on higher grade and production despite Covid-19 isolation for management and staff
Rainbow Rare Earths* (RBW LN) – Temporary suspension of REE concentrate exports
Serabi Gold* (SRB LN) –– Grade improvements drive higher Q1 gold production
Companies: CAPD AAZ BOD GRL KMR RBW SRB
Billington provides structural steel and safety solutions to the construction industry. Against the backdrop of pandemic induced disruption through 2020, and set against the record performance of 2019, Billington has reported a solid and profitable performance in FY2020. Set against a record high comparative period, Group revenue decreased 37% to £66.0m with adj. profit before tax reducing to £1.7m (FY2019: £5.9m). Adj. EPS fell commensurately to 11.3p (FY2019: 39.8p) and, as a mark of confidence, Billington reintroduced a final dividend of 4.25p, covered 2.7x (in line with historic cover). Our newly introduced FY2021E estimates (adj. PBT £2.2m) reflect the duality of a relatively robust opening order book (75% higher YoY), but set against caution with respect to margin pressure given cost inflation in the supply chain. The medium term outlook is likely to be buoyed by infrastructure investment in key markets BILN serves, albeit pricing volatility is a key risk. Billington's cash rich balance sheet positions it well to weather potential future uncertainties, whilst others likely fall by the wayside. We see fair value at 375p.
Companies: Billington Holdings Plc
Brickability is a leading supplier of bricks and other building materials to the UK construction industry, and is well-positioned to consolidate the fragmented UK building products supplier space. The company has undertaken four acquisitions since its IPO in 2019, which adds to some twelve acquisit
Companies: Brickability Group 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.
FY 21 EBIT slightly ahead of our estimates. Net debt much better than expected, we expect through working capital discipline and crucially management guides to no rights issue. £1.7bn of impairments and charges – mostly non-cash, unlike Serco’s review where there was a significant cash drag from the OCP. The review of contract profitability has reduced the long term margin take and profits by c. £30m p.a. We reduce FY 22 EBIT by 7% from £340m to £315m, lower than feared. Buy, TP 350p
Companies: Babcock International Group PLC
Power reliability and drilling tools specialist Northbridge Industrial Services has signalled a more focused strategy to exploit further growth opportunities in the USA and Europe for its higher return Crestchic electrical testing division and to pursue the potential disposal of the Tasman drilling tools unit. Its FY 2020A results, released this morning, were in line with our expectations for a modest increase in adjusted PBT and fall in net debt. We have introduced estimates for FY2021F, which show a more marked increase in profitability, helped by the third consecutive year of record equipment orders at Crestchic. On a FY2021F EV/EBITDA of 4.4x, we see the shares as an attractive turnaround situation.
Companies: Northbridge Industrial Services plc
XP reported another robust quarter for order intake (+7% y-o-y, +38% q-o-q in constant currency), strengthening the backlog for the coming quarters. Demand from the semiconductor manufacturing sector remains strong and demand from the industrial technology sector has started to rebound, more than compensating for the moderation in orders from the healthcare sector. Management reiterates its outlook for underlying revenue growth in FY21 and we maintain our forecasts.
Companies: XP Power Ltd.