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
The company's trading update post-Interims (in July) can only be described as impressive, being reassuringly positive on dividends, on revenue and margin recovery, and on the resilience of cash flows/net cash. Any trepidation that the recovery in its markets (and consequently TClarke's performance) from COVID lockdown would prove slow or even elusive can now be dispelled. The revenue run rate in H2/20 is within 20% of 2019's level – and sequentially better MoM - while margins are forecast to track back, and be sustainable, at the group's targeted rate of 3%. The order book at c£410m has also be held stable and this combination of factors has encouraged the Board to pay an unchanged interim dividend for 2020. It really is testimony to management how flexible and efficient the business has been through these most demanding of times and to see it emerge with strength intact, and the prospect of resumed growth in 2021 and beyond. Offering a prospective FY21E EV/EBITDA of sub-3x, a PE of c5x and 5% yield plus net cash, the shares are significantly undervalued in our view.
There is a steeliness about TClarke, that we believe comes through more experienced management and one that is acting more proactively to the challenges faced. The business has remained profitable through the worst of the pandemic in Q2/20, has improved its cash and liquidity position, reduced overheads quickly and held the order book above £400m. Rightly in our view it is looking forward with optimism and confidence, from a position of relative strength. Re-building operating margin to target 3%, revenue to over £300m and growing the order book will not be easy in the short term but the share price (off 25% since pre-March levels) discounts any one or combination of these being achieved and scarcely presumes an early resumption of dividends (to date none has been passed). In our view the business has demonstrated real stability of late and it is not inconceivable that the stock is trading on an EV/EBITDA of c3.5x, PE of c6.5x and could yield 4.5% by or before FY22. We would be happy buying stock at this level on a recovery basis alone.
TClarke's trading update is refreshingly positive in all key aspects of investors' current COVID fears and hopes. The decision to fully pay the 2019 final dividend sustains income attractiveness (4% yield on the final alone), the avoidance of trading losses in the teeth of the industry lockdown period (after a profitable Q1/20) demonstrates resilience whilst maintenance of net cash balances through April and May illustrate a robustness of cash flows despite reduced activity levels. It has also maintained the order book and has moved quickly to re-structure the cost base ensuring that margin recovery is not entirely dependant upon market improvement. Prudently and we believe reasonably, we are removing all forward forecasts until visibility on revenue recovery and productivity rates into H2/20 become clearer. However, TClarke's operational strengths, financial robustness and cash coverage of dividend in the most testing of circumstances gives us renewed confidence to uphold a Buy recommendation.
We know that the contracting end of the industry has continued to site operate in a very piecemeal fashion throughout this pandemic, with limited official guidance beyond acceptable safe working practises. As more and more sites become accessible the main contractors' return to work will be largely self-determined and appear to the outside world as somewhat seamless. The greatest challenge facing the contractors in my view is the inefficiency of working in this new environment and supply chain reliability.
Companies: BREE BRCK CTO
TClarke has delivered on cue in 2019 highlighted by a robust £400m order book, attainment of target 3% operating margins, (tax-aided) EPS growth of 22%, dividend up 10% and maintained net cash of £12.4m. To date there is no identifiable impact on trading from COVID-19 but inevitably there will be. Acknowledging this, we maintain our 2020 and 2021 forecasts, simply because the AGM in May would seem a more appropriate and considered time to re-assess on the basis of known events. Today however, we believe TClarke is in a far stronger position both operationally and financially to face the immediate challenges, the latter referencing cash balances, liquidity and available facilities. Medium-term we see a resumption of growth from sustained margins on a rising top-line driven by demand for data-centres, regional up-scaling of contract values and potential European penetration. A prospective 2021E PE of c4x, EV/EBITDA (ex-pension deficit) of 2x and yield over 6% is worth keeping in mind for when markets eventually stabilise.
One might describe today's announcements as ‘hit and hope'. Confirmation of the 2019 trading results is a definite ‘hit', achieving target margins of 3%, EPS growth of 13.5%, better than expected cash balances and a rising order book through Q4. The ‘hope' element is in its 5-year UK exclusive deal with Gooee, which has the potential to be financially rewarding but more so enhances TClarke's technology/value-add offer in smart buildings that in turn underpins core electrical and M&E services revenues. Given that sustainability of margins is now the watchword, anything that bolsters TClarke's revenue growth prospects must be regarded as a positive by investors. The stock remains particularly attractive on rating grounds; estimated 2021 EV/EBITDA of 3.3x, PE sub-7x, yielding 3.9% with a robust balance sheet and cash flows. BUY.
We effectively re-initiate TClarke on a buy rating against a ‘model fair value' of 136p (20% upside). A positive trading update confirms 2019 consensus and the achievement of target 3% margins. The next leg of growth will focus on revenue expansion (and margin sustainability) which potentially drives high-single digit earnings growth beyond 2021. This is scarcely recognised by a 2021e PE of c6x, dividend yield of 4.4% and FCF yield rising through 9%. The stock has clear attractions on valuation and income grounds.
H1 was another positive trading period for TClarke, with PBT increasing by 24% to £4.6m. The Group continues to make solid progress against its 3.0% operating margin target, achieving a margin of 2.9% in H1 (H1’18: 2.6%). The order book has been maintained at £370m and provides strong support for our full year forecast, which is now 96% covered. Our FY20 forecast is also 50% covered by the order book. This is a strong position against a backdrop of political uncertainty and we maintain our forecasts. The strategy is delivering and TClarke is well on its way to achieving its full year targets. With sustained earnings momentum, we believe the shares will continue to outperform the wider peer group and we reiterate our 150p intrinsic value.
Due to a change in Analyst role, Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
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TClarke’s update confirms that trading in the year to date has continued to be in line with expectations, having upgraded forecasts as recently as March. The statement reiterates management’s 3% sustainable operating margin target for FY19 and beyond. The order book at £403m (May 2018: £368m, Feb. ’19: £430m) continues to support a strong outlook for the Group and, notwithstanding Brexit uncertainties, TClarke is seeing no lack of opportunities across its end markets. A new venture in Europe is an exciting development and could present upside to forecasts in future periods. We expect strong earnings momentum and revenue visibility to continue to drive the share price and we continue to believe that a premium rating is justified, reiterating our 150p intrinsic value.
TClarke cumulatively outperformed our original FY18 EPS forecast by 32% and by 2% on our latest forecast. The order book is at another record high of £430m at February 2019, supporting a strong outlook for the Group as it continues to outperform the wider construction market. We have upgraded our FY19 PBT forecast by 8% and introduce an FY20 forecast which implies PBT growth of 6%. We believe strong earnings momentum and revenue visibility should support a higher share price and believe a premium rating is justified.
TClarke continues to deliver on its strategy, with strong momentum in earnings and the order book, whilst maintaining a healthy balance sheet (the Group carries no debt). Both revenue and operating profit are expected to be in line with expectations after the upgrades in November (EPS estimates increased 12%/15% in FY18/19). The order book hit another record high at £411m in December 2018. This is a 22% increase year on year and a 2% increase on the figure reported in November. The Technologies sector, a key growth area for the Group, has been the main driver of this increase. Our FY19 revenue forecast is now 88% covered by the order book. The outlook statement is confident and we believe that positive earnings momentum will continue to drive the share price. We also see the rating as undemanding, with the shares trading on a substantial discount to peers.
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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.
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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