Checkit has deepened its relationship with John Lewis, by signing a three year framework agreement with this existing customer. This provides all John Lewis shops with the opportunity to benefit from Checkit’s three proprietary software products: Connected Workflow Management (CWM), Connected Automated Monitoring (CAM) and Connected Building Management (CBM). Out of these three, it is CWM which is a new service offering for John Lewis. We find this product particularly interesting given the broad number of (previously manual and paper-based) operational workflows the platform can automate - increasing efficiency. Additionally - through Checkit’s cloud-based dashboard – managers can track tasks in real-time and also respond to critical issues. Lastly, analytical tools can be used to spot operational weaknesses or non-compliance. This contract therefore provides further validation of these products and how they are resonating with large enterprises, as they look to drive greater efficiency within their organisations. This news follows-on from us recently reinstating forecasts. For FYJan21, we’re looking for £13.1m of sales i.e. modest LFL growth (PY pro-forma: £12.8m), within this though, expect to see strong ‘recurring‘ growth – driven by contracts such as this. Should also see decent progress on profitability (FY21E EBITDA: £-2.0m) indeed such progress was highlighted in H1, as cash-burn fell to £-1.4m
Companies: Checkit plc
Interims to July are consistent with an earlier update and demonstrate a robust performance, with LFL sales +2% to £6.4m. Looking deeper, momentum continued into Q1, following a strong FY20, with 1Q21 LFL sales: +13%. Meanwhile, Covid’s impact was greater in Q2, as sales fell 11%. Notwithstanding, CKT’s SaaS division (‘Checkit Connect’) grew throughout H1: +15% to £3.4m, now 54%/sales. Management‘s response to macro uncertainties has been proactive and costs tightly managed. A lower adj. operating loss reflects this: £-1.5m (PY: £-2.9m) as does FCF: £-1.4m after strong working capital management. Closing net cash remains very strong at £13.4m. July‘s disposal of EET will add to cash resources – £0.9m consideration is due over 2 years. Despite costs receiving close attention, product development continues at pace and is driving opportunities, particularly within resilient sectors - we view ‘Healthcare‘ as one and is now a strategic focus for the Group. It is also positive to hear market activity is resuming in other sectors too, and a reintroduction of forecasts reflects our confidence. FY21E sales: £13.1m, so we anticipate modest sequential H1/H2 growth or +2% LFL for the full-year. FY21E AOP £-3.8m i.e. £-2.3mE in H2, as government support measures winddown. Closing cash should remain strong (£10.1mE), leaving significant resources for future periods. While early in the company’s transition (so full potential is hard to grasp) we continue to be impressed with progress to date: new product innovation has led to significant deals and in-turn has generated strong ‘recurring‘ growth. Meanwhile, we think CKT’s valuation (<2x EV/sales) reflects an overly cautious assessment of this progress and future opportunities.
Overall performance shows resilience to the impact of COVID-19, with comprehensive restructuring and a focus on recurring, software-driven, revenue streams. H1’21 revenue grew 2.3%YoY (normalised basis) to £6.4m. Checkit UK, acquired on 24 May 2019, contributed 2.5 months of earnings, in H1’20 equivalent to £6.2m on an annualised basis. Notably, gross profitability improved significantly from 21.9% at July 2019 to 35.9% by July 2020. Checkit reorganised into two divisions: Checkit Connect, providing workflow management (CWM), automated monitoring (CAM), and building management services (CBM); and Checkit BEMS, responsible for building installation and maintenance projects. Checkit Connect contributed 53% of H1’21 revenue, growing 15%YoY (normalised), of which 68% was recurring, growing 23%YoY. Checkit Connect is the focus of a SaaS-based products and services business model; its recurring revenue base contributed almost 100% of divisional growth, driven by firmed pricing and a major contract. Checkit BEMS revenue declined 9%YoY (normalised) reflecting the impact of COVID-19 in limiting on-site access. Checkit’s operating loss was reduced from £2.9m in H1’20 to £1.5m, or £2.0m inclusive of exceptional items (H1’20: £3.1m loss). Investment in development was maintained, at £1.0m in H1’21 compared to £1.2m a year earlier. Elektron Eye Technology (EET) was sold in July for £0.9m, paid over 24 months. The cash position as of 31 July was £13.4m, compared to £14.3m on 31 January.
Companies: Checkit Plc
Checkit has released another positive update, one that reveals robust trading has continued into Q2 (possibly the business’ most challenging quarter). This thereby provides optimism that growth may rebound sooner than anticipated (FY20 CKT Europe growth: +30%). The update splits out Q1 & Q2: LFL revs +13% in Q1. For Q2 – and as anticipated - progress did moderate: LFL sales c.-11%. Importantly however, this outcome is better than internal expectations and worth noting also: even during Q2, recurring revenue grew – both y/y and sequentially. For H1 as a whole, LFL recurring revs grew an impressive 23% to £2.3m, total sales meanwhile grew +2% to £6.4m. Success in ‘recurring growth‘ can be attributed to CKT UK (acquired 2019) and its strong presence within the healthcare sector. Here the division has benefitted from new installations and the conversion of existing annual calibration and maintenance agreements to all-inclusive subscription contracts. CKT also updates the market on cash – currently £13.4m. Through this reflects a £0.5m benefit of a repaid loan (so u/l: £12.9m) this still means that YTD cash burn has been modest – evidencing that CKT has responded actively to CV19. We leave forecasts U/R for now and look forward to interims (16/09/20) for a further update on trading. The company continues to fascinate following its landmark BP deal and wider mission: to become a leading provider of cloud-based Connected Workflow Management and Automated Monitoring solutions.
In a Trading Update for the six months to 31 July 2020 Checkit reports that, on a normalised basis, recurring revenue rose 23.4% YoY to £1.9m, whilst non-recurring revenue, on the same basis declined by 6.8% YoY to £4.3m. Normalised data is based on ownership of Checkit UK for the whole period - Checkit UK was acquired on 14 May 2019. Facing the circumstances occasioned by the COVID-19 pandemic the Group continues to base planning on recurring revenues which have remained resilient, in contrast to a contraction in installation and project-based non-recurring revenue streams. Total H1 ‘20 revenue rose 2.3% YoY to £6.4m compared to £6.2m, normalised, in H1 ‘19 (£3.2m on an actual basis).
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
Checkit plc today announced FY20 Preliminary Results following restructuring, the highlights of which were: the sale of Bulgin and return of £81.0m to shareholders; acquisition of Next Control Systems for £8.8m, subsequently renamed Checkit UK Ltd.; renaming of Elektron Technology plc as Checkit plc; and a renewed focus on cloud-based Software-as-a-Service operational management solutions.
Prelims to January are in line with an earlier update and reflect a period of strategic change. Bulgin’s disposal meant CKT became a technology-led company – a proposition then strengthened through the acquisition of Next Control Systems (now “Checkit UK”). Despite the inevitable disruption of M&A, progress is already forthcoming, as shown by 8% LFL sales growth in FY20. We are optimistic this trend can continue thanks to the strategic fit of these businesses – specifically; their complementary product sets and so, cross-selling opportunities. Further optimism is provided through the BP deal – both in terms of product validation and ‘credentials’ and also given the potential to expand this relationship beyond the UK. Optimism should be tempered however, as FY21 trading has been significantly impacted by Covid, specifically CKT’s ‘installation business’, as lockdown and store closure has impacted contract deliverability. Encouragingly however, costs are being carefully managed, meanwhile sales opportunities (particularly in Healthcare) continue to be pursued. With a strong balance sheet, a renewed focus and proven product, we think the longer-term opportunity remains an exciting one.
Last month’s update reported +15% LFL sales growth YTD (Feb & March) and also material margin improvement in areas that have received attention. Near-term uncertainty was however flagged, as Covid has impacted project fulfilment. In this context, today’s update is therefore encouraging, as LFL growth has continued through April – meaning +13% LFL sales growth YTD. April benefitted from service and install revenue (as well as recurring, ~£5m pa.). On this basis, CKT is therefore tracking considerably ahead of the company’s ‘bear case’ scenario. Looking ahead we are cautiously optimistic - as while revenue is set to decline in May - CKT mention “customer plans to resume installation projects”, particularly in Healthcare, where opportunities are described as strong. Timing and volume remain hard to predict however. Costs continue to be closely monitored and managed and as evidence, cash remains strong, at £12.8m – only marginally down from 31st March (£13.1m) and £14.3m as at January’s year-end. Prelims now expected 16th June.
Reporting on the first two months of FY21 (to Mar-20), Checkit has seen good progress, with LFL growth accelerating to c.15%. – up from +3% achieved in FYJan20 (or +8%, ex. EET; non-core). Profitability has progressed also – with the margin improvement project delivering price rises of 10-50% in the areas that have received attention. Meanwhile, cash remains strong at £13.1m – only marginally down from £14.3m at y/e and notwithstanding a higher debtors balance at present. Despite this very positive start, the outlook is cautious – with CKT citing the UK’s lockdown has meant project fulfilment has become very challenging, as customers have either temporarily ceased operations or CKT field engineers have been prevented from entering sites. FY21E sales are likely be negatively impacted therefore, but to an unknown degree. We note that the company’s ‘worst case scenario’ assumes reliance on just existing committed recurring revenue – estimates at £5m pa. CKT has initiated cost saving measures, totalling £4m pa. (equiv. to 40%/payroll costs), effective 1st April. These measures will remain under constant review. Taking both the ‘worst case scenario’ and also cost saving measures into account, we estimated current cash burn is £0.4m pm. In the context of £13m current net cash, cash resources therefore continue to look comfortably sufficient. Given the aforementioned uncertainty regarding sales, we prudently withdraw FY21&22 estimates until further notice. Separately we note that FYJan20 prelims are now expected 28th May.
Checkit has provided an encouraging year-end trading update to January, disclosing sales of £11.8m, 5% ahead of forecasts, equivalent to +3% LFL growth (group basis), or +8% (ex. EET; non-core). Cash is also reported at £14.3m – ahead of forecasts, but distorted by non-trading activities. After adjusting for both, we believe the underlying cash position is £12.4m – in line with forecasts, in turn implying that CKT’s investment program (and resulting cash burn) is proceeding as anticipated. The update also splits out Checkit Europe’s and Checkit UK’s sales. While such segmental reporting will not be continued, it is reassuring to note that Checkit Plc has acquired a company (now branded ‘Checkit UK’) in good financial health, as it grew pro-forma sales 7% y/y to £11.6m. Checkit Europe meanwhile grew more strongly, at +30% (but off a low base) to £1.3m. Looking forward, y/e pro-forma sales of £14.8m compares against £17.2m expected in FY21E, implying 16% growth. Driving this, we expect Checkit’s landmark contract win with BP (announced Oct-19) to be a material driver. To remind, Checkit won a three year deal to provide its Real Time Operations Management capability to BP at 320 sites. Naturally, we viewed this announcement very positively – as it provided validation of Checkit’s proposition (at an enterprise scale). We look forward to future news flow, confirming the roll-out is going to plan and - potentially - ‘sub contract wins’ also, as the contract may be extended beyond BP’s (320) owned sites, to dealer-owned sites and internationally also. N/c to forecasts.
Action packed for Checkit (CKT)
The disposal of Bulgin and renaming as Checkit Plc completes the group’s transition from a manufacturer to pure-play technology company, with the Checkit software solution becoming the core value driver within the remaining group. Checkit offers a unique digital ERP (‘real-time operations management’) solution. This is targeted at large, geographically distributed Enterprises with a mobile (non desk-based) workforce and that have compliance, facilities management, building energy management (‘BEMS’) and temperature monitoring needs. Immediately addressable markets are estimated to be worth £5.4bn p.a. As a first mover, Checkit is well placed to capture share, and the acquisition of Next Control Systems Ltd (renamed Checkit UK: ‘CUK’) has added scale (FY’20E pro forma sales: £15.1m). Core sales are forecast to deliver a 32% (underlying: 17%) 2-year CAGR to FY’22E once CUK is embedded. £6.0m FY’20E cash burn is expected to contract, with a path to cash flow breakeven subject to successful execution. Current valuation implies up to 92% upside.
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Spectra Systems Corporation, a leader in machine-readable high speed banknote authentication, brand protection technologies, and gaming security software, has announced that it has executed a comprehensive services contract with a ‘long standing' central bank customer for the development, manufacture and servicing of a sensor system. The initial development phases underpin our FY2021E estimates (with risk likely to the upside), but moreover, the balance of development work, comprising supply of sensors (estimated value up to $34m in 2024-25), servicing revenues ($7.5m) and resultant high margin material sales through to at least 2035, provides significant underpinning of future prospects. Our updated Sum-of-the-Parts valuation (reflecting higher than anticipated development revenues and margins) indicates a risked fair value of 240p (from 200p).
Companies: Spectra Systems Corporation
Seeing Machines has announced that it has signed a non-binding Memorandum of Understanding with global aerospace and defence technology company L3Harris Technologies. The MOU frames the intent to enter into a global non-exclusive license agreement to enhance pilot training technology with Seeing Machines's dedicated precision eye-tracking system for flight crew training in the full flight simulator (FFS) environment. A license arrangement is currently in advanced discussions between the parties and subject to the negotiation and execution of definitive, binding licensing and other legal agreements. Further announcements regarding the progress of the negotiations in relation to such binding documentation will be made when appropriate.
Companies: Seeing Machines Limited
TP Group (TPG) delivered robust organic growth of 13% during H1/20A. However, the impact of COVID-19, together with increased investment and a shift in business mix, meant that Adj EBITDA reduced by £0.9m YoY to £1.4m. TPG has today announced it is in advanced discussions to dispose of its non-core oil and gas focused engineering business. Despite the strong and expanding order book, COVID-19 continues to create uncertainty around the timing of contract deliveries. As such, our forecasts remain withdrawn and our rating Under Review.
Companies: TP Group Plc
The Group has issued a trading update ahead of its interim results due on 12th November 2020. Overall, the first half has seen a strong recovery in activity and the Board now expects to report H1 revenues and operating profit of at least $200m and $20m respectively. This is materially ahead of market expectations and with a high degree of visibility through Q3 FY2021E we are upgrading our operating profit forecasts by 39% and 25% for FY2021E and FY2022E respectively. The Group is seeing strong growth in EV charging cables and bespoke high-performance cabling solutions, and consumer electronics demand has also remained robust. Together with investment in automation and cost efficiencies, the Group operating margin is now 10%, which is a testament to management’s operational and strategic focus. The shares trade on an FY2021E EV/sales multiple of 0.9x which compares to a sector based multiple of c.1.2x for companies with comparable operating margins and growth.
Companies: Volex plc
OPG has produced a strong set of full year results. Revenue increased 9.5% YoY to £154.0m whilst strong free cash flow generation enabled material debt repayments. Post period end, the Group continued to make debt repayments and favourably refinanced a portion of its debt. Management swiftly implemented a COVID-19 cost reduction strategy and capitalised on financial stimulus provided by the Government and the Reserve Bank of India. Importantly, September 2020 showed signs of a recovery as Chennai plant load factors increased to 63% (H1/21A 46%). We believe the long-term structural growth dynamics in the Indian power production sector remain compelling.
Companies: OPG Power Ventures Plc
We have today released a new note on The Ince Group plc - this is the first of a series of "explainer notes" that take an in-depth look at the various aspects of the Ince investment case our investors have told us require more clarification. This edition examines the partner remuneration model - the headline for which is that this isn't discretionary bonus, it's more of a revenue share that partners are given in lieu of pay. Thus their remuneration is entirely variable, rather than representing a fixed cost.
Companies: Ince Group plc
The group’s AGM statement reads well, with record Q1 trading and strong cash flows. Net debt now stands below £1m, with significant headroom in facilities. Previous restructuring has delivered £2.4m of efficiency gains, which particularly benefit Levolux and Gatic. The UK market has seen a strong bounce accompanied by a strong export performance and a high level of export orders recently gained. No change to trading forecasts. The shares remain at a deep discount to our 130p price target and today’s update should be taken well.
Companies: Alumasc Group plc
Judges Scientific is focused on acquiring and developing companies in the scientific instrument sector. The acquisition of Korvus Technology, a UK-based but global supplier of vapour deposition systems, largely to academic institutions, marks Judges' third deal in less than 12 months. With Korvus generating revenues of £1.42m and adj. EBIT of £0.66m (46% margin), we choose to leave our FY2020E estimates unchanged but, after financing costs (all-cash initial consideration of £2.64m), we see a 3.5% uplift to FY2021E with our adjusted PBT increasing to £15.2m. Although a trading update is not provided this morning, we remain cautiously optimistic with respect to FY2020E. COVID-related business risks / restrictions remain; however the relative strength of H1:2020 (albeit at some expense to the order book) continues to provide some comfort, in our view.
Companies: Judges Scientific plc
Renewi’s operations are at the heart of the circular economy that collects, processes and converts waste into usable secondary materials to reduce the use of primary resources and to lower carbon emissions. The company has recently entered a new strategic phase with a clear roadmap to deliver a substantial increase in group profitability. Consequently, Renewi offers investors an environmentally friendly above-average earnings growth opportunity.
Companies: Renewi Plc
Symphony Environmental develops and sells innovative products and additives which make plastics and rubber smarter. The core d2w oxo-biodegradable product facilitates rapid and safe transformation of plastics into harmless biodegradable compounds. The newer d2p product is a protective technology which has many applications. The most commercially advanced prevents microbial growth on plastics, useful in food and non-food settings. This market is estimated to be worth $30bn globally and growing rapidly. Recent news has been positive. The Group has just announced that Turkey’s Uno Bakery will use oxo-biodegradeable d2w for its packaging. This follows a recent strengthening of the strategic partnership on d2w packaging with the world's largest bakery, Groupo Bimbo. In late September, in the UK, AGS Airports, which operates Aberdeen, Glasgow and Southampton airports has become the first UK company to trial a new d2w 100ml security bag. Further, Brazilian supermarket chain, Cotripal, has introduced an innovative combined d2w and d2p (antimicrobial) carrier bag. No financials for these announcements have been disclosed; we assume for the moment these are not material in the context of the Group. But the potential over the next few years is significant, in our view. Commercialisation is gathering momentum. Our valuation for SYM is 35p per share, indicating 30% potential upside.
Companies: Symphony Environmental Technologies plc
We are pleased to see that in a period in which most companies faced colossal challenges, and CSSG saw at least some partial business interruptions, the company nonetheless succeeded in generating a result which is ahead of the expectation set in early August, with £1.75m EBITDA as against the anticipated £1.6m. With the interim dividend reinstated eight weeks ago, the final dividend is now announced at 1.2p, giving the FY2020A total of 1.95p, making CSSG a rare example of a company (well-supported by £4.1m of net cash) which has lifted its FY2020A DPS as against the prior year, and by no less than 8%. We assume that some of the net cash relates to HMRC and / or other support schemes; however net cash at more than double the FY2019A level (£4.1m plays £1.7m) still seems like a positive outcome.
Companies: Croma Security Solutions Group PLC
Spectra Systems, a leading provider of advanced technology solutions for banknote and product authentication markets, has announced a solid set of interim results. Moreover, significant H2 visibility, notably from central banking customers, yields upgrades to our FY 2020 and FY 2021 estimates with adjusted PTP increasing 17% and 16% to $5.8m and $6.1m respectively. In terms of H1 numbers, revenues increased marginally to $6.5m (H1-19: $6.4m), and adjusted pre-tax profit came in flat at $2.3m. The balance sheet retains its robust state which, even after the $4.1m FY 2019 dividend, distributed June 2020, still holds $10.9m (H1-19: $11.1m) of net cash (excluding restricted cash of $1.3m, H1-19 $1.1m). Our Sum-of-the-Parts valuation indicates a risked fair value more than 200p.
Strix has published reassuring interims and announced the acquisition of LAICA, conditional upon approval from the Council of Ministers in Italy. Against a backdrop of global disruption caused by COVID 19, Strix’s H1 performance is in line with expectations. Net sales down 21% YoY, with a much smaller impact on net profits on the back of strong cost management. Encouragingly, FY 20 profit expectations are now underpinned, at around £28.9m PAT. Taking into account the LAICA deal, we provisionally upgrade FY 21 PAT/EPS by 6%. The shares are already up materially YTD, but the Strix growth story remains compelling.
Companies: Strix Group PLC
Inspiration Healthcare has announced its H1/21A results, reporting on a period in which the company completed the transformational acquisition of SLE, supported the NHS response to COVID-19 and moved forward on its development of Project Wave. Financial results were equally strong, with revenue growth of 77% based on 25% underlying growth, acquisition contribution and NHS orders completed in the period. Further, the company has announced its maiden interim dividend. We have introduced FY22E forecasts which we believe highlight the significant undervaluation of Inspiration Healthcare shares at this time. We reiterate our Buy recommendation.
Companies: Inspiration Healthcare Group PLC
An explicit and substantially positive update from Norcros points to a strong Q2 trading recovery after a COVID-19 affected Q1 and a significant reduction in net debt to modest levels. The company’s portfolio of businesses have demonstrated resilience and agility in being able to respond to these variable demand conditions and in doing so have probably enhanced the group’s competitive position. Our estimates remain suspended ahead of the H121 results announcement on 12 November.
Companies: Norcros plc