discoverIE reported FY20 results ahead of our forecasts for underlying operating profit and EPS. Looking through short-term COVID-19-related disruption, the company has set new strategic targets for the next five years. These are a continuation of the strategy to grow the Design & Manufacturing business organically and via acquisition and include the target to increase the group operating margin from 8.5% (pro forma) to 12.5%. We maintain our normalised operating profit and EPS forecasts.
Companies: Discoverie Group
Allergy Therapeutics (AGY.L): Corp Profit upgrade | Aukett Swanke (AUK.L): Corp Interim results | Avacta (AVTG.L): Corp SARS-CoV-2 point-of care antigen test – update | discoverIE (DSCV.L): Corp Resilient, flexible and well positioned for growthiomart (IOMG.L): Corp Finals to March 2020 | Open Orphan (ORPH.L): Corp FY 2019 results
Companies: DSCV AGY AUK AVCT IOM ORPH
discoverIE has reported a strong performance in FY20 despite Q4 being affected by COVID-19. Sales were up +8% at constant exchange rates and adj. EPS up by +11% (ahead of our +1% forecast) as margins improved by 100bps to 8.0% and tax reduced. Looking forward, Q1 sales are down -10%, evidencing relatively resilient customer demand, and the order book remains strong at £159m (+13% CER). Coupled with strong cash flow reducing net debt/EBITDA to 1.25x, the group is very well placed to trade through the current uncertainties and then resume its proven strategic growth path. We make no changes to our forecasts.
discoverIE saw a stronger finish to FY20 than expected as China resumed trading faster than anticipated. In Q121 so far, slightly weaker customer demand and manufacturing shutdowns elsewhere are affecting sales; to manage cash during this period management has cut discretionary spending, is pausing M&A and has cut the FY20 final dividend. These measures combined with lower than expected gearing at the end of FY20 leave the company well-funded to trade through this period of disruption.
In the context of the general environment, discoverIE’s year-end update is encouraging. Earnings for March 2020 are slightly ahead of expectations (we have upgraded by 2%) and previously closed facilities are now open and increasing activity rates with China seeing a V-shaped recovery. To preserve financial strength, the final dividend has been passed, but we expect only one payment to be missed given the group’s financial strength (£120m of undrawn facilities and year end cash flow was strong) and the focus on structurally growing markets (demand from the renewables sector has held up well). We make no changes to our FY 2021 forecasts onwards or target price, and highlight the significantly higher valuation multiples for peers Diploma and XP Power.
discoverIE’s year-end trading update confirms that coronavirus-related disruption in China is expected to modestly affect FY20 earnings. While trading elsewhere has been as expected, with good order wins, efforts to contain the virus in Europe and North America could reduce demand and introduce supply constraints over at least the next quarter. We have revised our forecasts to take a more cautious stance in H121 before factoring in a recovery starting in H221.
discoverIE (DSCV): Corp | Quartix (QTX): Corp | Sopheon (SPE): Corp | Xeros (XSG): Corp
Companies: DSCV QTX SPE XSG
discoverIE saw continued good trading momentum in Q320, with group revenue growth of 3% y-o-y (9M20 +7% y-o-y). Strong organic growth in the Design & Manufacturing (D&M) business, particularly in its target markets, was offset by temporary destocking issues in Custom Supply (CS). CS orders have rebounded in January and the company maintains its earnings expectations for FY20; we maintain our forecasts.
ANGLE (AGL): Corp Interims in line – key upcoming value inflection points | Aukett Swanke (AUK): Corp Significant turnaround | Belvoir Group (BLV): Corp Comfortably ahead | Best of the Best (BOTB): Corp H1FY20 = another positive surprise. | discoverIE (DSCV): Corp On track for the full year | Pebble Beach Systems (PEB): Corp Strong trading update highlights strong return to growth
Companies: DSCV AUK BOTB AGL BLV PEB
discoverIE’s H1 results confirm it is making continued good progress with its strategy to build its design and manufacturing (D&M) business. Underlying organic group revenue growth of 5% was boosted by higher margin acquisitions and the group is fast approaching its mid-term operating margin target. Targeting higher growth markets within D&M and focusing on efficiency in Custom Supply supports ongoing growth in revenues and profitability.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Successful businesses ‘never let a crisis go to waste’. Indeed since an otherwise strong Q1’20 was interrupted by COVID-19, Mpac has further streamlined operations, accelerated R&D and launched new remote equipment diagnostic/acceptance testing, virtual reality & other ‘Industry 4.0’ services.
RBG Holdings pre-close trading update to June 30th confirms a strong H1 performance for RBL, the Group’s law firm, with revenues up 36% like-for-like to c.£11.4m YoY. Convex, the CF boutique, understandably has faced COVID headwinds, with most of its H1 pipeline deferred indefinitely, whilst Litigation Finance continues to grow its pipeline and financing commitments on a longer term view. Due to continued uncertainty from COVID we withdraw our forecasts this morning, with a view to reinstating once more clarity on H1 outturn and momentum into H2 is available.
Companies: Rosenblatt Group
Resilient Trading Update
Companies: Macfarlane Group
Revenue for FY 2020 is ahead of expectation and we adjust our forecast accordingly. Sales are growing at an impressive rate; >50% pa despite COVID-19 and the virus had no effect on the company’s ability to deliver projects with 23 new customers live in Q4. We note COVID concerns are causing some delay on contract decisions, and sales would have been even stronger but for that. These delays do lead to caution on FY 2021, and we ease back our forecasts on more prudent management guidance. However, with the recent £5m equity placing, PCIP has plenty of cash to continue to invest in rolling out its exciting secure payments proposition. This cloud-based solution can be deployed remotely and assists call centres in moving agents to WFH and still collect payments securely. The outlook remains very bright with continued rapid growth expected.
Companies: PCI Pal
The year-end trading update was encouraging, with expected results showing good YoY growth, modestly below but close to our earlier expectations. Trading has been resilient, particularly in safety critical areas such as its nuclear exposure, with some weakness being seen in oil & gas, where there is limited exposure. Two new contract wins in the nuclear sector have also been announced today. FY 2021 forecasts remain under review. With strong finances, the company is well positioned to maximise M&A opportunities, through its PIE strategy.
The group has issued a trading update for the year ended 31 May 2020 highlighting an adjusted EBITDA of at least £11.5m which is close to the group’s original expectation, despite widespread disruption to operations in the second half. The statement notes ample liquidity headroom in excess of £10m with net debt (excluding IFRS 16 lease liabilities) reducing in H2 to £7.5m as planned. The Group’s order book and prospect pipeline remains strong overall and the update is accompanied by the announcement of two meaningful contract wins in the nuclear sector. A further significant positive development is the grant of outline planning permission for the conversion of the group’s 7 acre Hayward Tyler site in Luton into residential housing for up to 1000 dwellings. Whilst financial guidance for FY2021E remains withdrawn at this point due to on-going uncertainties around the impact of COVID-19, we see the group continuing to demonstrate good resilience, operating at close to normal levels, supported by exposure to multiple markets and a strong customer base that includes governments and their agents.
Caledonia's Q2 2020 production from its 64% owned Blanket mine in Zimbabwe was 13.5koz gold. This was an increase over the same period last year of 6.2%, leaving Caledonia with a first half production of 27.7koz – well ahead of this time last year (24.7koz) and on track to meet its 2020 full year guidance of 53-56koz (WHI etc. 55.5koz).
Spectra Systems Corporation is a provider of machine-readable high-speed banknote authentication, brand protection technologies and gaming security software. The company has announced that it has executed a new contract with a major world central bank to ‘enhance existing authentication sensors to detect a unique type of counterfeit notes'.
Companies: Spectra Systems Caledonia Mining Corporation Plc Com Shs Npv
Marlowe delivered a strong performance during FY20A, with +7% organic revenue growth, and improved Adj EBITDA margins. Integration of acquisitions is progressing well, and with receipt of c£40m gross proceeds, Marlowe is well placed to accelerate the consolidation of its markets. We leave our forecasts unchanged and reaffirm our Buy rating.
Scotland’s only quoted housebuilder recorded its highest ever weekly number of reservations following the reopening of its sales offices after the prolonged construction lockdown north of the border. As a result, Q1 2021 sales are expected to be “significantly higher” Y/Y, after the inevitable disruption caused by Covid. In this morning’s FY 2020 trading update, the Group also highlighted the widely reported trend across the housing market to larger homes with gardens, Springfield’s ‘sweet spot’ in our view.
Companies: Springfield Properties
The Norcros operating companies largely performed relatively well in challenging market conditions (in both the UK and South Africa) in FY20 though year end trading was affected by COVID-19 lockdowns, as flagged previously. The group’s financial position appears robust following management actions (including foregoing an FY20 final dividend) and well-placed to both contend with weaker near-term markets and the pursuit of market share gains from a position of relative competitive strength. Our estimates remain suspended at this time.
ECSC Group plc* (ECSC.L, 71.5p/£7.2m) | Trackwise Designs plc (TWD.L, 90.5p/£20.0m) | Transense Technologies plc (TRT.L, 59.5p/£9.7m)
Companies: ECSC Group Trackwise Designs
Strong H1 results, prospects good, investing in the future WEY's H1 results this morning reflect both the positive effect of proactive actions taken by the company last year and strong demand from the market at large. Sales up 43% YoY and PBTA of
£0.3m (2019: £0.1m) reflect increases across both sides of WEY's business and are accompanied by margin uplift (62% gross margin as against 56% last year). The company is a well-established leading supplier of online education, having built a 15-year track record of excellence in its sphere. Covering the half year ending on February 29th, the period of the results precedes the lockdown; however this morning's statement lays out the heightened demand for WEY's product which is an inevitable result of the new focus on remote working and online learning. WEY is plainly extremely well-placed to grow in the current environment, and it has made significant investments in educational quality and in marketing – in both cases including senior and wellrespected hires. The Covid-19 crisis has generated a new appreciation of online education from parents, pupils and educational authorities, who increasingly see this as a real, practical and highly effective substitute for traditional education, adding to the already strong demand across
WEY's brands. Our 30p-plus fair value assessment rests on the inherent opportunities and is also supported by the strong balance sheet (£6.6m of net cash, +£1.6m in the period).
Companies: Wey Education
Tipping point: Proven, revenue generating, now scaling
As flagged in the April trading update, Solid State’s FY20 results showed a 19.7% growth in revenues and 34.3% jump in adjusted profit before tax. Demand from the medical and food retail sectors is strong but weakness in the oil & gas and commercial aviation sectors related to the coronavirus pandemic is likely to result in lower year-on-year sales during Q2 and early Q321. While management sees potential for a Q4 recovery, the current range of FY21 profit outcomes is wide, so it is not providing guidance.
Companies: Solid State