ATTRAQT Group (ATQT LN) Interims show encouraging progress | Bodycote (BOY LN) Strong H1 growth, modest upgrade to guidance | Brooks Macdonald Group (BRK LN) FuM +6.5%: Better markets in Q4, net inflows sustained at 9% annualised | Findel (FDL LN) Strong start to the year with both divisions performing | Frontier Smart Technologies Group (FST LN) Trading in line with revised expectations | Howden Joinery Group (HWDN LN) Solid H1 results given circumstances + on track to meet FY forecasts | Renishaw (RSW LN) Strong growth in FY18, confident outlook | Sigma Capital Group (SGM LN) Landmark 2000th PRS home let in Greater Manchester
Companies: ATQT BOY BRK STU FST HWDN RSW SGM
Howden has delivered another solid trading performance in H2, all the more stand-out this time given the weak trading patterns and deferred spending trends being reported in adjacent consumer sectors due to declining consumer confidence and negative real wages. LFL depot growth of c5-6% was better than many feared and reflects the benefits of innovation/new ranges as well as, we believe, a greater emphasis on driving volume (over price) than earlier in the year. Although 10% of sales are yet to be booked, this performance secures forecasts for FY17 and means it is on track to meet the ‘Board’s expectations’. Although trading conditions are likely to be tough in FY18, meaning today’s update wont eradicate all investor concerns, we would expect to see a relief bounce in the shares today.
Companies: Howden Joinery Group
Howden Joinery Group (HWDN LN) Positive trading underpins f/casts despite the tougher backdrop | Wilmington (WIL LN) No change to trading trends
Companies: Wilmington Howden Joinery Group
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Retail Government uncertainty to weigh on domestic consumer stocks
Companies: STU HFD BWNG HWDN BAR WGB CAMB BOO MYSL VTU LOOK BCA MMH CPR
In the recent 2 months the share price has bounced almost 100p (26%), racing through our previous 415p estimate of fair value. Although £ recovery has helped in that time (£/$ +4%, £/€ +2.5%) this adds back only c1.5% to PBT (COGS headwind reduced by c£3-4m), making today’s 4-month update more relevant than normal. Trading in the period is ahead 3.9%, or 2.4% on a LFL basis. With estimated inflation of c3-4%, this suggests LFL volumes marginally negative but not changed versus the previous period. Whilst guidance on margin and costs remains cautious, especially for H1, the creditable sales performance means the business is tracking in line with expectations and forecasts are unlikely to change today. The shares feel well up with events on 11x EV/EBITDA, with better value elsewhere.
Prior to the EU vote, fears of Brexit undermined consumer confidence and spending patterns, and sterling weakened against the US$ and the €. Wider fears for employment, consumer spending and economic slow-down had hit Retail stocks significantly (-10% rel. YTD). Friday’s surprise Brexit vote has impacted Sterling again and will further knock confidence and spending too. The sector came under material further pressure as a result, falling 10% on the day vs the Allshare’s 3%. As noted on Friday, there are 4 stocks in our universe where forecasts are favourably exposed to FX upside risk (BCA, Boohoo, Swallowfield, Walker Greenbank), 5 stocks which we have downgraded (Debenhams, Findel, Halfords, N Brown, Howden Joinery) with the remainder left unchanged including Motor Retailers.
Companies: BOO CAMB DEB HFD HWDN LOOK BWNG SFE BAR WGB BCA
We suspected that Howden might have traded well in the most recent couple of months and its trading update is not a disappointment in that regard. Sales increased by c8% in LFL depots, taking the 16 week growth to 6.4% LFL (8.7% total growth). The commentary on pricing (vs FX headwinds) is also encouraging. We therefore anticipate low end forecasts being upgraded by c2% this morning. Alongside the reassurance on margins we would expect the shares to claw back the remainder of the gap (vs the recent 450p low) to our target price of 500p.
accesso Technology (ACSO LN) Consistent growth, increasing margins and few risks | Earthport (EPO LN) Solving a $9.3bn+ problem | Gresham Computing (GHT LN) Positive AGM statement | Howden Joinery Group (HWDN LN) Strong trading in recent 8 weeks. Low end f/casts to edge up | James Fisher & Sons (FSJ LN) Trading in line | NCC Group (NCC LN) Strong revenue growth, margins lower | Oxford BioMedica (OXB LN) Final results and portfolio review | Redde (REDD LN) Strong trading continues in H2 | Sepura (SEPU LN) Financing resolution required to unlock potential | Synthomer (SYNT LN) Positive start to 2016 | Victrex (VCT LN) Resolution of US Federal Trade Commission Inquiry
Companies: ACSO EPO GHT HWDN FSJ NCC REDD SEPU SYNT VCT OXB
Prelims are 3% ahead of expectations, through slightly better LFL growth and slightly less cost growth. Of the £33m YoY PBT growth, c£9m relates to the favourable FX tailwind. Based on current FX rates, we estimate the headwind in FY16 will exceed that, possibly c£11-12m. End markets remain favourable and HWDN is investing in capability to continue profitable expansion – now with a 800 depot target (619 now) and additional trials in Europe. An extra £15m of opex (2.5%) is flagged as part of this investment, not all of which appears to be in the numbers. The higher base in FY could shield consensus forecasts from the mix of FX and opex but maybe not all of it.
Howden Joinery has been enjoying strong trading momentum in recovering markets and is developing a long term strategy for continued growth. In FY’15 PBT also benefited from favourable FX movements, with £/€ strength comfortably offsetting slight £/$ weakness. However, both rates have been on the slide recently. Already this means a c£8-9m headwind and some believe Sterling could slide further. After of a slight increase in LFL growth assumptions we have downgraded EPS forecasts by 1% today. We have also realigned our target price metrics to mirror the wider de- rating across the market. The net effect is a new 490p target price (-5%). We therefore downgrade back to Hold.
Strong trading in July, alongside favourable subsequent anecdotes, meant we didnt expect to see the effects of soggy conditions behind warnings elsewhere (e.g. TPK) replicated here. Today’s update confirms this. Performance in H2, including the key October trading period, has been outstanding at +10% LFL particularly once positive gross margins are also factored in. After a 15% correction HWDN has gone from being overbought back in June to slightly oversold - so with a 2.5% PBT upgrade today and 2% target price increase to 510p we upgrade to BUY from Hold.
Howden Joinery has performed extremely well in H1 with LFL depot growth of 8.6%. The 2-year run rate exiting from Q2 to Q3 is encouraging and we are upgrading sales expectations despite comps get tougher over peak. There may also be scope to add a bit more FX benefit to margins. However, with significant cost increases, partly from volume and partly investment in capability/capacity, H1 results were slightly behind and upgrades of any significance look unlikely. We argued ahead of the results that upgrades were needed to grow into the rating so, in the absence of this, the rating looks over extended on a 19x cal15 P/E, reducing to 18x or 12x EV/EBITDA cal16.
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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
The announcement that Avon Rubber is to sell milkrite | InterPuls, its dairy division, to DeLaval Holding for £180m gross proceeds is strategically logical and financially compelling. The fit of dairy and defence has always looked slightly anomalous and the terms of the deal show that the opportunity to augment dairy through value-accretive deals is difficult given the scale of the business and opportunities. Management must now recycle the cash balances that will be created into Avon Protection, where there are a greater number of potential investments.
Companies: Avon Rubber
Full-year results were at a record level and slightly ahead of expectations by £0.2m at the adjusted PBT level, or 2.8% better at the EPS level. Cash generation was also stronger than expected, resulting in net cash of £3.2m. The dividend was maintained – a sign of confidence. Good strategic progress was made, helped by the integration synergies of Pacer and new product development programmes. Our forecast and price target remain under review given COVID-19-related uncertainties.
Companies: Solid State
Brick and concrete products manufacturer Forterra has raised c. £55m gross in an equity placing in order to maintain its strong balance sheet and support the Group's continued investment programme. It was accompanied by, in our view, a reassuring trading statement which we believe is backed by yesterday’s brick industry data and comments from housebuilders, which suggest that demand has been recovering from its lockdown lows, before the PM’s promises to “build, build, build” housing and infrastructure.
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
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.
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 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.
Full year results ahead - robust position against uncertain near-term backdrop
Solid State is a manufacturer of computing, power and communications products, and value added distributor of electronic components. This morning, the group has released full year results with PBT and EPS slightly better than our upwardly revised forecasts had assumed and reflecting a strong margin performance in the year. As previously flagged, cash generation was particularly strong. The group entered FY 2021E with a strong order book, which is reported to have stood at £37.9m as at 31 May 2020, an increase of some 5.6% from a year earlier. With little in the way of cancellations or deferrals of orders, Q1 2021E revenue has held up well, whilst order intake has been just under 15% lower than the prior year, which suggests a weaker revenue performance in Q2/Q3 but with the tender pipeline implying a potentially stronger Q4. Reflecting the present uncertainty, we leave our forecasts under review for the time being. Fundamentally, and backed by a strong balance sheet, we believe that Solid remains well positioned to come through the current crisis and will emerge as one of the winners when normal service resumes.
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
Smart Metering Systems (SMS) has announced that it has emerged from the recent Covid-19 uncertainty in a strong financial position and taken the decision to return funds received from the Government under the Coronavirus Jobs Retention Scheme. Current net cash of £48m (not including furlough grant) is ahead of previous expectations and underlying profitability for the year to 31 December 2020 is expected to be in line with expectations prior to lockdown, despite the obvious interruptions to meter installation activity that it has caused. During lockdown essential emergency field engineering work continued and SMS completed the sale of a proportion of its meter asset portfolio for a gross cash consideration of £291m (£282m net). In March 2020, SMS announced that it would rebase its dividend to 25p (prospective yield 4.3%), index linked to FY24 and commencing payments in October 2020, quarterly thereafter. A phased resumption to meter installation activity commenced on 1 June 2020.
Companies: Smart Metering Systems
Successful K3 Capital placing to raise £30.45m (gross) at 150p to fund the £9.3m acquisition of Randd UK Ltd, an R&D tax credit specialist with an LTM EBITDA of c.£2.0m, with a margin of c.50% and revenues typically contracted for 5 tax years with many recurring thereafter, followed by future potential deals in SME exposed markets. K3 has established itself as an innovative company that is able to effectively gather, generate and mine large quantities of data in order to scale up M&A services to SMEs. Transferring these lead generation capabilities to adjacent SME markets can allow rapid growth from proven models, at scale.
Companies: K3 Capital Group
The Smart Zones customer base is expected to reopen, to a large extent, this weekend. The reopening of pubs will bring forward a revised billing profile and markedly improve the Smart Zones revenue base. Smart Machines continues to operate profitably and the group's Business Interruption Loan should buttress the balance sheet through this year. While our forecasts remain withdrawn we can see an encouraging pathway to normalised trading next year.
Companies: Vianet Group
Salt Lake Potash has received commitments to raise A$15m through the placement of unsecured zero-coupon Convertible Notes to Equatorial Resources (ASX:EQX) and institutional investors. The Convertible Notes have been structured as deferred equity with zero coupon and mandatory conversion into equity at the lower of 45c/share or a 5% discount to any future equity raising of at least A$10m. These funds will enable Salt Lake Potash to continue to develop Lake Way to the project schedule through July as they finalise debt financing. Plant practical completion and first SOP sales remain on schedule for the March 2021 quarter. The debt financing process in its final stages and with an agreement expected to be executed within weeks.
Companies: Salt Lake Potash