Interim results highlight the impact to the business from the nationwide lockdown that started in late March and began to ease in mid to late May. Within today’s results, the outlook statement is probably of most interest. The strong demand highlighted in the trading update in July has continued through August and into September. With the balance sheet in a strong position, post the fund raise, demand firmer than expected and national competitors struggling, Safestyle is in a good position. The recovery had been well underway until the COVID-19 lockdown interrupted operations but Safestyle has come through it in a position to capitalise on good market demand and weak competitors. Revenue numbers for FY20 increase marginally to c. £110.0m but profit forecasts are unchanged. The level of order intake has outstripped the short-term capacity to install orders leaving the order book 82% higher yoy, indicating that the run rate into FY21 should be positive in terms of forecasts.
Companies: Safestyle UK Plc
Since the recommencement of operations in May (14th) demand has been much stronger than anticipated. For the last eight weeks order intake has grown 23.2% with the order book at the end of June 45% higher than at the same point in 2019. This has forced management to increase capacity further, whilst increasing lead generation spend and a shorter furlough period than we had assumed as workers came back earlier. The resulting additional costs incurred are likely to mean H1 profitability will be lower than we might previously have thought. Whilst hopeful that this will be offset in H2 as installations increase, we take a conservative view leaving revenue forecasts unchanged but increasing cost assumptions. Estimates in FY21 are left unchanged, and whilst visibility remains low as to where underlying demand might settle post the initial pent up demand post lockdown, the potential for government assistance to underpin a strong market over the next 18-24 months is high.
The AGM statement indicates that Safestyle will restart operations during the remainder of May. In the first instance, this will involve manufacturing and surveying with installations and selling following. This announcement is welcome and shows the beginning of a return to normalcy and is in line with the actions of other building product companies. Post the placing at the end of April, the balance sheet has good levels of liquidity with excess of £12.0m. This could fund the business well into the next financial year if it was required and debt covenants continued to be waived. With operations restarting this will not be necessary and the strong balance sheet can be utilised to increase market share at the expense of weaker competitors. Forecasts are unchanged having been updated post the placing, assuming a stringent two month lockdown followed by a gradual recovery in H220.
Safestyle announced the successful placing to raise £8.5m to further strengthen the balance sheet and see the business through the current COVID-19 situation. The placing price of 17p was a slight premium to the previous night’s close and a c.20% premium to the 14p low on the 3rd April. Post the placing, covenants on Safestyle’s debt have been waived for up to six months and a reduced EBITDA covenant target will be in place for the rest of FY20. The improved banking terms, in combination with the additional funds raised, puts the business in a strong position, as and when trading returns to a degree of normality. It is still too early to ascertain when social distancing measures will ease, but Safestyle has the headroom not only cope for an extended period but also, importantly, to invest to take market share, when the time is right.
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Following on from Boris Johnson’s statement yesterday evening, Safestyle has announced a temporary closure of its sites across the UK along with the cessation of all installation activities. This should not come as a surprise; management had indicated last week this was a likely short-term outcome as the pandemic progressed. With the turnaround at Safestyle having picked up pace in the final few weeks of FY19 and into the early part of FY20 the impact from Covid-19 is frustrating. However, the short-term focus is on dealing with the issues and the business is in a far better shape to deal with the situation than it has been for some time with extended financing facilities and a leaner more variable cost base.
FY19 results are in line with the detailed guidance provided at the time of pre close trading update in late January. Revenue of £126.2m was 8.4% ahead yoy highlighting the progress the business has made in recovering from the issues it experienced in FY18. A return to profitability was achieved in the middle of the year on the back of a much-improved performance in revenue and margin, gross margin increasing 240bps yoy. This signalled the end of stage two of the recovery process set out by the management team. Stage three, accelerating growth, had begun in earnest with the year-end order book up 24% yoy. The good order run rate continued into the first two months of FY20 with both revenue and profitability materially ahead on FY18.
The business is steadily getting back to where it was pre 2017. The management team has only been in place for a year but in that time has worked hard to stabilise the business and return it to profitability. Confidence of where the business is in the turnaround strategy is evidenced by the announcement today that it will significantly invest in marketing over the next three years. This will underpin an increase in the order book and drive profitability. Investment started in Q419 driving market share gain and an improved order book but has meant profitability is marginally below expectations, at (1.5m). Importantly revenue of £126.2m was broadly in line with ZC forecast (£128.7m) and the strong growth in the final weeks of Q4 suggest the run rate into Q1 of FY20 was good. The turnaround part of the strategy has been executed. The business is now in the recovery phase with the return to profitability in Q319 and the commitment to increase marketing spend to drive profitability over the next three years.
H119 revenue increased 6.4% to £64.4m (HY18: £60.5m) with Gross Profit increasing 14.2% to £16.6m (HY18: £14.6m) as margins increased 177bps to 25.8%. The improvement in the top line combined with cost savings meant the Adj loss before tax of £0.8m was a material improvement yoy (HY18: £3.4m). All operational and financial KPIs reflect the improvement in the underlying business, these include revenue, volumes, market share and profitability. Importantly and as previously expected, the business returned to profitability in Q2 and is expected to further increase profitability in Q3 and Q4 of this year. It should be noted that the improvement has been achieved despite the consumer environment for large ticket items remaining difficult. Looking forward, we leave FY20 profit forecasts unchanged but due to increased investment needed to drive lead generation and marginally weaker revenue than expected, as a result we reduce estimates in FY19 from a small profit to a small underlying loss of £0.5m.
Safestyle’s half year trading update indicates that the performance of the business is on track to meet expectations with the order book continuing to build as Phase Two of the turnaround plan progresses. Revenue is 6.4% higher yoy in H1 with a run rate in May and June of 15%. ZC expect this to build to above 20% during H2 as the steepest months of decline last year are annualised. As expected, H119 will show a small loss with profitability returning in H2 resulting in a profit for FY19 (ZC estimate +£0.7m). The increase in sales ahead of the market has resulted in a material recovery of market share but at 9.7% it remains below the historic high of c.11.0%. The shares remain on a recovery rating but using FY20 estimates, that assume a stabilised level of profitability, they trade on 8.2x earnings.
Interswitch, a Nigeria-based payments firm, has hired advisers to resurrect plans for a stock-market listing in London and Lagos later this year, which may value the financial technology company at $1.3 billion to $1.5 billion.
Roxi Music UK music streaming service plans London IPO as it goes up against Spotify. They have appointed investment bank Arden Partners for an initial public offering (IPO) on the London Stock Exchange later this year.
Companies: MUL MTFB BLOE MTC STX BEG VRS SFE RMS SWG
Safestyle has announced a trading statement ahead of its Annual General Meeting to be held today. Top-line sales continue to recover and the orderbook is rebuilding following a period of significant operational disruption during FY18. However, a slower than anticipated recovery in profitability means FY19 earnings guidance moves lower. Beyond this, we take encouragement from the momentum seen in the Group’s order book, management’s commitment to the clearly defined turnaround plan, and the ‘cautious optimism’ for a step up in profitability in FY20, leaving our FY20 forecasts unchanged.
Safestyle has announced results for the year ended 31 December 2018. Performance for the year is broadly in line with our forecasts with a better than expected year-end net cash position of £0.3m thanks to working capital management. Safestyle’s year has been dominated by the actions of an aggressive competitor that significantly impacted operations, resulting in a material fall in sales and profitability. The successful legal resolution of this action means the Group ended the year on a stable footing, with positive sales momentum building into FY19. With a challenging year now behind them, management have successfully completed the first of a three-phase turnaround plan aiming to stabilise the Group and return it to profitable growth. The shares currently trade on an FY19 PE ratio of 15.1x falling to 9.0x in FY20. Safestyle remains a simple and focused business with well invested infrastructure. We believe the investment case is compelling, should management execute the turnaround to plan.
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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
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
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
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
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
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
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
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
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
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
Following hot on the heels of last week’s significant project award for Siemens and London Underground, the group has announced a further significant project award for Alstom’s high-profile next generation of TGV trains for SNCF. While the value of the project has not been announced, it reinforces our optimism and view that momentum in the train market is improving and also further strengthens the group’s medium-term order book. We see the award as noteworthy also because it is in the group’s innovative electronics technology, validating the group’s product investment in this area.
Companies: LPA Group 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
Historically exposed to coal, Drax had to adapt to ecological constraints. Which we believe it has failed to do. We have therefore decided to terminate our coverage in order to allocate our resources to companies that are in tune with tomorrow’s challenges.
Companies: Drax Group plc