Cello Health (CLL.L): Recommended Cash offer
Companies: Cello Health
Cello's AGM statement should reassure that FY20 trading to date remains robust, underpinned by “solid” growth in net revenue in Q1/20. While Q2/20 saw certain early disruption, overall progress has been made to maintain revenues alongside effective cost controls, thus a creditable H1/20E result is expected. The 23% fall in the shares since February's highs, appears to overly discount for the actual reality of this disruption.
Cello's trading momentum continued over Q1/20E with signs of further organic progress and maintenance of a strong balance sheet. The impact of measures to combat Covid-19 is creating some disruption for certain clients and their activities, but the majority of existing project work remains intact with new bookings continuing to come in. Contingencies are being exercised to limit any impact on profitability and cash flow. Given the degree of uncertainty over the level of disruption, we are withdrawing forecasts and putting our recommendation Under Review.
Cello has delivered strong FY19A results as expected, with excellent underlying growth in Cello Health and a net cash beat as a highlight. Recent restructuring activities now mean healthcare activities generate over 80% of group net revenues, where growth rates and margins are stronger. The group has good momentum going into FY20E, but the recent COVID outbreak brings uncertainty and possible disruption.
Today's trading update confirms strong H2/19E trading, in-line with FY19E consensus expectations (£109m net revenue, £13.0m adj PBT). The core Cello Health division has continued to deliver growth ahead of plan following H1/19A's impressive growth. This has been offset somewhat by a weaker performance in Cello Signal given recent UK macro conditions. A reorganisation of Cello Signal to more closely support Cello Health thus appears sensible. The shares are starting to reflect the growing traction.
Calisen Group. Potential Intention to Float. Owner and manager of essential energy infrastructure assets through its subsidiaries Calvin Capital and Lowri Beck . Consolidated FY Dec 18 revenue £162.1m and operating profit £25.4m. Raising up to £300m in primary plus partial vendor sale. Expected Admission February 2020 The Global Sustainable Farmland Income Trust will invest in a diversified portfolio of operational farmland assets located in major agricultural markets including the United States, Europe, New Zealand, Australia and certain countries within Latin and South America. Raising up to $300m. Due 28 February. Investment firm Nippon Active Value fund is seeking to raise up to £200m at an issue price of 100p per share via an IPO. The company aims to invest in a portfolio of quoted Japanese stocks with market capitalisations of up to $1bn. First day of dealings expected early February.
Companies: STKR DBOX CLL EME MSYS AEE MYSL THR TEK ECR
Cello has announced the divestment of Pulsar, its social media analysis software for £4.5m. Disposal of the technology leaves Cello as a pure-play professional services business, increasingly focused on a healthcare agenda. Given Pulsar's loss making and cash consumptive model, its removal should allow Cello Signal to generate EBIT margins of 10%+ and the wider group to achieve greater levels of FCF generation ahead.
Cello has delivered excellent interim results with group Net Revenue (NR) of £55m (+7%) and adj EBIT of £5.7m (+13%). Underpinning this positive delivery is an acceleration in organic growth in Cello Health, particularly in the US. This should accelerate further in H2/19E given recent ISS's addition. Today's other significant update splits out Pulsar's results from Cello Signal, which has masked an improving margin in the latter.
Cello has announced today the acquisition of Innovative Science Solutions LLP (ISS) for an initial sum of $6.4m. ISS is a highly technical, scientific consultancy which complements Cello's existing healthcare capabilities. It extends Cello's footprint in the key US healthcare market, while financially, it accelerates EPS growth to a more meaningful rate in FY20E.
Companies: CLL CNS LWRF RGD PDG EQLS ATM PRD
Cello has issued a positive update on H1/19E trading, showing that Cello Health has continued its strong, organic momentum at higher margins. Meanwhile, Cello Signal's trading has been stable, as it increasingly takes on a healthcare focus. Today's update provides evidence that conditions in Cello's primary US healthcare market remain favourable. The company continues to identify accretive acquisitions in this space, which we believe could be a catalyst to the shares, currently trading on a modest valuation (12.2x ex-cash P/E) for what is a stable, highly recurring model.
Cello has released a brief AGM statement today, providing a positive update on FY19E trading to date. Organic momentum from FY18E has continued through Q1/19E, with Cello Health continuing to deliver stronger and higher margin growth, while Cello Signal progresses more conservatively. We see today's update as consistent with our FY19E forecasts and note the Board's “in-line with expectations” comment.
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Tremor has announced that December trading materially exceeded its prior estimates, as its platform’s momentum has continued to accelerate since its last update on 30 November. Tremor now expects FY20 revenue and EBITDA to be in the range of $404-408m for revenue (from $390-400m), and $58-60m for EBITDA (from $50-52m). This leads us to upgrade our FY20 and FY21 revenue forecasts by +2-3% to $406m and $479m, and upgrade our FY20 and FY21 EBITDA by +16% and +10% to $59m and $68m. As Tremor’s platform benefits from strong operational gearing, this drives upgrades to EPS of +28% in FY20 and +16% in FY21. Our net cash then increases by $11m in FY20 to $96m, and despite including $10m of buyback in FY21, our FY21 net cash increases by $12m to $117m as we partially unwind conservative working capital assumptions. This is the fourth upgrade to our Tremor forecasts since COVID-19 impacted the advertising market and Tremor in Q2 20, and Tremor subsequently adopted a prudent approach to its FY20 guidance. We continue to mirror this conservatism in our FY21 EBITDA of $68m, which compares with H2 20 EBITDA of $57m, and our FY21 EBITDA includes additional investment as Tremor looks to gain share within a market growing at over 20% pa. From p9 we also highlight that Tremor is demonstrating the same trends as its US ad tech peers Magnite, PubMatic, and The Trade Desk, with each forecasted to see +15-35% organic revenue growth and +10-60% organic EBITDA growth in FY21, as they focus on expanding in connected TV. However, Tremor is trading at a major discount to its US peers on all metrics, such as FY21 EV/EBITDA of 9x vs 41x, 29x and 104x, and at a discount to the finnCap Tech 40 on 17x with +9% EBITDA growth. As Tremor continues to deliver and exceed expectations, we do not expect that its current valuation will be sustainable due to market or external interest, and we upgrade our target price to 800p based on 20x FY21 EBITDA.
Companies: Tremor International Ltd.
Reach plc today provides a strong Q4 trading update highlighting upgraded FY’20E AOP expectations of £130m-£135m ahead of consensus (cons: £124.3m) and record growth in Digital. Digital sales growth has recovered strongly since Q2, accelerating to 25% y/y (Q3: +13%; H1: -1%) benefitting from both higher traffic through implementation of Group engagement initiatives and yield recovery as advertisers in CV19 impacted verticals return. Print circulation revenue decline moderated to 11.7% y/y in Q4 (Q3: -12.6%), a significant deceleration from the -18.2% y/y in H2 and modestly better than our H2 forecasts. Continued focus on audience engagement, the quality of audience data and insights, and further extension of locally focused digital content we see driving further gains online, with Digital sales still on track to double on a four year view. We are upgrading forecasts, increasing FY’20E sales, AOP and adj FCF by 2%, 6% and 5% respectively, with upgrades filtering into future periods. A 17% FY’21E FCF yield sits well in advance of global peers (3%-7%), with a 10% FCF yield generating an intrinsic valuation of 315p/share.
Companies: Reach plc
CentralNic has made a small acquisition of SafeBrands, an online brand protection software provider and corporate ISP based in Paris, for a cash consideration of up to €3.6m (0.9x FY19 revenue). €3m is payable upfront and €0.6m will be paid subject to meeting FY20 performance objectives. SafeBrands operated at close to break-even in FY19. Separately, CentralNic has also reorganised its Corporate division, rebranding it as the Enterprise division. Based on our estimates, the company trades on an FY21e P/E multiple of 15.8x and 9.8x FY21e EV/adjusted EBITDA. We expect earnings-accretive M&A to bring multiples down further as CentralNic consolidates a globally fragmented market of sub-scale, cash-generative businesses.
Companies: CentralNic Group 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
CentralNic’s Q320 results highlighted that the group is on course to meet management’s FY20 financial expectations, supported by organic growth and underpinned by a successful M&A strategy. Ytd revenue increased by 118% to US$168.5m, driven by contributions from the transformational acquisitions made in H219. Adjusted EBITDA increased by 68% to US$22.1m. On a pro forma basis, the group recorded organic revenue growth of 17% y-o-y, 10% growth in gross profits and 4% growth in adjusted EBITDA. Adjusted net debt stood at US$80.9m (adjusted for the US$36m cash payment for Codewise made in October). The company trades on an FY21 P/E multiple of 13.1x, which appears highly conservative for a group that has delivered a 69% revenue CAGR FY14–19 as it consolidates a globally fragmented market. We maintain our estimates.
Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. 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. 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. Moonpig, the digital greeting card company, is planning an IPO with a potential valuation of £1bln, according to multiple media reports. Further details expected to be announced over the next two weeks.
Companies: ZPHR PANR PRSM SENS CYAN G4M ITX CRCL FEN ZIN
Kape has announced the launch of its CyberGhost Privacy Suite solution, for Windows initially, which it had trailed in its July Capital Markets Day. The suite provides online users with a comprehensive protection solution which combines Kape’s market leading privacy and software products, providing a strong data privacy and system security offering to consumers on a global basis. The Group is also launching a password manager and an end-to-end encryption service for cloud-data. These launches represent the fruits of the collaboration between Kape’s complementary acquired businesses. In particular, we expect the undertaking to further improve user engagement and retention, driving revenue and profit into the long term.
Companies: Kape Technologies Plc
9M 2020 ended September results confirm CNIC’s acquisition and growth strategy. The company delivered high pro forma sales growth with steady divisional gross margins. CNIC is investing in new products and integration activities to improve long-term growth and margins and expects current year results to be in line with management’s expectations. Acquisitions have added significant value and the company is assessing a strong pipeline of further opportunities. CNIC is well positioned to acquire at attractive valuations, improve target company operations and deliver synergies.
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. 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. 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.
Companies: PMI RMM SUN BOIL ITM TRMR MLVN 88E IME ANP
Today‘s statement highlights several positives, firstly that H2 revs to December are expected to be higher than in H1 (£7.3m), so importantly indicates that trading conditions have improved since the first lockdown. We also note that high margin ‘Distribution revenue‘ (royalty income on ZIN‘s back catalogue) outperformed in Q4 and helped achieve this sequential growth. Zinc also updates the market on a key client win - none other than Amazon and in-so-doing, ZIN will break in to a new market with Amazon Audible. Key points here: ZIN is clearly evidencing how it‘s now a more cohesive and flexible company following 2020‘s re-org and what‘s more, we see this as a first step in ZIN potentially becoming a trusted partner of Amazon. i.e. this relationship evolve to include video content production in due course! Beyond Amazon, we also learn that Tern TV has won a number of recommissions and also that the new Zinc Communicate division had a strong Q4 and won three new contracts to produce short form video for brands and corporate partners. Here, the objective is similar to that with Amazon – grow internationally and access new customer types i.e. diversify beyond a historic focus on UK PSB‘s. As a consequence of this new business momentum (and previously flagged strong new biz pipeline) FY21 revenue visibility has increased from £4.1m (last reported) to £9.3m today. On top of this, ZIN has £5m of pipeline at an “advanced stage“ and £15m “in engaged discussion“. Put all these together and we start to understand how Zinc could be working towards a profitable 2H21. We caveat this however with a level of uncertainty due to lockdown 3….what is clear however – Zinc is making unquestionable progress in its turnaround and notwithstanding Covid.
Companies: Zinc Media Group plc
Tern plc* (TERN.L, 8.0p/£24.1m) | Corero Network Security (CNS.L, 8.25p/£40.8m) | Eagle Eye Solutions Group plc (EYE.L, 288p/£86.9m)
Companies: TERN CNS EYE
Mirada plc* (MIRA.L, 72.5p/£6.5m) | Osirium Technologies plc (OSI.L 19p/£3.7m) | Corero Network Security plc (CNS.L, 11.0p/£54.7m) | Tern plc* (TERN.L, 7.7p/£23.2m)
Companies: MIRA OSI CNS TERN
Kape has announced that it has raised gross proceeds of $115.5 million through a significantly oversubscribed placing and retail offer of 59.2 million shares at 150p and will use $72 million of the proceeds to buy out the two major vendors of PIA, the transformational deal which the Group completed at the end of 2019. The remaining $43.5 million will be used to strengthen the Group’s balance sheet as it looks to select further acquisitions. There is an additional tax-related cash benefit of around $50 million over 15 years that is now available to Kape following this change to the PIA deal structure. This seems an intelligent way of removing any potential share overhang while also adding further to the group’s M&A firepower. Kape will cancel the shares which it acquires from the vendors and will not issue the vast majority of the deferred shares. With trading still robust and guidance unchanged, we make no alteration to our underlying business assumptions. Our EPS estimates reflect the changes to the shares in issue, both existing and prospective.
Edison Investment Research is terminating coverage on De La Rue (DLAR) and Walker Greenbank (WGB). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant.
Companies: De La Rue plc
Mirada plc* (MIRA.L, 85p/£7.6m) | Two Shields Investments/BrandShield plc (TSI.L, 0.11p/£4.9m - pre-proposed placing, acquisition and share consolidation)
Companies: Mirada PLC (MIRA:LON)BrandShield Systems plc (BRSD:LON)