Sector Note -
Topic of the quarter. While the forthcoming election has created a significant level of uncertainty, the direction of travel on infrastructure spend seems certain. Both main parties have promised a significant increase. The Conservatives (currently favourite to win) have promised a £20bn p.a. increase to £67bn. Labour has promised to more than double net capital spending to £102bn, which would make the UK’s capital spending amongst the highest in the world. In addition, CP6 (which promises a 25% increase in renewal and maintenance spend in rail) and HS2 (where a leaked document has supported the project continuing) should move from early stages into more meaningful spend. Latest estimates detail HS2 will cost £88bn, with the pressure upwards. We make no predictions as to the election winner or the exact level of infrastructure spend that will eventually occur, but there is mounting evidence that we are about to see significantly improved market conditions for those companies involved in UK infrastructure. Of the companies we follow, we highlight Renew (perfectly positioned to see the benefit of increased renewal and maintenance spend in rail) and Van Elle (which we expect to see both the benefit of higher rail spend and the competition being lured off onto HS2). There is likely another round of downbeat trading statements to clear before spending filters through to improved company trading (excluding Renew whose recent results impressed), but the outlook is brightening and valuations are not stretched.
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28 Nov 19
LIBERUM: European Healthcare investor feedback - What's hot, what's not and which stocks are the most divisive?
In this note we share the key insights from our recent marketing in the UK and US during which we met with over 60 investors to discuss our 19 stock coverage list (including services, biotech and large cap pharma). The most talked about large cap stock was Novartis (BUY, our Top Pick) with AstraZeneca (BUY) also generating plenty of interest.
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15 Nov 19
Cenkos: Cello Group Plc - Disposal of Pulsar
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.
02 Oct 19
LIBERUM: Healthcare - Winning in the pharma supply chain
In this note, we identify six companies that we believe are attractively positioned in the pharma supply chain. This basket is set to benefit from the recent upswing in R&D productivity while not being exposed to single asset, biotech-like risk.
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30 Sep 19
LIBERUM: Healthcare services - The benefits of pharma without the risks
After much corporate change in recent years, most of the earnings of Cello Health, Huntsworth and UDG (CHU basket) come from providing pharma companies with marketing, communications and consulting services. As a result, they should benefit from the R&D upswing that has seen pharma returns treble in a decade, while further outsourcing is also likely.
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30 Sep 19
Growing in a consolidating sector
Cello operates within a $30bn healthcare outsourced advisory market supported by 5% annual R&D growth. This market is defensive and growing. In many respects the challenge is less about finding work but securing the staff to complete it. Consequently, management has over the past few years focused on hiring, training and retaining talent and the benefits are now coming through. H1 net fees were up +6.8% and adjusted operating profit +12.3%. With PE actively acquiring in this sector and international peers on substantially higher ratings Cello’s reasonable valuation multiples are underpinned with good upside.
24 Sep 19
Cenkos: Cello Group Plc - Growth accelerating over the year
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.
18 Sep 19
Supporting clients through FDA approval
Cello has acquired Innovative Science Solutions LLP (ISS) for an initial $6.4m in cash (maximum $10.5m). ISS is a scientific consulting firm specialising in strategic counsel and regulatory support for the healthcare industry in the US. It adds a new and key component to Cello’s offering of technical services along critical drug development pathways. The addition of ISS is in line with the group’s strategy of growing its technical services offering in the US healthcare market and we have upgraded our FY 2019E EPS by 2% and FY 2020E by 7%, after allowing for investment in headcount to support growth. We continue to expect the group to have net cash at December 2019E, meaning further enhancing additions could be financed from existing resources if opportunities can be found. We have raised our target price to 160p from 145p, valuing Cello at a 30% discount to peers on a P/E basis.
21 Aug 19
Cenkos: Cello Group Plc - Acquisition of Innovation Science Solutions
Cello has announced today the acquisition of Innovative Science Solutions LLP (ISS) for an initial sum of $6.4m. ISS is a highly technical, scientific consultancy which complements Cello's existing healthcare capabilities. It extends Cello's footprint in the key US healthcare market, while financially, it accelerates EPS growth to a more meaningful rate in FY20E.
16 Aug 19
Cenkos: Cello Group Plc - Organic momentum continues into 2019
Cello has issued a positive update on H1/19E trading, showing that Cello Health has continued its strong, organic momentum at higher margins. Meanwhile, Cello Signal's trading has been stable, as it increasingly takes on a healthcare focus. Today's update provides evidence that conditions in Cello's primary US healthcare market remain favourable. The company continues to identify accretive acquisitions in this space, which we believe could be a catalyst to the shares, currently trading on a modest valuation (12.2x ex-cash P/E) for what is a stable, highly recurring model.
18 Jul 19
At least in line
Cello’s Health division has had an “excellent” first half with strong like-for-like, constant currency revenue growth. Operating margins are ahead of last year and the group has also benefited from stronger US$ exchange rates in H1. Coupled with a good current income pipeline, these points have enabled management to state it is confident of achieving a successful result in 2019, at least in line with current market expectations. We make no changes to our forecasts at this stage, although the potential for an upgrade is clearly growing. Encouraged by today’s statement, we reiterate our view that the market backdrop for Cello’s technically based, strategic advisory services is strong and defensive, supporting good growth prospects.
18 Jul 19
Cenkos: Cello Group Plc - Positive update on FY19E trading
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.
08 May 19
Very good start to the year
In a positive AGM statement, Cello has highlighted good like-for-like net revenue and headline PBT growth and confidence in the outlook for Q2. The Cello Health division (77% of forecast operating profit) has had an “excellent” Q1 driven by the consulting businesses and the US overall. This trend is expected to continue in Q2. Signal has had a solid start to the year in line with expectations. The balance sheet remains strong (we forecast net cash of £8.3m at December 2019), supported by better than expected cash conversion. The group continues to assess suitable acquisitive growth opportunities in the US. Overall trading is in line with expectations and we make no changes to our forecasts. We reiterate our view that the market backdrop for Cello’s technically based, strategic advisory services is strong and defensive, supporting good growth prospects.
08 May 19
Small Cap Feast
Induction Healthcare Group plc—a healthcare technology company focused on streamlining the delivery of care by Healthcare Professionals looking to join AIM. Expected raise of £14.58m at 115p, market cap of £34.07m. Expected 22 May 2019. SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019. Distribution Finance Capital Holdings plc — specialist lender which builds relationships with manufacturers and then provides working capital solutions up and down their supply chains to drive their growth is looking to join AIM. No raise, secondary offering of £19.8m at 90p, expected market cap of £95.98m. Expected 09 May 2019. Alumasc Group plc, the premium building products, systems and solutions group, has announced its intention to move from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
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08 May 19
Sector Note -
Topic of the quarter. The housebuilding sector has been a bright spot in the construction and support services sectors. The outlook for volumes remains good but concerns over quality and build costs suggest margins could come under pressure. Supported by the Government’s Help to Buy scheme and the continued undersupply of housing in the UK, housebuilders and suppliers in the sector continue to report positive outlooks. Most recently, Bellway reported a 8% rise in EPS, pre-tax ROCE of 24.2% and gearing of <1%, and it said that trading in the first six weeks of the new year had been strong. These are familiar themes in the sector. Henry Boot announced that it had invested in its management team to support the anticipated growth in its small housebuilding business and that its larger land promotion business had traded strongly as its housebuilder customers achieved strong sales and replenished their land banks (a sure sign of confidence). Fulcrum (utility connections) said that a relatively buoyant housing market had led to a large volume of housing projects secured and delivered in H2. There is change coming though. The Times has reported that the government is reviewing Persimmon’s participation in the scheme due to claims of poor quality and unfair lease clauses. Persimmon recently launched a ‘Customer Care Improvement Plan’. The Secretary for State for Housing, Communities and Local Government has stated that he will be considering carefully how the developers who work with the Government meet the standards and quality that customers expect and deserve. So while the outlook for volumes remains good given the importance of government support (since 2013 0.5m completions have used one or more Help to Buy schemes), there must be a question mark over industry margins. For some housebuilders, there will be an additional cost for improved quality and, separately, Taylor Wimpey has highlighted higher than expected cost inflation. This may in turn put pressure on the wider supply chain. We are about to find out which suppliers can hold their prices based on strong market positions, differentiation and (most of all) quality of service or product.
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30 Apr 19
Investing in new initiatives and enhancing services
Cello reported a good set of FY 2018 results with net fees +2%, PBT +6%, EPS +14% (aided by lower tax), DPS +10% and net cash £6.3m up from £1.6m last year. 2017 acquisitions have continued to perform well and the Health division continues to broaden and deepen the client offering. Looking forward, the focus will remain on growing the group’s presence in the US and leveraging Signal’s digital capability into the healthcare sector. We reiterate our view that the market backdrop for Cello’s technically based, strategic advisory services is strong and defensive, supporting good growth prospects.
27 Mar 19
Cenkos: Cello Health Plc - Organic momentum continues
Today's largely in-line results were well flagged by January's trading update, but there are notable beats on EPS, DPS and Net cash. The group continues its organically focused delivery, leveraging Signal's digital capabilities into the healthcare space, alongside new office openings. This will continue Cello's migration over time into a more healthcare-focused, US-centric and higher margin business. We feel the defensive nature and FCF potential of Cello are not fairly valued in the current share price.
21 Mar 19
Cenkos: Cello Group Plc - Health drives group to further growth
Today's trading update confirms an overall positive performance over FY18E, in-line with our forecasts which expect 10% growth in adj EPS. Underpinning this is a continuation of Cello Health's strong organic growth which has offset a flattish year for Cello Signal. Given strong cash generation, our forecast DPS growth of +3% looks readily achievable. Recent volatility in the share price, based no material changes in underlying trading, presents an attractive entry point at current pricing.
17 Jan 19
Health had an excellent year
Cello has confirmed that the group traded well in 2018, with continued strong growth from Cello Health, offset to some degree by a slower performance from Cello Signal. Overall, results are expected to be in line with market expectations and we make no changes to our forecasts. We reiterate our view that the market backdrop for Cello’s technically based, strategic marketing services is strong and defensive, supporting good growth prospects
17 Jan 19
Sector Note - Support Group
Topic of the quarter: Since our first quarterly at the end of 2015, 14 of the 59 companies we included in our valuation tables have been bid for (one delisted and one rather high-profile company has gone bust) and there have been other bids outside of our watch list. Given that those tables were simply designed to show the range of companies present within the sector – not a hit-list of undervalued opportunities – the fact that 24% of them have been taken over is worth revisiting. The demise of Carillion, severe financial pressure at Interserve and warnings from the likes of MITIE, Capita and Serco have dominated news flow but it should be remembered that the sector is broad and highly varied both in terms of business model and performance. If the troubles of a minority of the sector drag down wider valuations, then there is evidence that there is an army of potential bidders (possibly reinforced by further weakness of sterling) ready to take advantage
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20 Dec 18
Building in caution
We have adjusted our forecasts to reflect strength in Health growth and medium term investment support for the unit. We have also taken down our Signal assumptions given the increasing likelihood of Brexit caution related impact. The net effect is that while 2018 EPS only falls 1.4%, 2019 and 2020 EPS fall 7.1% and 7.4% respectively. Earnings growth is now an uninspiring 2.3% for 2019. We cut out Target Price to 136p resulting in a Hold rating (cut from Buy). Long term investors interested in Health may well be prepared to look through to 2020, while others looking for near term performance and/or those concerned with a negative outcome scenario from Brexit negotiations will no doubt move their money on
22 Oct 18
Cenkos: Cello Group Plc - Renamed, refocused and delivering results
Cello Health has released positive interim results in-line with forecasts, indicating FY18E will be another year of steady growth. The Cello Health business continues to make mid-single digit underlying GP progress, driven by positive market dynamics and a high penetration of the global healthcare community. Cello Signal's digital expertise meanwhile are increasingly being leveraged into the healthcare space, giving rise to potential future margin appreciation. We expect the typical H2 weighting results to recur in FY18E in meeting our forecast +10% adj EPS growth.
19 Sep 18
Morning Note – 19 September 2018
Avesoro Resources (ASO): Corp New Liberty mineral resource upgrade | Cambridge Cognition (COG): Corp NeuroVocalix – first contract | Cello Health Group (CLL): Corp Trading well with good visibility | Hardide (HDD): Corp Upbeat trading update | InnovaDerma (IDP): Corp FY 2018 results – Boots to range Skinny Tan | Premaitha Health (NIPT): Corp Settlement with Illumina – freedom to operate globally | Quixant (QXT): Corp Weighting on a record H2 for gaming platforms | ThinkSmart (TSL): Corp Credible innovator, now developing new opportunities | Universe Group (UNG): Corp Interims
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19 Sep 18
accesso Technology (ACSO LN) Positive first half, full year expected to be in line | Cello Health (CLL LN) Health driving performance | Eckoh (ECK LN) A good start to the year | EKF Diagnostics (EKF LN) Interims slightly ahead, outlook positive | Elektron Technology (EKT LN) H1 19 in line with recently upgraded forecasts | Ergomed (ERGO LN) H1 results: in line with June trading update | Futura Medical (FUM LN) Business update highlights increased focus on MED2002 | ReNeuron Group (RENE LN) Exclusive hPRC discussions stopped: talks renewed with other parties | Yu Group (YU LN) Continuing strong, sustainable growth and cash generation
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19 Sep 18
Strong start to the year
In a positive AGM statement, Cello has confirmed that the group has had a strong start to the year and this looks set to continue into Q2 based on current visibility. Cello Health had a robust Q1 with good sales growth and profit performance and Cello Signal has achieved a solid operating performance aided by last year’s restructuring in the US, and has a good pipeline of future opportunities in health. Cash conversion has been good and the balance sheet remains strong. Cello has developed a strong, core lead integrated global healthcare marketing services brand, creating a breadth and quality of service that others will struggle to provide under their disparate corporate structures. Cello has to prove the benefits of this move, but with net cash and the potential to also leverage its digital expertise into health, there is clear opportunity to create significant value.
09 May 18
Cello Health (CLL LN) AGM | Gresham Technologies (GHT LN) Clareti win with global tier 1 bank | IFG Group (IFP LN) Q1 update shows some progress, cost review in progress | Microsaic Systems (MSYS LN) 3rd small molecule agreement signed this year | Renishaw (RSW LN) Strong Q3 update with modest increase in guidance
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09 May 18
Small Cap Breakfast
Team17 Group -video games label and creative partner for independent developers. Since 2014, delivered a revenue CAGR of 69% (31 December 2015 to 31 December 2017), with revenues of £29.6m and Adjusted EBITDA of £12.9m. Offer TBA Serinus Energy -international upstream oil and gas exploration and production company. Its principal assets are located in Romania (development phase) and Tunisia (production phase). Raising c.£10m. Offer TBA. Due mid May.
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09 May 18
Core global brand leveraging digital expertise into health
Drugs companies spend billions developing drugs, but in many cases do not have the in-house expertise to fully evaluate market opportunities, assess commercial risk and plan routes to market in all the scientific areas they are involved in, in every geography. The market backdrop for Cello’s technically based, strategic marketing services is strong and defensive. The evidence from competitors is that double-digit earnings growth is readily achievable and will be rewarded by a P/E of 20x+. Since 2012, Cello has worked on developing a strong, core lead integrated global brand, creating a breadth and quality of service that others will struggle to provide under their disparate corporate structures. Cello has to prove the benefits of this move, but with net cash and the potential to also leverage its digital expertise into health there is clear opportunity and, for now, we value Cello at a 20% discount to peers, setting a 145p target.
22 Mar 18
Getting closer together
Today’s update contains few surprises, with Cello reporting gross profit (GP) of £102.5m (+11% YoY) and adj EBITDA of £13.5m (+11%). The biggest update lies in the decision to rename the company “Cello Health Group plc”, to better reflect the group’s strategic focus on healthcare advisory services, which are increasingly US focused (30% of FY17A GP).
22 Mar 18
Avesoro Resources (ASO): Corp High grade intersections from infill drilling at New Liberty | Cambridge Cognition (COG): Corp FY results – R&D will drive value | Cello (CLL): Corp Core global brand leveraging digital expertise into health | CityFibre (CITY): Corp Third FTTH City - Peterborough | Quixant (QXT): Corp Place your bet on this ecosystem | Sopheon (SPE): Corp Strong momentum continues | Utilitywise (UTW): Corp Focus on the cash flow
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22 Mar 18
Health forging ahead
Cello has seen a strong performance from Health total growth over 25% and LFL of over 9%. This implies the unit has achieved £60m of revenues. The outlook is good with bookings running well and with the business having invested in capacity there appears no logical block to another strong year at the top-line (5% seems like a soft assumption). Profits have also done well despite the slightly softer margin due to the capacity investment. Signal (-6% on LFL revenue) has seen profits rebound with Pulsar (UK) contributing significantly to the improvement. Looking ahead the Company appears comfortable that it will see some positive growth in 2018 revenue. Assuming that the losses in Pulsar US are ignored (treated as a start-up) the Signal unit should see good growth in EBIT. For 2017 the Company appears to have traded in line with our £11.5m PBT expectation. We expect consensus 2018 PBT to stay around the £12.4m mark. At this stage the upside to the US tax changes could yield c£600k (6% to 7% of earnings), however the Company is working through the detail which is unclear. Until this is clarified we are not changing our tax assumption. We have rolled forward out Target price to 2018 and this comes out at 136p (was 131p). With a TSR of 12.7% this leaves us as a Buyer.
18 Jan 18
All set for another good year
Cello has announced a FY17E trading update, confirming it has traded positively over the course of the year, in-line with our forecasts. Cello Health has continued its strong momentum (9%+ LFL CC) in FY17E, as the group becomes increasingly US focused, aided by successful addition of Defined Health (Feb’17) and Advantage Healthcare (July’17).
18 Jan 18
Cello Group (CLL LN) Health forging ahead | CVS Group (CVSG LN) Positive H1 update allays LFL uncertainty | Halfords Group (HFD LN) Stand-out growth in Cycling but dilutive margin effect due to mix | PROACTIS Holdings (PHD LN) Tender offer for remaining 21% of Hubwoo | Stadium Group (SDM LN) Trading in line with revised expectations | Vectura Group (VEC LN) Forecast changes post trading update: downgrade to Hold |
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18 Jan 18
Topic of the quarter: It’s alive! Infrastructure and assets in general have traditionally been built to provide a fixed service and are maintained and renovated to a fixed schedule – dead and dumb. Technology will completely change this. Sensors and wireless networks have the potential to allow assets to ‘talk’ to us. These living, smart assets will be able to tell us when they need maintenance, how efficient they are being and provide the data that will directly influence their construction, availability and use. The implications for construction costs through to operating costs and the ability to service changing user needs are very significant. The Support Services, Construction and Technology sectors need to work together to maximise this potential, recognise and harness the power of data, and invest in and embrace change. These are daunting challenges in highly competitive markets where politics play a role, different skill sets (that are currently in short supply) are needed and shareholders are looking over management's shoulders. However, the prize for those companies who get it right is significant, and the risk from not changing much greater. There are positive early signs with Crossrail providing tangible examples of Smart Infrastructure using innovative sensors.
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04 Dec 17
Since our first quarterly at the end of 2015, 12 of the 59 companies we included in our valuation tables have been bid for. Given those tables were simply designed to show the range of companies present within the sector, not a hit-list of undervalued opportunities, the fact that 20% of them have been taken over is worth looking at in more detail. At a time when warnings and share price collapses from the likes of Interserve, Carillion, MITIE, DX and Capita and Serco have dominated newsflow, it should be remembered that the sector is broad and highly varied both in terms of business model and performance. If the troubles of a minority of the sector drag down wider valuations then the evidence is that there is an army of potential bidders (reinforced by the weakness of sterling) ready to take advantage.
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26 Sep 17
Healthy American growth
Cello has delivered a positive interim performance with 12.9% growth in gross profit and 8.0% in adj PBT. Cello Health produced strong organic growth (focused in the US) alongside initial recognition of the Defined Health acquisition from February. Cello Signal delivered YoY declines versus a tough comparator, but is expected to rebound in H2/17E to meet expectations. We expect the traditional H2 weighting to results to deliver FY17E numbers in-line with our previous forecasts.
20 Sep 17
Demonstrating very healthy growth
Cello has announced a pre-close trading statement for the interim period, confirming trading across the group has been positive in H1/17, particularly in Cello Health. Given a positive forward order book giving visibility into the traditionally stronger H2, the Board expect strong FY results in line with expectations. We upgrade our forecasts today for the recent acquisition of Advantage Healthcare Inc.
19 Jul 17
Cello Group has announced the acquisition of Advantage Healthcare for an initial cash consideration of $1.5m. Advantage Healthcare is a wellestablished healthcare consultancy providing critical analysis and insight to the biopharmaceutical industry. We see the acquisition adding depth to Cello’s US offering and demonstrating the company’s commitment to its core US market. We maintain our BUY recommendation.
18 Jul 17
CyanConnode* (CYAN): Leader of the narrowband (CORP) | Ideagen* (IDEA): Consistent strength in delivery (CORP) | K3 Capital* (K3C): Director changes (CORP) | Lighthouse Group* (LGT): Trading update (CORP) | Somero Enterprises* (SOM): Strong June trading shows a pick-up in US market activity and affirms FY forecasts (CORP) | Castleton Technology* (CTP): Solid prelims (CORP) | Cello (CLL): Strengthening the offer in Health (BUY) | dotDigital* (DOTD): Yet again – positive trading update (CORP) | Allergy Therapeutics* (AGY): FY trading update drives 7% upgrade (BUY)
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18 Jul 17
Small Cap Lauch
GetBusy PLC—Sch1 from the holding Company of its subsidiary undertakings, which operates as a document management software business with over 110 full time employees, headquartered in Cambridge, UK and operating across the UK, USA, Australia and New Zealand. Capital to be raised via a rights issues of £3m at 28.3p with anticipated market cap of £13.7m. | Work Group PLC—Sch1 from the Company that proposes to acquire the entire issued share capital of Gordon Dadds Group Limited (GDG). GDG is an acquisitive law firm and a group of other complimentary businesses, including Prolegal, an acquisition vehicle model focused on smaller law firm. Capital to be raised is £20m with anticipated market cap of £40m. | Quiz—Sch 1 from the omni-channel and international own brand in the women's value fast fashion sector. Offer TBA. Expected late July. Last year Quiz posted sales of £87.4m while pre-tax profits grew by 17pc to £5.7m . | Arena Events Group -provider of temporary physical structures, seating, ice rinks, furniture and interiors. Raising £60m. Mkt cap £63m. Expected on the Chef’s birthday, 25th July. | Altus Strategies—African focused natural resource Company. Offer TBC. Expected Mid July. | Harvey Nash Group— Provider of professional recruitment and offshore solutions moving to AIM from Main. No capital to be raised. Mkt Cap c. £57.8m. | Greencoat Renewables - Schedule 1. Targeting a portfolio of operating renewable electricity generation assets, initially investing in wind generation assets in Ireland. Offer TBC. Due Mid July. I3 Energy –Schedule 1 Update. Independent oil and gas Company with assets and operations in the UK. Issue price of 55p with anticipated market cap of £14.3m, mid July Admission. | Verditek— Sch 1 update. The Company's subsidiaries will be involved in advanced solar photovoltaic, filtration and absorption technologies specialising in providing environmental services. Issue price 10p. Admission late June. Hipgnosis Songs Fund investment Company offering pure-play exposure to Songs and associated musical intellectual property rights. Prospectus yet to be published. | Impact Investment Trust—Exposure to a diversified portfolio of funds providing SMEs across developing economies with the growth capital they need to have a positive impact on the lives of the world's poorer populations. Raising up to $150m at $1.00. | Curzon Energy—Report on Proactive Investors of intended LSE float this year with acquisition of coal bed methane assets in Oregon. Looking to raise £3m plus. NLB Group—financial and banking institution based in Slovenia, with a network of 356 branches. Seeking Ljubliana Stock Exchange listing with GDRs on the LSE. Expected mid June. | Kuwait Energy— has not been able to complete its initial public offering as announced in its Intention To Float of 3 May 2017. However, in light of positive feedback from potential investors, the Company remains committed to obtaining a London listing and continues to explore its options. | Supermarket Income REIT– Up to £200m raise to acquire a diversified portfolio of supermarket real estate assets in the UK, providing long-term RPI-linked income. Due 21 July.
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18 Jul 17
In light of the UK election, we highlight our favoured overseas earners, operators in defensive markets and those capable of taking market share, but our main topic is the structure of the UK employment market. The UK has the lowest unemployment rate since 1975 at 4.6%, and there are, consequently, fewer and fewer candidates to fill vacancies. This suggests recruitment companies may struggle to grow, but there are structural changes in the UK labour force that offer growth opportunities. Temporary labour continues to expand relative to the point in the economic cycle, its importance accelerating since 2008, and part-time labour has grown at twice the rate of full-time labour throughout both the last cycle and over the long term. There are, of course, specialist temporary recruiters, but the part-time market appears relatively untapped (at least by the quoted companies) despite being c.5x the size of the temporary segment in terms of numbers.
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19 Jun 17
Alliance Pharma (APH): Diclectin to drive double-digit growth (BUY) | OptiBiotix* (OPTI): LP-LDL European licence agreement (CORP) | Intercede* (IGP): Contract wins (CORP) | Cello (CLL): Trading well, enhancement to come (BUY) | 4imprint (FOUR): Encouraging start to the year (BUY)
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09 May 17
Small Cap Breakfast
Opera Investments –Reverse Takeover of Kibo Mining’s subsidiary Kibo Gold. Raising £1.5m. Expected mkt Cap £6.5m. 23 May. Eve Sleep— Schedule 1 from the e-commerce focused, direct to consumer European sleep brand. Offer details TBC. Expected Mid May Velocity Composites—Schedule 1. Manufactures advanced carbon fibre and ancillary material kits (predominantly carbon fibre) for use in the production of aircraft. Mid May admission expected. Offer details TBC. Verditek— Schedule 1 update. On Admission, the Company's subsidiaries will be involved in advanced solar photovoltaic, filtration and absorption technologies specialising in providing environmental services. Issue price 10p. Admission in May. Alfa Financial Software –Intention to float. Mission-critical software platform purpose-built for asset finance enterprises. Vendor sale of 25% plus. FYDec16 rev £73.3m (CAGR of 24% from 2012). Adjusted EBIT £32.8m. Kuwait Energy— $150m raise plus vendor offer. Admission due June. 2p reserves 810.0 mmboe ADES International— Provider of offshore and onshore oil and gas drilling and production services in the Middle East and Africa, seeking raise up to $170m plus vendor sale under a Standard Listing of the Main Market. Admission due May 2017. Global Ports Holding—Intention to float on Standard List of the Main Market. International cruise ports operator. Seeking $200m+ raise including $75m primary offer. Expected price range 735p to 875p. Mkt cap up to £539m Tufton Oceanic Assets– Offer extended to 9 May on specialist funds segment of Main Market to enable investors to complete further due diligence. PRS REIT—Private rental sector REIT raising up to £250m. Admission due 31 May
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09 May 17
Growing in the USA
Cello’s FY16 results reflect in-line trading in the year prior to the acquisition of Defined Health (DH) in February 2017. Performance was driven by Cello Health’s core services continuing their mid-digit growth (5.3% CC LFL), while Signal delivered growth (4.2% CC LFL) on a headline margin above 10%. We expect the company to further increase its US footprint beyond DH in the months ahead, utilising the remaining funds from the recent placing, leading to a more US-centric business.
22 Mar 17
We have run our new quantitative Slide Rule over the Support Services sector. Of the c.500 stocks we have ranked on a Quality, Value, Growth and Momentum basis in the small to mid-cap space, 21 Support Services stocks appear in the top 100. Fulcrum leads the pack, ranked no. 6 out of 500 (and not coincidentally our top pick for the year), closely followed by Brainjuicer (no.7), Sanne (no.8), Learning Technologies (no. 12) and Next Fifteen (no.16). These stocks have high ROCE on both an EBIT and cash basis, strong growth prospects, earnings and share price momentum and valuations that, in this context, remain attractive. At the other end of the spectrum, HSS, Management Consulting, Serco, Mitie and Lakehouse appear towards the bottom of the rankings. Strong returns could, of course, be made if any of these turn their fortunes around, and management has been changed at Lakehouse, Serco and Mitie.
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10 Mar 17
Leveraging technology, investing for growth
Post the placing, Cello has net cash and, with an acquisition, has signalled its intent to invest for growth now that the VAT issue is firmly behind it. We continue to believe Pulsar, its social media tool, is in the share price for free, but also increasingly that Cello has developed a widening range of technologies that are performing well and support good profit growth potential. Cello is moving away from an ‘hours utilised and billed' type model towards a technology-backed model, a more valuable proposition.
06 Feb 17
Cello (CLL): Leveraging technology, investing for growth (BUY) | Water Intelligence* (WATR): Contract win evidences strategic progress (CORP) | Europa Oil & Gas* (EOG): Holmwood farmout (CORP) | Ithaca Energy (IAE): Takeover by Delek (BUY) | Frontier Developments* (FDEV): Initial details of third franchise (CORP) | BATM* (BVC): Diagnostic lab acquisition (CORP) | Orchard Funding* (ORCH): Strenghtening the model (CORP)
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06 Feb 17
A healthy addition
Cello has acquired the assets of Defined Health, a New Jersey based scientific strategic consulting firm for a maximum consideration of $9.3m. Defined Health complements the existing Cello Health business, advising clients at the pre-approval stage in US drug development cycles whilst also accelerating Cello’s penetration of the East Coast biotech market. To finance this and a future M&A pipeline, Cello has raised £15.0m (gross) via a placing at 97p.
01 Feb 17
Small Cap Breakfast
SuperAwesome — The London based specialist in e-compliance is considering an IPO in its home town according to City A.M. Eco (Atlantic) Oil & Gas—TSX-V listed oil and gas exploration has announced its intention to float on AIM. Assets in Guyana and Namibia. Proposed £2m-£3m fundraise. Diversified Gas & Oil—According to LSE website first day of trading on AIM now expected for 30 January
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19 Jan 17
Aggregated Micro Power* (AMPH): Funding for first peaking power plant project (CORP) | The Mission Marketing Group* (TMMG): Positive trading update (CORP) | Cello (CLL): Increasingly backed by, and leveraging, technology (BUY) | 4imprint (FOUR): Growth backed by strong cash flow continues (BUY) | Allergy Therapeutics (AGY): Positive trading update and market share gains drive upgrades (BUY) | Shanta Gold (SHG): Q4 operating results (BUY) | Sound Energy (SOU): Tendrara extended well test result (BUY) | Revolution Bars (RBG): Price target increase (BUY)
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19 Jan 17
Following on from our last quarterly we have delved further into the potential and challenges that the Internet of Things present the sector. Having spoken to a wide variety of companies from the sector (large and small, UK and overseas) it is apparent that there is going to be a very significant increase in the amount of data either generated by or available to Support Service companies. The key to generating value from this change will be breaking down the silos in which data is currently held, attracting and investing in the right skills and talent, seeing beyond the short-term investment that is likely to be needed and engaging with clients on a higher, more strategic level. If the sector doesn’t react, then the door is wide open for the Technology sector.
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17 Nov 16
Seeing Machines* (SEE): Fleet has 100,000 units under trial (CORP) | Horizonte Minerals* (HZM): Pre-Feasibility Study completed (CORP) | Victoria* (VCP): A solid underlaying story (CORP) | Shanta Gold (SHG): Drilling results from Singida (BUY) | Avesco* (AVS): Just in time! (CORP) | Cello (CLL): Analyst interview (BUY)
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03 Oct 16
Cello has an overlooked and potentially significantly undervalued asset that is now out of development phase. Cello Pulsar is a social media analytics tool that has significant points of difference to the competition. In the right hands, social media data can inform, direct and optimise marketing campaigns but to date its usage has been constrained by early-stage science and customer unfamiliarity. Competitors in this area have individually raised nearly half of Cello's market cap, emphasising Pulsar’s potential to add very material value to the share price. We initiate at Buy.
28 Sep 16
ACCESSO TECHNOLOGY GRP PLC (ACSO LN) | ARIANA RESOURCES (AAU LN), CELLO GROUP (CLL LN) | CHARACTER GROUP (CCT LN) | DRIVER GROUP (DRV LN) | EPWIN GROUP PLC (EPWN LN) | FOCUSRITE PLC (TUNE LN) | PARKMEAD GROUP(THE) (PMG LN) | VIPERA PLC (VIP LN)
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14 Sep 16
After taking advice Cello has issued a statement re the HMRC VAT issue. Sadly the matter remains unresolved and a frustration. However the stock has overreacted in our view and with the business performance strong (see recent results) we see this as an opportunity to Buy stock. The background is that Cello made an offer to HMRC in December to settle matters and provided additional information in January. HMRC only responded recently and Cello received this on afternoon of 21 March. The response rejects the offer, is unconstructive and fails to confirm how the VAT should be calculated and what the bill should be. We struggle to see how the bill could be stretched to double the provision (VAT element of £2.4m) and have already very conservatively assumed in our cash flow forecasts that the current £3.2m provision (including penalties and interest) is paid without recovery from clients (who are ultimately liable and who Cello is indemnified against). We still believe our approach to be conservative and think that even in the most extreme circumstances the underlying bill could not exceed £5m and this would be before recoveries from clients. HMRC appears guilty of creating uncertainty that is affecting operators in the charities sector (this issue relates to the ambiguity of which services carry a zero VAT rating for charities). The shares fell 8.5p implying an incremental loss of £7.2m of value. While the sentiment may not help the reaction is overcooked. Our 100p TP already reflects a sentiment discount for VAT. Buy.
24 Mar 16
Cello has met our profit expectations for the full year with revenues a slightly better and encouragingly Health being the driver with LFL of 4.7% (the smaller Signal unit managed a respectable 3.7%). Investors receive a better than expected dividend which has been increased 10%. Trading momentum has remained strong with good bookings continuing to build visibility. This reflects the strength of the Health offering and greater recognition by customers with average contract size rising. Health has secured new clients through its expansion and the Boston and Chicago expansions appear to be performing. The Signal brand/product offering consolidation has been completed and critically appears to be successful with larger clients. The margin improved 80bps to 9.5% and helped in part by Pulsar turning profitable. There is no update on the VAT issue save the Company as reiterated that it believes its total provision of £3.2m is appropriate (the payment of this is already included in FY116 forecasts). Health will make a payment of £0.9m to a former employer of several employees in Cello bio-consulting to free them off restrictions. The hires in this area are key to boosting momentum in US consulting and matching the strength of UK consulting. Cello had already confirmed trading results for FY15 and the key news today is that strong wins and visibility are being secured. With this in mind and even allowing for the VAT sentiment issue (that should fade) the shares are likely to be worth c100p even on a depressed 7x FY16 EV/EBITDA basis and a fuller valuation would suggest over 130p (10x EBITDA for Health and 8x for Signal). We upgrade to Buy with a 100p TP.
17 Mar 16
Cello Group (CLL LN) Prelims | Centaur Media (CAU LN) Prelims | Imagination Technologies Group (IMG LN) Significant further cost reductions | Marshall Motor Holdings (MMH LN) Quality franchise mix, B/S and growth outlook for just 9x | Safestyle UK (SFE LN) Capital returns and factory expansion for growth | Vernalis (VER LN) Interim results impacted by a mild US flu season
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17 Mar 16
Cello has confirmed that it has achieved results in line with market expectations for 2015. Full year LFL growth is expected to be c4%, with both units at a similar level. The Health business Is making good progress with its North American expansion. The majority of the Health business is growing well (c80%) with only the small Consumer business down on project deferrals. The balance of services in health makes the business robust. Signal business now operates under one incentive structure and is being marketed under the Cello Signal brand. Won RBS advertising creative off M&C Saatchi and there is scope to expand the relationship. This marks a radical improvement in Signals business position and highlights the improved state of the offering. The VAT situation is unchanged and there is no change to liability estimate. On outlook the Company indicates a good start to 2016 and we understand visibility is good in both businesses. Due to equity market weakness the shares have drifted into value territory and we will review our numbers and view in more detail.
27 Jan 16
Medium term picture good but near term drags
We downgrade to Hold from Buy. While strategic progress and development appears broadly on track and in line with the medium term goal of building value in Health, the near term looks likely to be dominated by the VAT issue and to a lesser extent investment costs. The VAT issue is absorbing management time and we now assume there will be some drag from something we had expected to have been dealt with. Our TP moves to 90p (from 131p) and rating to Hold pending some positive news.
18 Sep 15
Applied Graphene Materials (AGM LN) Full year update highlights commercial progress | Cello Group (CLL LN) Medium term picture good but near term drags | Dechra Pharmaceuticals (DPH LN) Strategy playing out | Imagination Technologies Group (IMG LN) Short term issues mask medium term progress | Verona Pharma plc (VRP LN) Evaluating the potential
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18 Sep 15
The H1 revenue picture is good with gross income ahead of our expectations and new investments working well in both divisions. While the H1/H2 profit split does vary year to year the business looks to have higher costs than we expected and therefore expect to tweak down our PBT by circa a quarter of a million pounds. The contingent liability taken at the yearend for VAT has been turned into a provision and has edged up from c£0.8m to £1.1m. There is some mutterings about further VAT liabilities although this still seems to be outside the established issue area and there is no definitive HMRC position at this stage from what we understand. From a top down perspective Cello is delivering on its strategic development plans and this gives us greater confidence in our modest revenue growth assumption’s for 2016.
16 Sep 15
The Company has issued a trading update today covering H1. There is no new news with respect to the trading of the two units or the expected profile of profits and investment in the year. Net debt is also in line and the group goes on to reiterate its confidence in meeting market expectations for the full year. There is an update on the VAT issue that confirms no need to change the current provisions made. Cello has been building a good record of delivery and todays update continues this. We remain bulls of the stocks and reiterate our Buy rating.
21 Jul 15
AMINO TECHNOLOGIES (AMO LN) Strong interims and transformative acquisition | AUGEAN (AUG LN) Strong H1 performance, in line with expectations | CARADOR INCOME FUND PLC (CIFU LN) NAV -0.4% in June, 2.5c dividend declared as expected | CELLO GROUP (CLL LN) On track | CRODA INTERNATIONAL PLC (CRDA LN) Confident interims confirm on track for a return to growth | MOBILE STREAMS (MOS LN) FY’15 profits and cash in-line | RENOLD (RNO LN) Q1 trading a little disappointing | SCAPA GROUP PLC (SCPA LN) Trading in line; Swiss facility to close | VICTREX (VCT LN) Solid performance despite Invibio underperformance, small acquisition
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21 Jul 15