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Kape has provided a brief trading update ahead of its AGM, flagging continued strong performance in-line with current market expectations. The integration of the recent PIA acquisition remains on-track to deliver at least $3.5m- $4.5m of cost synergies, although we believe the revenue synergy potential of improving currently below-market average PIA ARPUs by enabling access to Kape’s faster and more advanced infrastructure will prove more valuable in the medium-term. Management have reiterated guidance for revenues of $120m-$123m (N1Se: $122.6m) and adj EBITDA of $35m-$38m (N1Se: $36.6m), whilst also announcing further progress in its product development roadmap and the successful repayment of the temporary bridging loan from Unikmind. Our prudent assumptions for FY’20E generate an adjusted FCF of $19.0m, representing a 4% yield at current valuation, although we see a number of areas for potential outperformance.
Companies: Kape Technologies
CAP-XX Ltd* (CPX.L, 3.1p/£10.1m) | Gfinity plc* (GFIN.L, 1.675p/£12.0m) | MTI Wireless Edge Ltd* (MWE.L, 38.5p/£33.8m) | Newmark Security plc* (NWT.L, 1.05p/£4.9m) | Mirada plc* (MIRA.L, 95.0p/£8.5m)
Companies: CPX GFIN MWE NWT MIRA
Kape Technologies was one of the first companies to report an uplift in the usage of its products and solutions as the early effects of COVID-19 lockdowns started to be felt around the world. Today’s AGM statement confirms that Kape has continued to trade strongly so far in 2020 with increased demand for its products as remote working has become the norm. It has also made further enhancements to its product offering which, inter alia, will improve user engagement and retention. Kape has been able to reopen regional offices in certain locations while the remainder of its employees successfully continue to work remotely. Management remains confident of delivering the cost synergies outlined at the time of the transformational acquisition of PIA last November and is already seeing an uplift in the growth of new users, from the introduction of Kape’s user acquisition knowhow and technology into PIA. The Group has reiterated guidance for revenues and Adjusted EBITDA of $120-123 million and $35-38 million respectively for the current financial year. We leave our estimates unchanged while noting the positive momentum in the business.
Future’s H1 results highlight the benefits of the Group’s diverse revenue model. Group sales grew 33% y/y to £144.3m (organic: +11%; N1Se: £145.0m), with AOP up 77% to £39.9m (organic: +40%; N1Se: £38.7m). Organic Media sales growth of +21% y/y reflects strong online user growth, with H1 average monthly online users up +26% to 253m, driving eCommerce sales up +68% organic. Online audience growth rapidly accelerated post lockdown (+66% y/y in March) supported by gaming and Live Sciences verticals. Magazine revenues, particularly at TI Media, have been impacted by lockdown, yet the opportunity to leverage Future’s Vanilla platform and SEO expertise to drive growth in TI’s asset base remains significant. We make no changes to forecasts, yet with strong H1 performance, H2 forecasts look undemanding with risk to the upside. Future offers a 7.4% FY’21E FCF yield on our conservative forecasts.
AGM statement upbeat; co on track; Buy
VPN usage underpinned by media and WFH trends
The Mission’s trading update indicates some early signs of increasing activity among clients in the technology, healthcare and property sectors. The overall trading background remains difficult, but the group has adapted its ways of working relatively smoothly, with the benefit of earlier moves to centralise IT and support functions. Group agencies have also been doing some COVID-19-specific work and community support, including a promising wearable proximity monitor from Pathfindr, developed within the group’s business incubator, fuse. Cost savings, including reduced salaries and non-payment of the FY19 final dividend, are helping preserve cash. Guidance and our forecasts remain withdrawn.
Companies: The Mission Group
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
Companies: AMO BGO FDM GAMA KAPE LOOP TERN ZOO
We believe last month was the bottom for the share price. Trading may deteriorate in Q2 as flagged but the fundamentals of the market XLMedia is selling into have not changed that much. There's certainly nothing in the price for the US opportunity and the balance sheet is rock solid.
In Q1 20, total advertising’s revenue (+2%) was in line with expectations and ITV Studios’ revenue (-10% organically) was impacted by the stopping of production since mid-March 2020. Advertising deteriorated in April 2020 (-42%) due to the lockdown and the cancellation of advertising campaigns. This may be a bottom considering the resumption of economic activity by the end of H1 20. ITV confirms cost savings, the reduction of capex and the cost of programmes.
Zinc has given an encouraging update - demonstrating resilience during a time of severe industry disruption. Notwithstanding this challenging environment, Zinc continues to make strong progress against strategic objectives - we find this highly encouraging. With cash of £3.4m, a new OD facility, a good pipeline and lower costs we believe Zinc is well positioned to navigate this period and furthermore emerge a more effective and efficient company. We continue to believe that Zinc’s £4m market cap fails to fairly reflect the business’ opportunities.
Companies: Zinc Media Group
Centaur has provided an update offering further insight into trading post-lockdown. Encouraging performance has been noted across digitally focused segments, with MiniMBA (e-learning) seeing strong demand and contract wins in Econsultancy and XEIM labs supporting clients with digital transformation projects. The Lawyer subscription renewal rate, supported by premium content, also remains healthy. As previously flagged however, Telesales has seen a sharp drop in sales as a function of disruption to customer businesses; c50% of MarketMaker staff have been furloughed to minimise impact to profits. H2 events are also at risk, although the Group is considering online formats early in order to reduce irrecoverable costs and maximise delegate and sponsorship revenues. Focus on near-term cash preservation has led to the prudent decision not to pay the final FY’19 dividend, saving £0.7m of cash. The Group held cash of £6.7m at April 3rd, with potential access to undrawn banking facilities of £25m subject to positive discussions currently being held to amend covenants should short-term liquidity be required. The range of outcomes remains wide, and we have no forecasts published at this time, however at 0.6x EV/ FY’19 sales the Group looks to be priced as a distressed asset. Given balance sheet strength, a building recurring revenue model and improving high-margin revenue mix, this valuation looks incongruous with fundamentals in all but the most extreme downside scenarios.
Companies: Centaur Media
Catenae Innovation, formerly Milestone Group, is an AIM listed media and technology group which has recently completed a major restructuring under a new senior management team. The refocused strategy concentrates on the areas of media and fintech, delivered via a portfolio of synergous products, via subsidiaries and partnerships which take advantage of blockchain and distributed ledger technology.
Companies: Catenae Innovation
Informa reported solid H1 18 results – including UBM from 15 June, with +4.3% revenue growth and +1.9% growth in adjusted operating profit. The operating margin was therefore a tick lower than last year’s restated accounts at 30.8% (versus 31.1%). The company is confident of the UBM integration and confirmed its target of 3.5% underlying revenue growth in 2018 and said it is on track to deliver savings targets of £50m in 2019.
Companies: Informa Plc Ord
Bonhill reported a maiden profit in the nine months to December 2018 and results ahead of expectations driven by a record performance from InvestmentNews. The company is now seeking to acquire Last Word Media, a highly complementary UKbased B2B media businessserving the global asset management industry, for initial consideration of £8.0m (cash & shares). To fund the acquisition, the group is raising £10.0m (gross) via a placing of new shares at 84p per share. Pro-forma forecasts have been included below. We have increased our TP to 128p (107p).Buy.
Companies: Bonhill Group