Following on from the well-received interim results (29th September), Next Fifteen has provided a further Q3 trading update. The key headlines are that positive recent trading trends continue and, allied to strong cost control measures taken throughout the year, have resulted in profit expectations being raised for the current year. We have upgraded our estimates accordingly; marking the second material upgrade we have made since September. Initial concerns that the pandemic would materially disrupt client demand and spending patterns have proven largely overstated. The speed at which revenue has been recovered has been matched by impressive cost actions; not least around the fixed property overhead within the group, which has resulted in higher drop through rates than the group has experienced in the past. The key question looking forward is whether the legacy of the pandemic will be a lower fixed cost base for the group. Revenue mix effects are likely to continue to cloud the answer but our sense is that Next Fifteen has been successful in laying the foundations for structurally higher margins looking forward. Despite a strong recent run (+37% since late August), Next Fifteen still trades a material PE discount to its immediate peer group. Given the positive trading and margin momentum evidenced today, this looks harder to justify.
Companies: Next Fifteen Communications Group plc
Heading into the pandemic, we had argued that Next Fifteen’s broad spread of digital capabilities and heavy exposure to technology led clients should be a source of relative strength. The H1 trading update has underscored just how resilient the group has been. Yes, there have been impacts but the inevitable hit to organic revenue growth has not been as severe as first thought. Combined with the contribution from strongly performing acquisitions made over the last two years, Next Fifteen will be reporting H1 revenue and profit comfortably ahead of the prior year, which is a remarkable outcome against such a backdrop. Next Fifteen has also announced the acquisition of the innovation consultancy, Mach49, which marks the first concrete step in building the fourth pillar underpinning the group portfolio. The group balance sheet remains a source of strength (H1 net debt to be less than £1m); reflecting both the better than expected profit performance as well as effective cash preservation and working capital management. This positions the group well for any further accretive M&A. The current FY1 PE of 13.0x, falling to 11.3x for FY22 feels undemanding given the positive performance through the pandemic and the subsequent positioning heading into any sustained recovery. The rating also looks undemanding relative to others in the immediate peer group and the broader Small Cap Media sector.
Next Fifteen’s FY20 final results did not contain any material surprises, following the detailed trading update in March. Headline revenue growth was 11% and adjusted PBT grew 10%. Beneath the surface; we saw a small decline in organic revenue growth (well flagged) more than offset by positive contributions from recent acquisitions. Critically, Next Fifteen exited FY20 with a strong balance sheet (net debt less than 0.2x EBITDA) and significant financial headroom (we estimate c.£35m). Next Fifteen did not shy away from the severity of the current crisis, even as far as to give an indication of the potential organic revenue impacts (-5%.to -25%) for the two thirds of the group most likely to be exposed. The key point here being that at least one third of the group will be largely unaffected and the effects elsewhere will vary considerably by agency specialisation and client industry exposure. After factoring acquisition contributions and cost reduction measures, we believe this will translate into a flat revenue performance in FY21 and a 5% decline in YoY adj. PBT. All things considered, this feels like a solid outcome from a business differentiated by the quality and positioning of its client base.
The trading update for the year ended Jan 2020, did not contain any new news as such. Both Beyond and Archetype had been well flagged to the market as likely net detractors to the group in the current year. However, it is clear that the initial client losses at Beyond have not been recovered enough by new client wins to protect the group bottom line and we are adjusting our estimates accordingly. Despite this negative, the rest of the group is performing well with a blended organic revenue growth of c.10% outside of Beyond and Archetype. The outlook statement is broadly positive, Beyond notwithstanding, with 2020 expected to be a year of growth and strategic progress. Even after factoring a small reduction to FY 2020 and FY 2021 estimates, we still see Next Fifteen delivering 11% PBT growth in FY 2020 and 15% in FY 2021. The calendarised FY 2021 PE is 13.1x, a 16% discount to the slower growing and more highly geared peer group.
Intention to float by Gemfields Group. No Capital Raise. Currently listed on JSE. (GML:JNB) at circa £122m. The Group's key producing assets, the Kagem emerald mine in Zambia (believed to be the world's single largest producing emerald mine) and the Montepuez ruby mine in Mozambique (one of the most significant recently discovered ruby deposits in the world), are both expected to have long mine-lives with potential for expansion. Also owns the Faberge brand. Due Valentines Day 2020.
Companies: ITX SPE EYE CNC ANX ONC NFC BOD FEN ECSC
The NFC rating has come under pressure due to a combination of macro concerns and a 1% organic revenue decline just reported for H1 FY2109. The organic decline is largely driven by two of the seventeen portfolio businesses with organic growth elsewhere in the portfolio improving from previous data points. We expect the issues at Beyond to correct through H2 which, combined with healthy organic growth elsewhere in the portfolio and a full contribution from Health Unlimited, leads us to upgrade our FY 2020 expectations. NFC now trades at a PE discount to both the Agency and Small Cap Media peer groups despite a superior growth profile. The balance sheet remains comfortable.
Next Fifteen (“NFC”) has delivered another set of robust final results; in-line with our, and market, expectations. Consistent with prior years; revenue growth (14% headline and 6% organic) and margin expansion have been driven out of the UK. NFC has a good track record of taking advantage of strength in one part of the portfolio to address challenges elsewhere. It is now the turn of the North American roof to be fixed while the UK sun is shining; with the Text / Bite merger the main news item in North America. NFC has also taken the opportunity to disclose its performance by business line as well as geography. This added clarity should help investors better understand the key digital growth drivers. NFC continues to trade on undemanding multiples compared to the peer group and the outlook commentary speaks of confidence for FY2020.
In what has felt a febrile market, the recent pre-close trading update was reassuringly brief and solid. Life continues largely as normal for Next Fifteen. Acquisitions made over the last few years are delivering strong growth; providing management with a good opportunity to actively manage the North American portfolio; where the Text100 and Bite agencies are being merged. The acquisition of Planning-inc continues the wellestablished pattern of NFC paying attractive initial multiples for fast growing and profitable digital marketing assets, often with highly specific and niche applications. NFC’s track record here speaks volumes to the focus and rigour of management’s approach. The NFC forward PE has come down a notch or two (alongside the peer group) and currently stands at 13.8x on a Calendar 2019 basis. We believe this reflects a moderation of market risk appetite rather than a specific judgement on NFC.
Circassia Pharma (CIR.L) - specialty pharmaceutical company focused on respiratory disease transferring from the Main Market. No funds being raised. Due 4 Feb.
Companies: STOB NFC BKY TSG TMT BIDS MSYS GEO SPE LGT
Next Fifteen (“NFC”) has released good H1 results; delivering healthy 9% group organic revenue growth, 25% EBITA and EPS growth and a 20% hike in the interim dividend. The UK has replaced North America as the prime driver of group growth, especially at the profit line, where performance was ahead of our expectations. North America was more subdued, although organic revenue growth was still a healthy 7%. The interims underline the importance of the UK restructuring and refocusing that has taken place over the last four years. The acquisition of fast growing, higher margin innovative and digitally focused businesses are now making a material contribution to the group bottom line. The NFC share price has continued to perform well through 2018 yet the valuation still does not feel stretched at a PEG of c.1x.
RA International is a leading provider of services to remote locations in Africa and the Middle East looking to join AIM raising £18.8m and 56p, market cap of £97.2m. Expected 29 June
Cake Box Holdings—franchise retailer of cakes with a growing store base across the UK looking to join AIM, Sell down of £16.5m, Mkt Cap £43.2m. Mar18 FY rev £12.8m, underlying earnings £3.7m. Due 27 June.
Mind Gym. Behavioural science business that uses scalable proprietary products to deliver human capital and business improvement solutions to large corporations. Offer TBA. Due 28 June
Yellow Cake will use its expertise to generate value through the ownership of physical U3O8 (Uranium) together with a range of activities and opportunities connected with owning physical U3O8. Acquiring supply contract for up to $170m. Due Early July.
Knights Group— UK regional legal and professional services businesses. FYApr18 rev £34.9m and adjusted operating profit was £6.8m excluding Turner Parkinson (acquiring on IPO). Offer TBA, expected 29 June.
TransGlobe Energy Corporation—an independent international upstream oil and gas company with headquarters in Calgary, Canada is looking to join AIM. No Capital to be raised, market cap of £131m. Expected 29 June
Strongbow Exploration (TSX:SBW) intends to dual list on AIM. Holds rights to the South Crofty underground tin mine, a former producing tin mine located in the towns of Pool and Camborne, Cornwall . The project is estimated to require the Company to raise £25 million over the next 18 months to progress to a production decision. Offer TBS. Due June.
Companies: NFC LOGP AUG KAT ZPHR EDL SNG UVEN TSG SYME
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Companies: Bango plc
Gateley’s H1 update is highly impressive, confirming a year on year improvement in activity levels in September and October and a strong sense of optimism at the beginning of H2. The Platforms continue to drive new business, whilst operating margins have benefited from cost actions taken in response to the pandemic (H1 PBT will show growth year on year). In light of the confident tenor of the statement, we reintroduce headline forecasts this morning, assuming stable revenue this year - which would be a considerable achievement - with profits returning to pre-pandemic levels by FY23.
Companies: Gateley (Holdings) Plc
In an encouraging H1 update, Gateley has detailed that the Group’s activity levels and revenue generation continue to follow an improving trend with monthly activity during September and October being in excess of prior year. Sales in H1 2021E are expected to be not less than £50.0m (-3.5% on H1 2020) but adj. PBT is expected to be not less than £7.0m, up from £6.6m as cost-reduction initiatives benefited. Net cash was £9.6m at October 2020. We have reinstated forecasts, assuming H2 sees some increase in costs as salaries normalise and a bonus is accrued before more normal growth rates resume. Similarly, we assume dividends resume with a final in FY 2021E. We reiterate our view that Gateley’s proven model provides good growth prospects, supported by the addition of high-quality staff and acquisitions, strengthening the range of services offered.
Boku has released a trading update confirming that EBITDA is likely to be ahead of consensus expectations for FY20. As most of the upside is due to COVID-19-related cost savings, we have upgraded our FY20 EBITDA and EPS forecasts by 10% and 15%, respectively. We leave our FY21/22 forecasts unchanged, pending a more detailed trading update in January that will cover the busy December holiday season.
Companies: BOKU, Inc.
In its trading update, management confirmed that adjusted FY20e PBT is expected to be c €52m, a 27% increase y-o-y and 12.7% ahead of our prior estimate, with revenues of €367m, 0.5% ahead of our prior estimate. FY20e margins of 14.2% vs 12.5% in FY19 are driven by improved operational leverage and tight cost control, together with COVID-19 related cost reduction (eg marketing, travel). Having pared back our forecasts at the start of the COVID-19 pandemic, we now upgrade our FY20 estimates for a second time to reflect the significantly stronger margins in H220e, raising our FY21 estimates and introducing our FY22 estimates. We have also incorporated the US$32m acquisition of the LA-based marketing services business, gnet. With substantial financial resources following its £100m placing in May, management remains focused on its M&A agenda.
Companies: Keywords Studios plc
Pressure Technologies has announced that it has raised £7.5m through a Placing, via an accelerated bookbuild, and PrimaryBid offer at 60p/share, a 4% discount to the closing midmarket price on 27th November 2020. The net proceeds of the fundraise will be used to accelerate growth in the fast developing hydrogen market, build the group’s capability in Integrity Management and to strengthen the balance sheet. As Nomad and Broker to the fundraise we are restricted and can therefore provide factual comment only. The Placing and PrimaryBid offer are subject to shareholder approval at a General Meeting to be held on 17th December 2020.
Companies: Pressure Technologies plc
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
FY2020E has been a challenging year on a number of fronts and a significant loss is expected on revenues down 12% at c.£25m and also impairment charges of c.£14m. Nevertheless, the Group enters FY2021E in better underlying shape, with benefits to follow from reorganisation and restructuring, and investment in sales, engineering capability and systems. This provides a platform to capture growth, albeit that no recovery is expected in the next 12 months in the oil & gas market, now c.35% of FY2021E revenue. Efforts to diversify both its customer base and end markets have been successful, with growing opportunity in the defence, industrial and hydrogen sectors in particular. Our forecasts anticipate profitable growth in both FY2021E and FY2022E, leaving the shares on forward PERs of 21.8x and 12.1x for FY2021E and FY2022E respectively.
Appreciate is the UK's leading voucher, gift card, and e-code provider, working with brands from Iceland to Halfords to Boots. It sells its pre-paid products to corporates as well as directly to consumers. It also runs the UK's largest Christmas Savings scheme, having helped some 2.7m families put money aside for Christmas expenses over the years.
In Appreciate, we see a business that's undergone significant change and modernisation since 2018. Under its highly competent and dynamic management team it has transformed from a Christmas savings business that physically produced hampers, to a pure play financial services business with material growth prospects in the longer term.
Companies: Appreciate Group plc
Oxford University and AstraZeneca announced the first interim analysis from the Phase III study of its COVID-19 vaccine candidate, which was found to be 70% effective in preventing COVID-19. This follows similar announcements from Moderna, and Pfizer/BioNTech in the previous two weeks, and the caveats we mentioned at the time remain the same. While all of these results have been highly encouraging, we reiterate that they do not diminish the urgent need for COVID-19 treatments and testing, which will be required for years to come. We consider Synairgen, Avacta, genedrive, Omega Diagnostics and Open Orphan to offer good buying opportunities.
Companies: AVCT ODX SNG GDR ORPH
Keystone Law has announced a trading update indicating that the Group has performed well through the second half of the year and that like-for-like performance has returned to near pre-COVID levels. This results in the Group expecting to see results “comfortably ahead of current market expectations” for FY21 which we see as a strong message and reiterate our buy rating.
Companies: Keystone Law Group Plc
Rhino’s second series of 5-year bonds offers exposure to a private company with an enticing set of characteristics, combining significant growth potential with proven ability to deliver over a 40-year history. Having spent several years shifting its business model away from capital-intensive production towards closely controlled licensing, and then investing heavily in increasing exposure at the top level of international rugby, Rhino is in a position to generate significant free cashflow to service this 5.5% coupon and offer attractive growth potential, further strengthening debt serviceability ratios.
Companies: Rhino Rugby Bonds Plc
Braemar’s associate AqualisBraemar (AQUA-OSL) announced an acquisition and equity raise yesterday that was very well received by investors. The AQUA share price finished the day up +25%, meaning Braemar’s stake (which is on the balance sheet at £7m) is now worth £13.4m. This provides increased support to Braemar’s valuation and a significant potential source of funds if the stake were to be realised in the future. In the meantime, it provides a useful and increasing source of dividend income (prior to yesterday’s deal, we had forecast £0.6m dividend income p.a.) and we continue to highlight the strategic progress the new management team at Braemar is making and the very significant valuation gap to closest peer Clarkson (December 2021 P/E 22x).
Companies: Braemar Shipping Services plc
WEY has delivered an impressive set of results this morning, significantly ahead YoY, meaningfully outpacing our expectations on the revenue, profit and EPS lines. With strong revenue growth of 38% feeding through to 103% EBITDA growth and adj. EPS up 100%, the inherent efficiency of the model, supported by rising student numbers, is manifest. Educating ‘3,000' students, WEY is larger than any UK secondary school. Moreover, while providing a collegiate, online education, WEY is a clear beneficiary both of long-running and fundamental drivers, and of the current Covid-focused environment. With the benefits of past investment effectively displayed in today's results, the company continues to do more to grow its platform, present and future, and has highlighted an ongoing commitment to investing in the business to provide further support for future profit acceleration. Our Fair Value assessment is 34p per share.
Companies: Wey Education PLC
ValiRx (VAL.L*): VAL201 Clinical Trial Full Data Results | Omega Diagnostics (ODX.L): Interim results
Companies: ValiRx PLC (VAL:LON)Omega Diagnostics Group PLC (ODX:LON)