Interim results highlight the impact to the business from the nationwide lockdown that started in late March and began to ease in mid to late May. Within today’s results, the outlook statement is probably of most interest. The strong demand highlighted in the trading update in July has continued through August and into September. With the balance sheet in a strong position, post the fund raise, demand firmer than expected and national competitors struggling, Safestyle is in a good position. The recovery had been well underway until the COVID-19 lockdown interrupted operations but Safestyle has come through it in a position to capitalise on good market demand and weak competitors. Revenue numbers for FY20 increase marginally to c. £110.0m but profit forecasts are unchanged. The level of order intake has outstripped the short-term capacity to install orders leaving the order book 82% higher yoy, indicating that the run rate into FY21 should be positive in terms of forecasts.
Companies: Safestyle UK Plc
Since the recommencement of operations in May (14th) demand has been much stronger than anticipated. For the last eight weeks order intake has grown 23.2% with the order book at the end of June 45% higher than at the same point in 2019. This has forced management to increase capacity further, whilst increasing lead generation spend and a shorter furlough period than we had assumed as workers came back earlier. The resulting additional costs incurred are likely to mean H1 profitability will be lower than we might previously have thought. Whilst hopeful that this will be offset in H2 as installations increase, we take a conservative view leaving revenue forecasts unchanged but increasing cost assumptions. Estimates in FY21 are left unchanged, and whilst visibility remains low as to where underlying demand might settle post the initial pent up demand post lockdown, the potential for government assistance to underpin a strong market over the next 18-24 months is high.
The AGM statement indicates that Safestyle will restart operations during the remainder of May. In the first instance, this will involve manufacturing and surveying with installations and selling following. This announcement is welcome and shows the beginning of a return to normalcy and is in line with the actions of other building product companies. Post the placing at the end of April, the balance sheet has good levels of liquidity with excess of £12.0m. This could fund the business well into the next financial year if it was required and debt covenants continued to be waived. With operations restarting this will not be necessary and the strong balance sheet can be utilised to increase market share at the expense of weaker competitors. Forecasts are unchanged having been updated post the placing, assuming a stringent two month lockdown followed by a gradual recovery in H220.
Safestyle announced the successful placing to raise £8.5m to further strengthen the balance sheet and see the business through the current COVID-19 situation. The placing price of 17p was a slight premium to the previous night’s close and a c.20% premium to the 14p low on the 3rd April. Post the placing, covenants on Safestyle’s debt have been waived for up to six months and a reduced EBITDA covenant target will be in place for the rest of FY20. The improved banking terms, in combination with the additional funds raised, puts the business in a strong position, as and when trading returns to a degree of normality. It is still too early to ascertain when social distancing measures will ease, but Safestyle has the headroom not only cope for an extended period but also, importantly, to invest to take market share, when the time is right.
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Following on from Boris Johnson’s statement yesterday evening, Safestyle has announced a temporary closure of its sites across the UK along with the cessation of all installation activities. This should not come as a surprise; management had indicated last week this was a likely short-term outcome as the pandemic progressed. With the turnaround at Safestyle having picked up pace in the final few weeks of FY19 and into the early part of FY20 the impact from Covid-19 is frustrating. However, the short-term focus is on dealing with the issues and the business is in a far better shape to deal with the situation than it has been for some time with extended financing facilities and a leaner more variable cost base.
FY19 results are in line with the detailed guidance provided at the time of pre close trading update in late January. Revenue of £126.2m was 8.4% ahead yoy highlighting the progress the business has made in recovering from the issues it experienced in FY18. A return to profitability was achieved in the middle of the year on the back of a much-improved performance in revenue and margin, gross margin increasing 240bps yoy. This signalled the end of stage two of the recovery process set out by the management team. Stage three, accelerating growth, had begun in earnest with the year-end order book up 24% yoy. The good order run rate continued into the first two months of FY20 with both revenue and profitability materially ahead on FY18.
The business is steadily getting back to where it was pre 2017. The management team has only been in place for a year but in that time has worked hard to stabilise the business and return it to profitability. Confidence of where the business is in the turnaround strategy is evidenced by the announcement today that it will significantly invest in marketing over the next three years. This will underpin an increase in the order book and drive profitability. Investment started in Q419 driving market share gain and an improved order book but has meant profitability is marginally below expectations, at (1.5m). Importantly revenue of £126.2m was broadly in line with ZC forecast (£128.7m) and the strong growth in the final weeks of Q4 suggest the run rate into Q1 of FY20 was good. The turnaround part of the strategy has been executed. The business is now in the recovery phase with the return to profitability in Q319 and the commitment to increase marketing spend to drive profitability over the next three years.
H119 revenue increased 6.4% to £64.4m (HY18: £60.5m) with Gross Profit increasing 14.2% to £16.6m (HY18: £14.6m) as margins increased 177bps to 25.8%. The improvement in the top line combined with cost savings meant the Adj loss before tax of £0.8m was a material improvement yoy (HY18: £3.4m). All operational and financial KPIs reflect the improvement in the underlying business, these include revenue, volumes, market share and profitability. Importantly and as previously expected, the business returned to profitability in Q2 and is expected to further increase profitability in Q3 and Q4 of this year. It should be noted that the improvement has been achieved despite the consumer environment for large ticket items remaining difficult. Looking forward, we leave FY20 profit forecasts unchanged but due to increased investment needed to drive lead generation and marginally weaker revenue than expected, as a result we reduce estimates in FY19 from a small profit to a small underlying loss of £0.5m.
Safestyle’s half year trading update indicates that the performance of the business is on track to meet expectations with the order book continuing to build as Phase Two of the turnaround plan progresses. Revenue is 6.4% higher yoy in H1 with a run rate in May and June of 15%. ZC expect this to build to above 20% during H2 as the steepest months of decline last year are annualised. As expected, H119 will show a small loss with profitability returning in H2 resulting in a profit for FY19 (ZC estimate +£0.7m). The increase in sales ahead of the market has resulted in a material recovery of market share but at 9.7% it remains below the historic high of c.11.0%. The shares remain on a recovery rating but using FY20 estimates, that assume a stabilised level of profitability, they trade on 8.2x earnings.
Interswitch, a Nigeria-based payments firm, has hired advisers to resurrect plans for a stock-market listing in London and Lagos later this year, which may value the financial technology company at $1.3 billion to $1.5 billion.
Roxi Music UK music streaming service plans London IPO as it goes up against Spotify. They have appointed investment bank Arden Partners for an initial public offering (IPO) on the London Stock Exchange later this year.
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Safestyle has announced a trading statement ahead of its Annual General Meeting to be held today. Top-line sales continue to recover and the orderbook is rebuilding following a period of significant operational disruption during FY18. However, a slower than anticipated recovery in profitability means FY19 earnings guidance moves lower. Beyond this, we take encouragement from the momentum seen in the Group’s order book, management’s commitment to the clearly defined turnaround plan, and the ‘cautious optimism’ for a step up in profitability in FY20, leaving our FY20 forecasts unchanged.
Safestyle has announced results for the year ended 31 December 2018. Performance for the year is broadly in line with our forecasts with a better than expected year-end net cash position of £0.3m thanks to working capital management. Safestyle’s year has been dominated by the actions of an aggressive competitor that significantly impacted operations, resulting in a material fall in sales and profitability. The successful legal resolution of this action means the Group ended the year on a stable footing, with positive sales momentum building into FY19. With a challenging year now behind them, management have successfully completed the first of a three-phase turnaround plan aiming to stabilise the Group and return it to profitable growth. The shares currently trade on an FY19 PE ratio of 15.1x falling to 9.0x in FY20. Safestyle remains a simple and focused business with well invested infrastructure. We believe the investment case is compelling, should management execute the turnaround to plan.
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The group has released a positive trading update, signalling a strong H2 and performance ahead of expectations. The new guidance points to a 6.7% upgrade to revenues and a 10.5% upgrade to EBITDA. Cash generation has been notably strong, at about $26m, which will drive an increase in supplemental dividends with a dividend yield of 7.1%. We raise our TP from 255p to 285p, based on a target P/E of 14x, giving decent upside to the current 11.6x.
Companies: Somero Enterprises, Inc.
Macfarlane has released a strong trading update for the 4 months to October 31 2020 highlighting second half revenue and PBT to date being ahead of 2019 and the expectation that 2020 PBT will be broadly in line with 2019, a strong recovery from the uncertain position at the interim results. Separately, the Group has announced that CFO John Love will be stepping down from his role and the Board to be replaced by Ivor Gray, current Group Financial Controller and Company Secretary. We expect this to be a seamless transition given Ivor's experience in the Group and represents very well managed succession planning by the Board. Reiterate buy rating.
Companies: Macfarlane Group PLC (MACF:LON)Macfarlane Group PLC (5K6:FRA)
Less than a fortnight after a major new contract announcement in West Africa, Capital has announced the expansion of its operations at Barrick Gold’s Bulyanhulu Gold Mine in Tanzania. The contracts include a five-year laboratory services contract for MSALABS, together with a two-year underground grade control drilling contract. Capital commenced operations at Bulyanhulu in February 2020, undertaking a deep hole delineation drilling program. The successful execution of this resulted in an expansion of services, with two underground rigs added to operations from May. The new contract will expand the underground fleet to four, utilising two rigs from the existing fleet and including the acquisition of a further two rigs.
Companies: Capital Limited
Trading to date in FY 2021 has been positive, with no sign of an adverse impact from the second national UK lockdown. Net new business across both divisions is described by management as encouraging and the new business pipeline remains very healthy. With volumes better than expected and margins improving DX is on track to perform materially better than market expectations and we have, consequently, upgraded FY 2021 EPS by 29% and FY 2022 by 15%, driven by stronger assumptions in DX Freight. We have also raised our FCF-based target price from 29p to 33p and reiterate our view that the group is in a strong position to rebuild profitability by winning new business and improving efficiency, productivity and margins.
Companies: DX (Group) Plc
Management is delivering right on cue to its resumed guidance as per the 1 October trading update. H2 revenue recovery is back close to pre-pandemic levels and operating margins have returned to target 3% in quick time – and are sustainable at that level too. Having upheld dividends through this challenging period and actually extended the order book (up 17% YoY and also c3% higher than last reported), TClarke is firmly re-establishing a growth trend on arguably more solid foundations. The share price is 10% higher since the last trading update but in our view remains significantly undervalued against a prospective FY21E EV/EBITDA ratio of 3x, a PE of c6x, yield 4.6% and double-digit FCF yield.
Companies: TClarke plc
We release prudent FY20E and FY21E forecasts as Xpediator continues to gain momentum and operations revert to pre-COVID levels. The Group has made strategic progress year to date. It has implemented a strict cost reduction programme which should drive annualised cost saving of over £0.5m, restructured and strengthened its management team and further integrated acquisitions. Additionally, it is in the process of consolidating its site portfolio, driving further costs out of the business. We believe the market continues to undervalue Xpediator's geographically diverse revenue base, flexible low fixed cost operating model and positive financial outlook. Accordingly, we move our recommendation from Under Review to Buy.
Companies: Xpediator Plc
Directa Plus has announced that in the October collaboration agreement with NexTech Batteries, it has achieved above 400 Wh/kg (watt-hours per kilogram, the usual measure of energy density) in a practical system. NexTech produced several full-scale pouch format cell prototypes using its proprietary cathode and electrolyte materials (with Directa plus graphene) producing 410Wh/kg of specific energy at a weight only slightly below 30g. For comparison, standard Lithium-Ion batteries have an energy density of 100-265 Wh/kg.
Companies: Directa Plus Plc
H1F21 revenue was £107m, down 14.8% y/y (H1F20: £125.6m) and down 11.9% sequentially (H2F20: £121.5m). Q2F21 revenue was up 5.3% y/y, indicating a trend to recovery in the post-lockdown period across both, Ireland and the UK. The strength of LTHM's business model is supported by the diversity of its customer base and the expanse of its product offering, allowing it to withstand fluctuations in demand across market sectors. We believe LTHM stock is a relatively low risk investment given the strong cash position (131.6p/share), no debt and a stable yield. The stock trades at 8x EBITDA, compared to its peer average of ~11.1x, on what are more compelling metrics.
Companies: James Latham Plc
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
Xpediator has delivered a healthy trading update, breaking several revenue records during H2 2020. Furthermore, the outlook for FY21 remains promising, reflecting recovery to more normal levels in Transport Services, a full-year impact of the Nidd acquisition, the turnaround of underperforming businesses, and new ventures. The £6m PBT forecast for FY20 highlights an improving margin, albeit this represents a shortfall from FY18. In our opinion management actions, plus recovering markets, can take the Group to peak margins over the next 18-24 months: delivering a marked increase in profitability.
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.
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Brick and concrete products group Forterra has raised its guidance for FY 2020E to above the current consensus range and reinstated dividends following trading in Autumn which exceeded its previous expectations and which has continued strongly despite the second lockdown. We have increased our FY 2020E revenue, EBITDA and EPS estimates by 3%, 14% and 46% respectively, and cut our net debt projection. We have introduced FY 2021E estimates showing further strong expected growth.
Companies: Forterra Plc
SThree has released a brief update ahead of the scheduled Q4 trading update expected on 12th December. The key headline is that an improving trading backdrop over the last few months has driven a better than expected profit performance. Market consensus was clearly too light with the company now guiding for an FY’20 outcome above the top end of the range of expectations. We have updated our forecasts accordingly and now look for FY’20 PBT and EPS of £28.1m / 13.3p respectively – a PBT upgrade of +53% on our previous estimate. Although the company has not formally reinstated full guidance, we are taking this opportunity to publish our estimates for FY’21. SThree has shown good resilience through this pandemic. The combination of STEM industry specialism and the inherently higher short term visibility of the contract focus has afforded SThree management a greater degree of flexibility when it came to aligning the necessary cost actions with the strategic ambitions of building market share in the key, global STEM markets. Costs and headcount have been cut, but they have been targeted and selective. The net result has been an increasingly positive tone in trading commentary, culminating in yesterday’s explicit upgrade. Has this been fully priced in by the market? To an extent yes, with the shares now standing +57% above the May 2020 lows and outperforming the peer group year to date. However, despite this outperformance (share price and operational) SThree still stands at a material valuation discount to its peers. We continue to find the extent of this valuation gap hard to justify.
Companies: SThree plc
The new ammendments to the UK CfD renewable energy support scheme opens up an opportunity for tidal energy to compete against floating offshore wind. We think the two technologies can deliver similar costs but that tidal, and specifically the already permitted capacity at Atlantis’s MeyGen site, has a marginal advantage in terms of readiness.
Companies: SIMEC Atlantis Energy Ltd.
As legendary investor Warren Buffet succinctly puts it: “it is better to buy great companies at fair prices, rather than fair companies at great prices”. Today, we think Mpac has done exactly that by acquiring Ohio based Switchback Group, Inc. for a maximum of $15m in cash (£11.4m). Equivalent to modest takeover multiples of 7.1x EV/EBIT and 1.1x EV/sales – with $13m of the consideration paid upfront, and the rest structured as a $2m earnout depending on EBITDA performance over the next 24 months.
Companies: Mpac Group PLC