Research, Charts & Company Announcements
Research Tree provides access to ongoing research coverage, media content and regulatory news on Brady. We currently have 28 research reports from 4 professional analysts.
Brady’s H1 results reveal the initial impact of the group’s transformation. While revenues slipped, reflecting the planned shift to software rental, recurring revenue rose to 68% of total revenues, up from 60% a year earlier. The move into microservices is gaining traction, with three proof of concept trials taking place in H2. Four new licences were sold in H1, all on a rental format, of which three are hosted. With nearly four months remaining in FY17, the group has 93% of revenue in the bag, including several software renewals and services business. Given the attractive long-term growth opportunities in the E/CTRM space, we believe the shares look attractive on 14x our maintained cash-adjusted FY19 EPS.
Brady has secured a new contract with Gaelectric Trading and Market Services Limited (GTAMS), one of Ireland's leading energy trading and market services providers, for its I-SEM Cloud solution. This deal highlights the increasing traction the company is getting with this offering. We make no changes to our forecasts recommendation or target price and continue to view the current valuation as highly attractive given the potential for accelerating revenue growth, significant margin enhancement and improvement in quality of earnings.
While the H1 revenue decline (-11% to £13.2m) and EBITDA loss (-£0.9m) reflects the impact of organisational restructuring and the transition to a recurring revenue model, there are many positives to take from this set of results. Four new deals totalling £3.2m were signed on a recurring revenue basis, recurring revenue has grown to 68% of the sales mix (vs 60% in H1 2016) and proof of concept trials for microservices have been secured for H2. Management expects full year results to be in line with market expectations, hence we make no changes to our forecasts, recommendation and target price. We continue to view the current valuation (FY 2018 EV/EBITDA of 8.6x, falling to 5.3x for FY 2019) as highly attractive given the potential for accelerating revenue growth, significant margin enhancement and improvement in quality of earnings.
We have revised our forecasts following the newsflow over the last few months. While management has completed its strategic review, the transitioning process is continuing. The group has switched from operating on a divisional basis to global functions. The development team has been unified, and development work has shifted from platforms to ‘microservices’, so that new products can be leveraged across the group. Further, Brady is evolving to a recurring revenue model. We have cut our FY17 forecasts to reflect the current transitioning but forecast revenue and margins to improve significantly thereafter. Given the long-term growth opportunities, notably in agriculture, natural gas and power, we believe the shares look attractive on 14x our cash-adjusted FY19 EPS.
Brady (BRY LN) Building a platform for superior growth and margin | Devro (DVO LN) We see 3 key sentiment drivers for FY17 | EMIS Group (EMIS LN) In line prelims, investment in patient a short term drag | M&C Saatchi (SAA LN) 9.3% LFL revenue growth, 3% profit beat, dividend +15% | Northgate (NTG LN) Strategy refresh expected in June | Oxford BioMedica (OXB LN) Full year results; anticipate CTL019 launch later this year
Companies: SAA NTG OXB EMIS DVO BRY
Global Energy Development (GED.L) — To be renamed Nautilus Marine Services. Schedule 1 from developer and seller of hydrocarbons and related products. Reverse takeover. Raising $10.5m via a convertible. Expected 9 Feb. 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.
Companies: 7DIG EHG FFX BRY EVG LTG DOTD MGR VLS NGR
In a brief trading update, Brady says that trading is in line with market expectations. FY16 saw of a lot of internal change, with a new chairman and COO while the CEO left the group. While commodity markets have seen some improvements, the backdrop remains challenging. The main focus over the last few months has been on improving efficiencies, including a shift away from the old divisions to global functions. We make no major changes to our forecasts and, given the strong balance sheet and scope for recovery, continue to believe the shares look attractive, trading on c 18x our cash-adjusted FY17e earnings.
Boohoo.com (BOO LN) Stronger growth outlook means further upside | Brady (BRY LN) Steady first half, but new management has plenty to fix | City of London Investment Group (CLIG LN) FY16 performance confirmed, benefiting from positive EM performance | EKF Diagnostics (EKF LN) Recovery taking shape | IPPlus (IPP LN) Disposal of call centre businesses to focus on secure payments | Murgitroyd Group (MUR LN) FY16 outturn in line; strong cash generation | Restore (RST LN) Strong period of growth and delivery
Companies: CLIG MUR EKF RST BOO BRY
BILLING SERVICES GROUP (BILL LN) | BRADY (BRY LN) | EKF DIAGNOSTICS HOLDINGS PLC (EKF LN) | GABLE HOLDINGS INC (GAH LN) | GATTACA PLC (MTEC LN) | REAL GOOD FOOD PLC (RGD LN) | RESTORE PLC (RST LN) | AFESTAY PLC (SSTY LN) | XCITE ENERGY LTD (XEL LN)
Companies: XEL BRY BILL MTEC GAH EKF RST RGD SSTY GAME
In another in-line trading update, Brady has reported that H1 revenues grew by 4%, which includes the impact from acquisitions (energycredit and ScrapRunner) and currency movements. New business was spread across the three divisions, with nine new contracts signed. The trading update reveals that the group is continuing to stabilise in spite of a tough commodities-related backdrop. The outcome for the year will depend on the busy Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 15x our cash-adjusted FY17e earnings.
Brady (BRY LN) Q1 in line but traditionally busy Q2 will determine progress | Carclo (CAR LN) Exit from CDS; Focus on core divisions | Speedy Hire (SDY LN) Anticipating reassuring numbers tomorrow | Victrex (VCT LN) Highly reassuring interims
Companies: BRY CAR SDY VCT
A brief trading update issued alongside the AGM on Friday indicated that Q1 was in line with management’s expectations and highlighted further wins across the three divisions. While this is encouraging, the traditionally busy Q2 period will be key to determining a) the impact of recent fluctuations in underlying commodities markets on demand and b) the company’s subsequent ability to deliver on full year expectations. We make no changes to our forecasts or Target Price pending a further update on deal flow.
In an in-line trading update, Brady says each of the group’s three divisions have signed deals in the year to date. This includes the first new business from energycredit, which the group acquired in January. The brief trading update indicates that the group is stabilising after the difficult FY15, which saw business being deferred in the wake of the turmoil in the commodities space. Nevertheless, the outcome for the year will depend on the busier Q2 and Q4. We are maintaining our forecasts and continue to believe the shares look attractive, trading on c 14x our cash-adjusted FY17e earnings.
Brady had a difficult FY15, as turmoil in the commodities space resulted in business being deferred. Nevertheless, the commodities markets are showing signs of recovery and the commodities software sector benefits from broader business drivers such as regulatory changes while the sector remains underinvested in IT. Further, the group continues to use its position as a quoted company to consolidate the sector and in our view the acquisition of energycredit is a bold one, as it creates significant cross-selling opportunities and provides an opportunity to leverage energycredit’s offshore development facility. Hence, we believe the shares look attractive, tracing on c 12x our cash-adjusted FY17e earnings.
While the shares have sold off on headline earnings contraction and the removal of a yield attraction, investors should take reassurance from the fact that underlying forecasts remain intact. The key messages to take away from these results are that, while market conditions remain challenging, 1) earnings risk is mitigated by conservative forecasts, 2) there is upside revenue potential from the energycredit acquisition, 3) action has been taken to reduce costs, and 4) the new offshore development capability can be leveraged to reduce costs further. Diversification (across asset classes, into more robust markets like the US, and within the customer base) and increased scale are tools that management can use to move away from historic reliance on large licence wins. While the dividend attraction has been removed, a SOTP valuation (76p) underpins our Target Price of 71p (up from 68p).
Research Tree provides access to ongoing research coverage, media content and regulatory news on Brady. We currently have 28 research reports from 4 professional analysts.
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With its exposure to a structural growth market, a highly recurring business model, consistent strong execution, healthy balance sheet and potential new avenues for growth, we believe dotdigital remains a core holding in the sector. It offers investors an attractive compounding growth stock with the potential for accelerated growth as it expands internationally and increasing prospects for M&A. The FY results (19% sales growth, 27% EBITDA growth and 32% EPS growth) showed another year of strong execution, with the H2 growth acceleration particularly pleasing. We remain confident of the group’s prospects.
Companies: Dotdigital Group
Further evidence that the shrewder investor prefers a smaller company, the Nobel Prize in Economics was awarded to Professor Thaler, an avowed fan of the smaller brethren. Back down to earth, all markets continue to make headway, with the smaller company indices continuing to lead the way. Despite the apparent deadlock in the Brexit process, life appears to carry on. The MPC meeting on 2 November and the Budget on 22 November may offer greater insight. In Share News & Views, we comment on recent updates from Cropper*, Halstead, Norcros, Tricorn* Walker Greenbank and Wincanton.
Companies: APC BMS CRPR ECSC EUSP FDM GETB PCF PPIX SNX SPRP SQS TCN W7L
Augean (AUG LN) Board changes and reduction in expectations | First Derivatives (FDP LN) Agreement with European Space Agency | Futura Medical (FUM LN) Market research supports the commercial potential of Eroxon® | Low & Bonar (LWB LN) Civil Engineering struggling | Sinclair Pharma (SPH LN) Forecast update; profitability inflection and strong growth ahead
Companies: AUG SPH LWB FUM FDP
HomeSend, eServGlobal’s JV with Mastercard and BICS of Belgium, has always represented a very exciting prospect. With the backing of the giant credit-card agency, it stood a good chance of securing a significant share of the US$600bn global remittance market. With a relatively minimal cost base, the transaction volumes from even a tiny share would have delivered US$100m in earnings for eServGlobal’s 35% stake – and Mastercard’s 26% of the global credit-card market suggested a far greater share was possible. Now, after recent announcements, we realise: firstly, that the applicable market size was woefully underestimated; secondly, that its share will not be tiny but significant; and thirdly, that success for HomeSend is becoming a certainty. On the contracts already signed, HomeSend will generate revenue and profits of hundreds of millions of dollars; it is now simply a matter of when its transaction corridors go live and the commission streams ramp up. We understand that that, too, will be faster than thought.
The trading update notes an A$200m pipeline of opportunities; however, prudent resource constraints have forced a slowdown in spending on the Fleet business roll-out with a knock-on impact to this year’s revenue and losses. Since the sale of the Off-Road business to Caterpillar, Fleet is the main revenue-driving division. On the back of this update, we are easing our Fleet - and therefore group - revenue and earnings forecasts for FY 2018 and FY 2019. Nevertheless, Seeing Machines is still demonstrating extremely strong sales growth, issuing guidance that it expects to more than treble revenue this year from A$13m to around A$40m, and then double this again in the year to June 2019 at c.A$80m. By then, OEM Automotive, Rail and Aerospace divisions should all be making strong sales contributions to augment the Fleet division growth.
Companies: Seeing Machines
The Company has provided an update for H1. Revenues ($112-114m guidance) are tracking slightly lower than we had been looking for with gross margin higher by 1% point (at 38%) and OPEX lower resulting in EBITDA being not far adrift from our expectation ($1.5m to $2.0m guidance). The Company is guiding to meeting our full year $16m EBITDA expectation, in part because OPEX is expected to continue to be materially lower (US$87m for the full year). In order to meet our forecast the Company will need to still achieve our revenue objective although we flag there is still some scope for OPEX to surprise given the continuing consolidation of the operations and acquisitions. More cash has had to be invested in working capital (an issue in the industry at the moment) and there are some YUME acquisition related expenses (we estimate c$3m) also impacting cash (guidance of $37m rising to $50m at year end). The Company expects some recovery in working capital in H2. The shares have been drifting off during the YUME acquisition process. We expect the shares to recover as the process nears completion (due early 2018) and investors get confirmation the Company is tracking towards the delivery of the critical leap in profitability this year.
Flowtech Fluidpower* (FLO): Q3 trading update confirms good organic growth (CORP) | President Energy* (PPC): Puesto Flores – first oil delivery and revenue (CORP) | dotDigital* (DOTD): 2H acceleration: progress on every front (CORP) | Orchard Funding* (ORCH): Insuretech winning (CORP)
Companies: FLO PPC DOTD ORCH
Oxford Metrics’ year end trading update highlights another strong period of delivery for the group, with FY’17 revenue and adjusted PBT both expected to be slightly ahead of expectations. Net cash at the year end of £9.8m is also ahead of our £9.4m forecast. FY’17 is the first year of the group’s five-year growth plan and both Vicon and Yotta are beginning to see the benefit of the increased investment in the year. Oxford Metrics continues to provide investors with an attractive mix of IP led, market leading technology and cash generation, with recent investments placing the group on an enhanced growth trajectory. Our Dec’18 SOTP calculation results in an intrinsic value of 72p, with further outperformance potential as the group utilises its strong balance sheet.
Companies: Oxford Metrics
RhythmOne has issued a trading statement for H1 2018. Performance is in line with management expectations and revenues are expected to be $112-114m vs H12017 of $67m. These numbers are not LFL as they include Perk for the half and RadiumOne for a quarter. Gross profit margin was 38% which is up from last year and in line with my FY2018 expectations. The gross margins at Perk and RadiumOne are higher than old R1. Adj EBITDA is expected to be a profit of $1.5m -$2m.
Two new product integrations with Microsoft Azure, together with the recently released Amazon AWS hybrid solution, add up to a meaningful strengthening of WANdisco’s credentials and platform for growth. We see scope for a significant acceleration in operationally geared growth, especially if the company can progress one or two of its tier one relationships into a strategic relationship akin to the one with IBM.
IQE has announced that during the course of a routine US tax filing exercise, unexpected prior year taxes due of c.£4.2m have been discovered. The identified taxes date back to 2013, when the group acquired the epitaxy business of Kopin. As a result of the September ’16 group re-organisation, it is believed that no similar tax liability arises in 2017. Alongside this announcement the group has confirmed that the VCSEL ramp up in Q3 is on track, giving us confidence in our full year forecasts. We do not expect to make any material changes to estimates and remain positive on the stock, with multiple programs expected to drive significant upgrades to our FY’18 estimates and beyond.
While iomart’s share price is roughly where it was in 2013, it has since then doubled revenue and profits through a combination of organic growth and bolt-on acquisitions. Including potential future acquisitions (not in forecasts), we think it should maintain mid-teens growth in revenue and EBITDA consistent with the past few years making the shares attractively priced at 9.4x FY’18 EBITDA. This compares to other UK Technology midcaps at 16.0x on the same expectation of 15% EBITDA growth p.a. We initiate with a buy rating and price target of 430p.
Companies: Iomart Group
Strong results from text book execution derive from delivery of the three strategic routes to growth: more partners, doubling the addressable market; increasing reach of successful operational territories, delivering 48% revenue growth outside the UK; and broader product functionality – leading to +24% spend per customer, from a growing stable of c4,000 active customers. FY17 revenue is in line with expectations, while EBITDA of £10.2m (vs £9.7mE) is 5% ahead; adj EPS is 9% ahead. Cash of £20.4m (£19.3mE) highlights 2H free cash flow of 108% of adjusted PBT, and a balance sheet with options open for further growth – increased investment through opex and capex; a well-covered dividend; and potential M&A to accelerate product development, or enhance organic growth in new territories through acquiring local presence. We lift our 12-month target price to 92p (80p), in line with the Megabuyte accounting and enterprise software peer group.
Companies: Dotdigital Group
Totally (TLY) - Sch 1 for £11m RTO of Vocare, a provider of integrated urgent care services to the NHS throughout the UK. £76.8 million rev in the year ended 31 March 2017. Totally to address Care Quality Commission concerns. Due 24 Oct. Central Asia Metals (CAML) -RTO of Lynx Resources. Anticipated market capitalisation at Admission: £404.8m. Raising £113m at 230p. Acquiring the SASA zinc-lead mine in Macedonia from Solway Industries. Due 15 Dec. OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m. Orogen plc, to be renamed Sosandar plc on Admission. Sosander is an online womenswear brand specifically targeted at a generation of women who have graduated from younger online and high street brands, and are looking for affordable clothing with a premium, trend-led aesthetic. Offer to raise £5.3m with market cap of £16.1m, expected 2 November 2017 OG Graphite, brownfield development-stage graphite company focused on the reactivation of its wholly-owned Kearney natural flake graphite mine and mill located 280 km north of Toronto, Canada. Offer TBA, expected late October .
Companies: PPC BMK HCM IHC KCR DOTD STI TIDE
First Derivatives has announced that Kx has been selected by Scientific Revenue as its real-time analytics platform for dynamic pricing. While this deal has no immediate impact on our estimates, we believe the revenue potential is significant. Moreover, it further highlights the ultra-high performance capabilities of Kx and its attractions to technology leaders addressing analytical challenges in environments characterised by large volumes of fast-moving data. We will revisit our forecasts and target price when interim results are released on 7 November.
Companies: First Derivatives