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Edison Investment Research is terminating coverage on Medigene, PetroMatad, Brady and Stride Gaming. Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our website.
Brady
Brady has received a recommended all-cash offer at 10p per share (a 50.8% premium to the closing price), valuing the issued share capital at £8.3m, from Hanover Active Equity Fund II, a private equity (PE) investor focused on SMEs in the UK and Nordic markets. The cash offer has been declared final, will be declared unconditional as to acceptances based on 50% of the share capital and may only be increased if there is a counter-offer. Before the bid, Brady had been looking to secure additional funding for a turnaround strategy, and although negotiations have advanced, the company has not yet secured unconditional funding.
For the purposes of the Takeover Code, Edison Investment Research is deemed to be connected with Brady plc. Under Rule 20.1 Edison must not include any profit forecast, quantified financial benefits statement, asset valuation or estimate of other figures key to the offer, except to the extent that such forecasts, statements, valuations or estimates have been published prior to the offer period (as defined in the Takeover Code) by an offeror or the offeree company (as appropriate) in accordance with the requirements of the Code. Consequently we have removed our estimates until the Offer Period ends.
Following its August trading update highlighting a slowdown in new sales, Brady’s interim results were in line with our expectations. H119 revenue was £9.5m, a 9% fall vs H118, with an EBITDA loss of £1.8m and a PBT loss of £2.5m. Net cash fell to £1.0m from £4.6m at FY18. Recurring revenues represented 82% of total revenues. The new CEO has completed her strategic review and management is focused on delivering a more scalable, predictable and sustainable business to allow the company to become the leading independent E/CTRM vendor. The commodities sector remains attractive and as and when Brady demonstrates renewed sales momentum, it should become a compelling investment, currently trading on an FY19e EV/sales multiple of 1.1x.
With the company expecting FY19 revenues of c £19m, c 22% down on our previous forecasts (£24.3m), new sales have slowed markedly since Brady’s last trading update on 30 May. This represents a perfect storm for Brady with it trying to affect a turnaround in the face of significant market and business uncertainties. We have revised our FY19 forecasts and now anticipate a PBT loss of £4.2m in FY19 (previously £1.0m) with FY19 net cash falling from £2.7m to £1.2m net debt. We have withdrawn our FY20/21 forecasts pending further clarification expected with the interim results on 23 September. However, as a market leader in the attractive E/CTRM space, as and when Brady demonstrates renewed sales momentum it should become an attractive investment on an FY19 EV/sales multiple of 1.5x.
In a brief in-line trading update, Brady has said it has made substantial progress in the first four months of FY19 and the sales pipeline is building. We are maintaining our forecasts. Carmen Carey took on the CEO role in February and we expect the results of her review of the business and new strategy to be outlined with the interims in September. The market opportunity is substantial and we believe Brady is well positioned to benefit from the significant sector consolidation.
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. 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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The last two years have seen a significant streamlining of the cost base and a focus on delivering on several significant legacy contracts, which will be completed in FY19. There has also been significant investment in product in FY18 (R&D was 30% of sales). Carmen Carey took on the CEO role in February and management is now looking to exploit the benefits of the streamlining and investment, with an increasing emphasis on new sales. The market opportunity is substantial and we believe Brady is well positioned to benefit from the significant sector consolidation.
FY18 numbers were broadly in line with expectations and we have maintained our forecasts. Management remains confident on the outlook as the group stands to benefit from the streamlining and investment of the last few years. In December, Brady appointed Carmen Carey, currently a Brady non-executive director, as its new CEO. An initial priority for the new CEO will be developing the new sales strategy. The market opportunity is substantial, and we believe Brady is well positioned to benefit from the significant sector consolidation.
Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m. Circassia Pharma (CIR.L) - specialty pharmaceutical company focused on respiratory disease transferring from the Main Market. No funds being raised. Due 4 Feb. Greenfields Petroleum (TSX-V:GNF) production focused company with operated assets in Azerbaijan seeking AIM dual listing including $60m private placement. Mkt cap $12.6m CAD. Expected late January 2019. Chaarat Gold Holdings—RTO, the Company intends to acquire Kapan Mining and Processing CJSC, which owns the Shahumyan mediumsized polymetallic mine in Kapan in the Republic of Armenia. No raise, market cap of £110.1m, due early Feb
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Brady has undergone a significant transition into a leaner, more focused business. Costs have been taken out and the recycling business sold earlier this year as it did not fit well with the business. The main priorities are delivering on legacy contracts while significant resources are being used to refresh the product, with c 25% of FY18 sales expected to be spent on R&D. Consequently near-term ratings remain elevated. However, the market opportunity is substantial and we believe Brady is well positioned to benefit from the significant sector consolidation.
Brady (BRY LN) Solid H1, FY18 in line | StatPro Group (SOG LN) Revenue and TP reduced, but valuation-based buying opportunity
Brady Statpro Group
In a brief AGM update, Brady said that trading has been in line. Following a period of significant change, with new people hired and the business having been streamlined, the primary focus has shifted to re-engineering the software. The initial outcome of this was shown with the launch of the group’s first FAST START implementation offering in May. We will review our forecasts following tomorrow’s capital markets day. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.
Brady (BRY LN) Positive AGM statement | EKF Diagnostics (EKF LN) Renalytix AI partnership with Mount Sinai | Itaconix (ITX LN) Operational update to consolidate activities in the US | Photo-Me International (PHTM LN) Saru mo ki kara ochiru Urban&Civic (UANC LN) NNNAV +3.5%, expected to exceed guidance on completions
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Brady has completed the reorganisation that followed the 2016 business review. The focus now is on the re-architecture of its products, and the cash boost from the Recycling disposal will help to that effect. The group spent 33% of sales on R&D in FY17, largely to catch up on client obligations, and continued high investment is anticipated as Brady expands its portfolio of microservices. If Brady can successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a high-quality customer base.
Brady (BRY LN) New contract win in Nordic energy | Instem (INS LN) Leader in rapidly burgeoning market | Northgate (NTG LN) Depreciation change prompts low quality upgrades | ReNeuron Group (RENE LN) Pipeline update; stroke Phase IIb due to start mid-2018, RP data H1 2019 | Restore (RST LN) Ticking all the boxes | Verona Pharma (VRP LN) Second transformational data of the year: Positive Phase IIb in COPD
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We have revisited our forecasts post last week’s full year results, which were disappointing but suggested that there is now a more stable platform in place for future growth. We have made no changes to our FY 2018 revenue and EBITDA expectations, but reduced our PBT/EPS estimates to reflect reduced D&A following the disposal of the Recycling business. We have also introduced a new set of FY 2019 forecasts, which reflect 3% revenue growth and a 16% EBITDA margin pre SBP. This business has strong IP, a blue chip customer base, healthy recurring revenues (66%) and a solid balance sheet. However, we need evidence of accelerating growth before we move to a more positive stance. We maintain our Hold recommendation and 56p target price.
accesso Technology (ACSO LN) Mixed performances but strong overall result | Anpario (ANP LN) Modest forecast changes; remain at Hold | Brady (BRY LN) New FY19 estimates introduced, no change to Hold rec or 56p TP | Carador Income Fund (CIFU LN) Record start for CLO new issuance | Centaur Media (CAU LN) Profits and cash ahead | Future (FUTR LN) Adding more depth | Microsaic Systems (MSYS LN) Contract with CPI Innovation Services Ltd | Vectura Group (VEC LN) FY2017 results in line, highlighting new generics strategy | Verona Pharma (VRP LN) Imminent Phase IIb data in COPD | Xaar (XAR LN) 2017 results in line, transformation continues
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Brady (BRY LN) Full year results in line with downgraded expectations | Brooks Macdonald Group (BRK LN) Underlying progress, but alongside an increase in legacy provision | Burford Capital (BUR LN) Argentina case sold for $107m cash, $94m profit | Futura Medical (FUM LN) Supportive PK data for MED2002 | Goals Soccer Centres (GOAL LN) Positive underlying momentum temporarily derailed by snow hit | Gresham Technologies (GHT LN) Clareti-growth driving strong performance | PROACTIS Holdings (PHD LN) Result of Hubwoo tender offer and new customer win announcement | PureTech (PRTC LN) Proposed placing to raise $100m to advance pipeline | Renold (RNO LN) Lag in passing on higher input prices | Restore (RST LN) Organic and acquisitive growth story continues | Surgical Innovations Group (SUN LN) Prelims as expected, outlook positive | Zotefoams (ZTF LN) A year of significant strategic progress
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Brady is selling its US-based recycling business for an initial c £3.3m with c £1m balance in 18 months. The disposal will simplify the group, boost cash resources towards £8m and enable management to focus on its core physical trading commodity and energy businesses. Additionally, the company has said that FY17 revenues will be c £2m lower than consensus at £27m due to a faster-than-anticipated switch to the recurring revenue model and two projects slipping into H118. We have cut our FY18 forecasts for the disposal and the lower trading guidance. Nevertheless, if management can successfully transition the business to the cloud, there is a lot to go for as E/CTRM is an attractive growth industry and Brady has a very high quality customer base.
Brady has released an update indicating that FY 2017 results will be below market expectations and announcing the disposal of its Recycling business for £4.6m max in cash. The results outturn is due to the replacement of one-off licence renewals with recurring annual licences and the slippage of revenue from two contracts into H1 2018. We have reduced our FY 2017 revenue and EBITDA estimates by c8% and c70%, reflecting the indications given in the update. Our FY 2018 revenue and EBITDA estimates are reduced by 23% and 45% respectively, or by 9% and 28% excluding the impact of the disposal. While we continue to admire the company’s strategy, market positioning, portfolio of software services, recurring revenues and balance sheet, we move to a Hold pending clear evidence of accelerating organic growth. We reduce our target price to 56p.
Accesso Technology (ACSO LN) Full year EBITDA substantially ahead of expectations | Brady (BRY LN) Full year results below expectations, disposal of Recycling business | Brewin Dolphin Holdings (BRW LN) 5% core FuM growth in Q1, in line at this early stage | Ergomed (ERGO LN) FY trading update: strong top-line growth & order book expansion | Findel (FDL LN) Strong online trading and FS performance, positive outlook | Frontier Smart Technologies Group (FST LN) Strong 2017, preparing for more to come | Itaconix (ITX LN) Licence for use of non-core polymers in construction sealants | MySale Group (MYSL LN) Growth accelerating, with forecast risk clearly to the upside | NCC Group (NCC LN) Recovery largely priced in already | Renishaw (RSW LN) Strong growth, but a little lighter than we expected | Restaurant Group (RTN LN) In line FY17 outcome | StatPro Group (SOG LN) Full year results in line, Revolution ARR growth accelerating |
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Hydrominer GmbH, An Austrian cryptocurrency miner, is considering an initial public offering (IPO) on the London Stock Exchange AIM during 2018 according to an article on Bloomberg. Block Energy—a NEX Listed UK based oil exploration and production company whose main country of operation is the Republic of Georgia, looks to join AIM end of February 2018. Offer TBC 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.
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Clean Invest Africa—Introduction due around 14 Nov. Vehicle established to identify investment opportunities and acquisitions in renewable and clean energy projects/companies or alternative technologies that are used in a socially and environmentally responsible way that will aid the development of the African continent. City Pub Group - owner and operator of an estate of 34 premium pubs across Southern England. £30m raise. Consistent track record of strong revenue and EBITDA growth, with a three year CAGR from FY14 to FY16 of 34.9% and 44.8% respectively, and an EBITDA margin of 14.7% in FY16. Due late Nov. Offer TBA. Boku - Independent direct carrier billing company. Revenues were up 21% to US$10.2 in HYJun17. Q32017, revenues grew to $6.5m, up by 44%. The Company also saw continued growth across all of its key metrics: user numbers, total payment and a positive adjusted EBITDA for the month of September 2017. Due 20 Nov. Offer TBA. Ten Lifestyle Hldgs. Technology-enabled lifestyle and travel platform providing trusted concierge services to the world's wealthy. Net revenue increased from £20m in the year ended 31 August 2015 to £33m in the year ended 31 August 2017, a compound annual growth rate of 29%. Offer and date TBA. 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. 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 mid November. Shefa Yamin minerals company focused on the exploration for precious stones in Northern Israel. Net Proceeds will be used to advance the Company's mining project. Offer TBA. Bakkavor—After being postponed on 3 November the provider of fresh prepared food has today set its offer price at 180p. Primary raise of £100m plus vendor sale in combination totalling 25% of enlarged capital. Mkt Cap c.£1bn. FY 16 Revenue: £1,763.6 million. FY 16 Adjusted EBITDA2: £146.4 million . Aviva Investors Secure Income REIT - Targeting £200m raise. Will invest in a diversified portfolio of high quality, long-lease commercial real estate assets located within the UK and leased to predominantly investment grade tenants. Due Dec. Cabot Credit Management -one of the largest credit management services providers in Europe and the market leader in the UK and Ireland with total 120-Month ERC of £2.2bn. Raising c.£195m. Offer TBA. Due November. M7 Multi-Let REIT—Intends to raise up to £300m at 100p. Aims to acquire and hold a portfolio of UK regional light industrial and regional office assets diversified by geography, asset type and tenants that is expected to generate stable income returns and, where appropriate, offer the potential to leverage and enhance returns through active asset management initiatives. Due 30 Nov. En+, international vertically integrated aluminium and power producer with core assets located in Russia. Priced at $14 per GDR. $1.5bn offer of which $0.5bn primary to pay down debt. Dual listing in Moscow. Unconditional dealings 8 Nov.
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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.
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
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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.
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.
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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)
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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.
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.
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
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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).
Brady finished the year well given weak underlying market conditions, with full year revenues in line and profits ahead of revised expectations. New contracts were still signed in H2, albeit smaller in value reflecting the emergence of an increasing number of start-up trading operations that are proving to be natural buyers of Brady’s cloud offering. While risks remain, investors should take some confidence from a) management’s prudence with cash and costs – the dividend has been temporarily scrapped; and b) no changes to underlying forecasts. We increase our estimates to reflect a small, but strategically important, acquisition post the year end and increase our Target Price from 68p to 71p.
Brady (BRY LN) Numbers in line, no changes to underlying forecasts | CVS Group (CVSG LN) H1-16 interims – continuing to exceed expectations | Earthport (EPO LN) Building for a bright future | Synthomer (SYNT LN) First acquisition under new management | Verona Pharma (VRP LN) 2015: a year of stellar data
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Brady is fundamentally a good business, but one that has been weathering a perfect storm of negative trading conditions, including sustained and severe weakness in underlying commodities markets and strong currency headwinds. The question that investors need answered is whether this company is in a position to endure existing hardships and then flourish when market conditions improve. We believe that a combination of strong market positioning, evidence of ongoing deal activity and a solid balance sheet answers this question in the affirmative. There is ongoing risk of contract deferrals and deal concentration/revenue lumpiness is a concern, but our conservatively pitched forecasts (EBITDA -7% vs consensus), a 3.5% yield, and a sensible valuation of the different revenue streams suggest value at this level. We initiate coverage with a Buy recommendation and 68p Target Price.
FY15 trading was in line with expectations, which were revised downwards in late November due to lengthening sales cycles, relating to the deteriorating market conditions in the commodity sector. The group retains a strong balance sheet with year-end cash comfortably ahead of expectations at £6.5m (we forecast £5.0m). The shares have made a partial recovery in recent weeks on the back of four licence wins and an interesting small acquisition. The licence wins show Brady can still win new business despite the ongoing turmoil in the commodity markets, as participants require the modern software for their business processes.
In its recent update, Brady said that it was seeing a lengthening of sales cycles, due to a deterioration of market conditions in the commodity sector. Consequently, FY15 revenues and EBITDA will be materially below market expectations. While volatile commodity prices can help to drive software sales, the commodity selloff has been persistent and severe as to force restructurings across the commodity trading sphere, and hence players are deferring deals and conserving cash. Nevertheless, Brady says the deals have been deferred rather than cancelled, and as participants require modern software for their business processes, a bounce back in FY16 with a stabilising commodity sector looks fair in our view.
In H115, Brady signed two highly significant new contracts in its Commodities and Recycling divisions, while the Energy business unit continues to build momentum with six contracts signed. The company has also made a neat bolt-on in its Recycling unit, at a very attractive price. In light of falling commodity prices, Brady says it is not seeing any slowdown in its end markets, despite the economic backdrop. The group has 80% of FY15 revenues in the bag and a strong pipeline. Hence, we believe the stock looks attractive at c 12.5x our maintained cash-adjusted FY16 EPS.
Brady had a very busy first half, signing a number of substantial deals with high-quality names, including one of the world’s largest commodity traders and a world-leading metals recycling company. Additionally, the Energy division has continued to build momentum, with six new deals signed. The healthy deal flow and strong pipeline is in spite of the recent high volatility in the commodity markets. While H1 sales are slightly below expectations due to timing factors, bookings are higher than expected and we anticipate a stronger than typical H2. Hence, we believe the stock continues to look attractive at c 15.5x our maintained cash-adjusted FY16 earnings.
Investors can be forgiven for getting excited about the global tech sector with the recent news from the NYSE that another company has gone flying out the tech IPO gates; this time it was internet domain behemoth, GoDaddy. The company raised $460 million as part of the IPO and with the shares rallying more than 30% on their first day, reached a valuation of around $6 billion. Considering the company lost $143 million last year it shows us the US tech boom is far from over.
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