United Oil & Gas (UOG.L) an oil and gas exploration and development company brought to the Official List (Standard Segment) in July 2017 by way of a reverse takeover of Senterra Energy plc. No capital to be raised, expected market cap of £17m and expected 28 Feb
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.
Companies: TAX BPM KETL KMK DPP TIDE GATC STAR RQIH PCIP
Altitude Group (ALT): Corp Placing and acquisition – completion | Frontier Developments (FDEV): Corp Jurassic World Evolution drives earnings upgrade | Tax Systems (TAX): Corp Strong FY trading update | Telit (TCM): Corp FY 2018 earnings in line
Companies: ALT FDEV TAX TCM
Tax Systems has delivered interims that reveal performance comfortably in line with unchanged forecasts. Order intake growth of 22%, including 11% growth in new annuity licence orders, supported headline growth of 14% and organic growth of 9% (1H17: 7%). Recurring revenue remained strong at 89% (1H17: 92%); while the consistent 46% (49%) EBITDA margin led to strong cash generation and a reduction in net debt from £20.5m (FY17) to £17.5m (1H18). Having reinforced the core business and delivered new modules and features through investment and acquisition, the board is now looking to develop new business from new solutions. Unchanged forecasts lead to strong confidence in their delivery, with the focal points of degearing and growth making the group an increasingly attractive investment opportunity as execution proof points are routinely delivered. We lift our target price to 118p (99p), equivalent to FY19 15x EV/EBITDA.
Companies: Tax Systems
Altitude Group (ALT): Corp Further supplier agreements | Tax Systems (TAX): Corp Untaxing forecasts | 21st Century (C21): Corp Significant progress
Companies: C21 ALT TAX
CentralNic-Schedule 1 from the business operating in proprietary retail platforms selling domain names and associated web presence services including hosting and email on a subscription basis, has acquired KeyDrive S.A which constitutes a RTO. Raising £24m at 52p, combined market cap of £88.7m
Trackwise—established business that manufactures specialist products using printed circuit technology. Offer TBA. Due Late July
Ovoca Gold (to be renamed Ovoca Bio PLC) - RTO of IVIX, a Russian company developing a drug candidate for the treatment of female sexual dysfunctions. No monies to be raised, market cap of £8.5m, due 30 July
Nucleus Financial—independent wrap platform provider . FYDec17 revs £40.36m and PBT of £5.1m. Offer TBA. Due late July. Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in
South Africa and exploration assets in West Africa
Companies: HUM ZOE AO/ CAR BION TAX LID SPE BHRD AMYT
D4T4 Solutions (D4T4): Corp Strong H2 lifts EPS forecast and quality of earnings | Lok'nStore (LOK): Corp Pipeline of new stores in an undersupplied market | Paragon Entertainment (PEL): Corp Trading update | Savannah Resources (SAV): Corp Mutamba mineral sands project update | Tax Systems (TAX): Corp Prelims on track | Tristel (TSTL): Corp EPA approval – on track to launch in 2019 | Utilitywise (UTW): Corp Legacy issues being dealt with | ZOO Digital (ZOO): Corp Further positive trading update
Companies: D4T4 LOK PEL SAV TAX TSTL UTW ZOO
Prelims are in line with unchanged expectations, confirmed at the January trading update (established April 2017 when forecasts moved to IFRS15). EBITDA of £7.0m (£7.0mE) and adjusted PBT of £4.9m (£5.0mE) were delivered from revenue of £15.1m (£14.7mE) as the company delivers 90% recurring revenue from a very stable core client base. Organic growth of 10% including 6% organic annuity base growth demonstrated the benefits of 95% client retention, boosted by the acquisition of OSMO in April 2017, which lifted annuity growth to 12% and headline revenue growth to 17%. M&A continues to present an alternative to R&D, as the group strives to maximise revenue per customer, minimise churn, and generate new customer interest through a broader solution set, while continuing also to focus on cash generation to reduce net debt. Strategically on track, with a mild nudge up to FY18 revenue expectations and £1m improvement to net debt expectations, we reiterate our 99p target and look forward to newsflow.
Cradle Arc—holding company of a group of companies focused on the exploration and development of precious and base metals projects in Africa. Offer raising £2.4m with market cap of £20.13m. Expected late Jan 2018
Volex VLX.L—The global provider of cable assemblies is proposing to move from the main market to AIM on 19 January. £75m market cap. FYMar18E rev £241.5m and £7.19m PBT.
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.
Companies: MYN ETX TPG VLS DCTA GGP SCH TAX SPSY ESCH
Iofina* (IOF): 2017 production ahead of expectations (CORP) | Avacta* (AVCT): Positive proof of concept data with Glythera (CORP) | Tax Systems* (TAX): Positive trading update (CORP)
Companies: IOF AVCT TAX
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This quarter we use finnCap’s Slide Rule to provide both top-down and bottom-up analysis of the UK’s Technology and Telecoms sectors. Our findings are very reassuring: the Tech sector scores the best (across all sectors) when considering Growth and Quality – Taptica*, Frontier Developments* and dotDigital* in particular stand out on these metrics. Given these attractive characteristics and growth prospects, the Tech sector is unsurprisingly one of the most expensive – currently trading at 17.2x FY1 EV/EBIT and 23.8x FY1 P/E, versus 15.0x and 18.5x respectively for the wider market. Despite valuations appearing high, we believe there are value opportunities. For example, Proactis* features in finnCap’s QVGM+ portfolio (ranked 17/462) – the company offers attractive organic and inorganic growth, with earnings forecast to grow by 26% CAGR over the next two years, but despite this, only trades on 15x FY1 earnings and offers 8% FCF yield in FY2.
Companies: 7DIG ALT AMO ARTA BOTB BLTG CTP CITY D4T4 DTC DOTD ELCO FDEV GBG IDEA IDOX IGP IOM KBT KCOM KWS LRM MAI MMX NASA NET PHD QTX QXT RCN 932 SEE SIM SPE SRT STR TRMR TAX TEP TPOP TRAK UNG VIP ZOO CYAN ONEV SSY SYME WJA
Bioventix* (BVXP): Strong trading update (CORP) | Central Asia Metals (CAML): Intended transaction and suspension of trading (U/R) | InnovaDerma* (IDP): Solid operational update (CORP) | Tax Systems* (TAX): Evolution continues (CORP) | Datatec* (DTC): Completion of Westcon-Comstor disposal (CORP) | SimiGon* (SIM): Encouraging contract from The FAA (CORP)
Companies: BVXP CAML IDP TAX DTC SIM
Tax Systems’ interims highlight the successful initial results of the strategic initiatives to deliver growth. Where growth in the acquired TCSL business had historically been absent and new customer wins sporadic and merely replacing churn, the group has now delivered 7% organic revenue growth and 34% year-on-year order increase – a distinct improvement compared with the roughly zero % organic growth for the past three years. Adjusted EBITDA of £3.4m, representing 49% of full-year forecasts, was delivered from £7.0m of revenue (48% of FY17E), at a typically strong EBITDA margin of 49%, despite investment in infrastructure, systems and processes, staff and culture. Net debt of £23m is in line with year-end expectations, and forecasts are unchanged. Target price 99p reiterated.
Tristel* (TSTL): Trading update drives upgrades (CORP) | Cello (CLL): On track and investing for growth (BUY) | The People’s Operator* (TPOP): Board changes (CORP) | Tax Systems* (TAX): Trading update: on track (CORP)
Companies: TSTL CLL TPOP TAX
Lombard Risk Management* (LRM): Beats demanding growth and profit forecasts (CORP) | Frontier Developments* (FDEV): Steaming ahead (CORP) | Tax Systems* (TAX): Right place, right time (CORP) | Acal (ACL): Stronger H2 and brighter outlook (BUY) | Fenner (FENR): Interim results signal upgrades (BUY) | Minds + Machines* (MMX): US and Europe domain sales (CORP)
Companies: LRM FDEV TAX DSCV FENR MMX
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The ‘Moving Forward Act', the strongest automotive safety bill in decades, has now been passed in the House of Representatives. The bill is focused on advancing safety technologies proven to reduce crash and harm and to make sure strong safety standards are in place to save lives. The bill, which now needs to be passed in the Senate, will mandate automatic braking, lane-keeping, blind-spot detection, event data recorders as well as DMS in all cars and trucks sold in the US from 2024. This aligns with the European General Safety Regulation, which passed into law in November 2019.
However, in the EU, the European Association of Automobile Manufacturers (ACEA) has requested a 2‐year delay for the introduction of the 2022 Euro-NCAP protocols due to the projected lengthy time that will be needed to recover from the effects of COVID-19. Euro NCAP has agreed, and a delay is now expected to the 2022 and 2024 rating. The new dates will give automakers and Tier 1 suppliers more time to incorporate the necessary changes given the events of recent months with a number of manufacturers announcing 12 month delays to new models.
Companies: Seeing Machines
The FY 2020 results are in line with our expectations and reflect the impact of the previously announced switch from large perpetual licences to recurring annual term licences during the year. Despite the COVID strictures, with its large global partnerships, D4t4 continues to close numerous lucrative data gathering and data management contracts with major blue-chips around the world. It is successfully converting a high proportion of its new sales to recurring revenue contracts, but this will sacrifice growth and earnings in FY 2020 and FY 2021. Nevertheless, with growing recurring revenue base, an exciting pipeline and a very strong balance sheet, D4t4 is very well positioned for continued long-term growth and security.
Companies: D4T4 Solutions
GB Group reported strong performance in FY20 and started taking measures to preserve cash in Q420. Trading in Q121 has been mixed and while management is unwilling to provide guidance for FY21, it has confidence that in the longer term it is well positioned to benefit from the acceleration in digital transformation that should drive demand for its identity data intelligence services. We have upgraded our EPS forecasts by 5% in FY21 and 3% in FY22.
Companies: GB Group
CentralNic’s capital markets day (CMD) on 24 June 2020 introduced the divisional management team and provided insight on each of the three key segments as they will report in FY20: Indirect (Wholesale, Registry); Monetisation (Team Internet); and Direct (Retail, Corporate). We have picked out what we believe are the four key themes from the CMD: FY20 performance, COVID-19 and seasonality; organic growth; M&A; and, pulling it all together, the benefit of scale. CentralNic continues to trade on an FY20 EV/EBITDA of 9.1x and a P/E of 15.8x, a material discount to its peer group, with our DCF indicating further share price upside. M&A could bring CentralNic’s multiples down further.
Companies: Centralnic Group
LoopUp has provided an update on trading to coincide with today’s AGM…in essence, the group continues to see activity “materially” above pre-COVID levels, and is confident of exceeding expectations for 2020. We choose to leave our forecasts (that we believe to be roughly in line with consensus estimates) unchanged for now, in advance of further detail likely with a fuller H1 update in early July.
Companies: Loopup Group
IMImobile has issued an encouraging trading update, highlighting resilience in the Group’s core cloud communications operation. Gross profit rose 20%, with core Cloud comms (c.90%/revs) up >30% (inc. 3C acquisition). We estimate underlying organic decline at -5% y/y, in the middle of our scenario based range (-15% to 7%) with slow decline implying stabilisation in underlying communication traffic volumes post-lockdown. This stabilisation has been driven by growth in core sectors offsetting decline in sectors adversely impacted by the pandemic. Significantly, demand for the Group’s IMIConnect platform (SaaS revenues model) has remained robust as customers look to accelerate Digital Communication strategies, whilst upsell of additional channels in Q1 is also likely to drive future additional volumes from the Group’s existing base. Net cash of £2m is only modestly light of previous N1S forecasts for H1’21 prior to lockdown (£6.3m) and implies positive FCF through the previous 9-month period. We keep forecasts under review at this stage. In the medium-term, we see a path based on undemanding assumptions to FCF of £15m, offering a 7% yield at current valuation. The Group trades on 12x FY’19 EV/EBITDA (c.10x FY (Mar)’20E EBITDA based on previous forecasts), below recent sector acquisition multiples whilst offering a higher proportion of recurring revenue and operating further up the CPaaS value chain.
Gresham continues to show strong progress in difficult times. 18% yoy organic growth in Clareti ARR is amongst the fastest growth of any UK software company. It is being achieved because Gresham has built a disruptive product that is now replacing incumbents at Tier 1 financial institutions around the world. These results underpin our FY20 EBITDA expectations. The implied valuation of Clareti’s ARR is <6x revs, which we think offers value for an emerging leader.
Companies: Gresham Technologies
ECSC Group plc* (ECSC.L, 71.5p/£7.2m) | Trackwise Designs plc (TWD.L, 90.5p/£20.0m) | Transense Technologies plc (TRT.L, 59.5p/£9.7m)
Companies: ECSC Group Trackwise Designs
SDL held an introductory session for the Group’s new SLATE proposition (launched in June). Good traction has been seen within the Group’s existing base presenting an attractive upsell opportunity, whilst also enabling expansion of the Group’s TAM with a market-leading, highly automated and immensely scalable solution. Management estimate SME and ‘off-grid’ translation projects to be a market worth in excess of $10bn, with SLATE allowing the Group to target these areas in a more meaningful way. The new product fits with SDL’s strategic objectives of building deeper relationships with existing customers and building leadership in Language technologies. N1Se conservatively forecast Language Tech segment revenue growth of +4% and +6% for FY’20E and FY’21E. Outperformance in FY’21 by £2m of sales (FY’21E LT growth: +10% y/y) could deliver £1m uplift to EBITDA and FCF we estimate (+3% and +4% vs current forecasts). N1Se FY’21E forecasts currently generate an FCF yield in excess of 8%, with risk to the upside.
A strong interim period to January 2020 delivered the expected £26m revenue as reported in the February trading update, with a 31 January net cash balance also of £26m – EBITDA of £5.6m (post IFRS16), and adjusted PBT of £4.6m highlighting a strong performance. The Group has unchanged strategic ambitions – organic growth and M&A, both in evidence in Rail Technology & Services (RT&S) with 13% organic growth and the post period end acquisition of iBlocks. We withdrew forecasts last week due to the impact of COVID-19 on the 2H-weighted Traffic & Data Services business, given the exposure to cancelled large scale summer events, and uncertainty over traffic surveys; however, the potential for the Group is unchallenged when the world normalises. New contract wins, new product launches, new acquisitions and a hearty balance sheet continued to offer significant upside in 1H and post period end. Target price 900p remains based on our FY21 forecasts, which in theory should be consistent with previous forecasts and we look forward to reinstating numbers when the virus dust settles.
LoopUp recently updated on the first four months of 2020, which have seen an exceptional level of customer activity and new client wins. This is largely driven by the COVID-19 pandemic and the associated shift towards remote working with additional use of conference calls, but the group has also recently implemented an increased focus on Professional Services, which in our opinion could boost long-term potential. This note focuses on current activity levels within the business, the opportunity within Professional Services and the attitude of investors towards remote meetings companies.
Oxford Metrics has delivered solid 1HMar20 results, with sales of £15.0m (PY: £16.1m) and adj. PBT £0.3m (PY: £1.7). Within this, Yotta demonstrated continued ARR progression (up +15% to £6.8m) while at Vicon, the division added additional bluechip customers, further validating its industry leading position. Progress was, however, held back by lockdown restrictions. £1.1m of expected orders slipped to post period, but have now largely been fulfilled. Had they occurred as expected group sales would have been flat y/y. Looking ahead, CV19 related uncertainty leads us to withdraw forecasts. At this stage we expect disruption to be short-lived. As such – and considering OMG’s persuasive track record - we continue to view the company as a long-term winner in this growth industry.
Companies: Oxford Metrics
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
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