2019 results – US outlook improving
Companies: Plant Health Care
PHC279 Brazilian Regulatory Submission
New equity raise to accelerate growth
FRP Advisory Group, UK professional services firm specialising in restructuring advisory. Raising £80m (£20m primary). Expected market cap £190m. Compound annual growth of 16.4 per cent. in revenue and 10.9 per cent. in operating profit since the beginning of FY17.o Strong average EBITDA margins of 51 per cent. over FY17 to FY19, and consistently strong cash conversion Inspecs, a UK designer, manufacturer and distributor of eyewear frames to global retail chains announces its intention to IPO onto AIM raising £94m with a market cap of £138m. Admission expected 27th February. FY Dec 2018 numbers show revenue of $57m and underlying EBITDA of $11m. The Proof Of Trust has announced its intention to list on the Standard Market. The Blockchain based business, owns patents to a protocol which facilitates dispute resolution based upon smart contract disputes. Transaction details TBC. DRI Healthcare—investment company focused on investments in healthcare Royalty Assets looking to raise $350m. Due 11 Mar. Ninety One –proposed demerger and public listing of Investec’s global asset management business on LSE and JSE. 30 Sep 2019 AUM £121bn. Sale of existing shares. Expected free float of >60%. Due 16 march. Cabot Square—Closed ended investment fund focussed on alternative assets and asset manager. Looking to raise £200m. Will target investment opportunities that are expected to generate an attractive risk adjusted return and that can also make a positive ESG impact by focusing on some of the biggest challenges facing societies and economies. Due 14 Feb. The Global Sustainable Farmland Income Trust will invest in a diversified portfolio of operational farmland assets located in major agricultural markets including the United States, Europe, New Zealand, Australia and certain countries within Latin and South America. Raising up to $300m. Due 28 February. Incanthera—Specialist oncology company focused on transforming cancer treatment by creating environments in which cancer cannot survive . Due 28 Feb. Zapp Scooters, a developer and manufacturer of electric two-wheeled vehicles announced its intention to IPO on the NEX Exchange Growth Market. The Company intends to raise up to £3.5m. Admission is expected to occur on NEX in February 2020.
Companies: TSTL BOKU EQT KRS CALL CRV JAY TWD PHC ALBA
Trading update below expectations
Companies: SDI B90 AQX VLG TWD PHC TUNE CIR WSG BIDS
Plant Health Care has announced the raise of £2.35m in new equity from a strategic agriculture investor, Ospraie Ag LLC at a subscription price of 6.8p per share, resulting in ~34.5m new shares, representing 16.6% of the share capital of the enlarged company. We believe this investment should provide funds to accelerate New Technology development through the PREtec range of products and contribute to some de-risking of the longer-term opportunity while removing any lingering market concerns over PHC’s funding position. Reiterate buy.
Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.
Companies: ABBY AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CDM CSRT TIDE CYAN DTG DEMG ELM EMR FPO FDEV GTLY GENL GHH GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KAPE KEYS KWS KCT KGH LAM LIT LOK MACF MANO MOD OXIG PCA PANR APP SRE PHC PMO RBW RMM RBGP REDD RSW RNO ROR SUS SCPA SEN SHG SOLG SOM SUMO TM17 INCE TWD TRAK TRI VNET VTC ZOO ZTF
Plant Health Care has announced the signing of an agreement with the CSL Behring Fermentation Facility at Penn State University to enable the scale up of production methods for subsequent transfer to commercial production of its PHC279 PREtec peptide for use in the US and Brazil.
The spotlight on food technology has perhaps grown more as a result of changing consumer trends, and environmental necessity than from investor appetite for something new. According to Robbins Research, livestock account for 18% of greenhouse gas (GHG) emissions, which is higher than the portion of GHG emissions created by transportation. Livestock also produce 35% of the world’s methane, which has more than 20 times the Global Warming Potential of carbon dioxide, and generate 65% of the world’s nitrous oxide, which has 23 times the GWP of carbon dioxide. The irrigation of feed crops also accounts for nearly 8% of the world’s human water use. Hence the need for plant-based alternatives to traditional protein sources, which are produced far more sustainably than traditional meats.
Companies: PURE SIS PXS RGD TEK ANIC EDEN PHC
Plant Health Care has announced excellent trial results for its PHC 279 new technology in application to Soybeans in Brazil. Following 2018’s disappointing trial, these strong results provide the basis for PHC to seek to fast-track registration and accelerate manufacturing to commercialise the technology which should be highly positive for the Group over time
In January, we provided a list of 11 stocks for 2019 that we believed would perform strongly with attractive catalysts that could lead to material outperformance. In this Quarterly Research Outlook, we revisit these views, analysing what has happened and how the remaining six months of the year could play out.
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Plant Health Care has announced a new agreement with Wilbur-Ellis for exclusive distribution of Employ, a product with Harpin ab, for use in US specialty crop markets which total over 7m acres.
We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
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Plant Health Care has released FY2018 results with revenue inline with expectations and reiterated the strong operational progress the Group has made through 2018. In particular, entering new row crop markets in the US and Sugar cane in Brazil provides significantly more scale than previous markets and thus provide a strong commercial opportunity for the Group. We make no change to our already conservative 2019 forecasts and anticipate further operational developments through the year that could see upside risk to revenues and longer-term valuation. Reiterate Buy.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
US & German manufacturing PMI hits lowest readings since 2009, UK manufacturing PMI heads below 50, BorgWarner expects material financial impact from customer production halts
Companies: AVON CGS HAYD HEAD HILS JHD RNO SCPA TWD TRI ZTF SOM GHH
There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
Companies: AVO AGY ARBB ARIX ASAI DNL GDR HAYD NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE TRX TON SHED VTA
Carclo’s H120 results show that the remaining businesses following the exit from Wipac in December provide a basis for a sustainable group going forward. The continuing businesses generated £56.1m revenues and £3.3m underlying EBIT. However, there remain significant challenges in reaching agreement on long-term funding with the lending bank and pension trustee. Our estimates will remain under review until these are resolved.
COVID-19 update – continuing to operate, div. suspended
Companies: Scapa Group
Bayer’s management will take a lot of money off its hands trying to settle three litigations in the US, of which the RoundUp one will be the most expensive. With this move, Bayer lifts some heavy weights from its shoulder, but not the full amount. The settlement of the dicamba drift litigation and PCB water litigation takes away some additional (financial) insecurity from the table, which is appreciated, as investors can now re-focus on the pay-off from the Monsanto acquisition.
A sticky situation…
Eden Research is the UK's only quoted biopesticide company which we see at an interesting inflexion point as its development work continues to transition to product launches across multiple geographies, crops and pests. Eden's biopesticide products offer advantages over conventional pesticides and the biopesticide market as a whole is expected to grow at a high-teen rate over the coming years. To support its on-going product development work and invest in its pipeline, the company has announced it has conditionally raised £10.1m (gross) via a placing of new shares. We maintain our Buy recommendation.
Companies: Eden Research
Companies: AVO AGY ARBB ARIX BUR CMH CLIG DNL GDR HAYD PCA PIN PHP RE/ RECI RMDL STX SHED VTA
COVID-19 Trading Update
Companies: Haydale Graphene Industries
Eden Research has reported results for the 12-months to December 2019. As previously announced, revenues for the year were £2.0m within which product revenues grew to £1.7m (2018A £1.6m); the operating loss was £1.4m. During 2019 the company received its first approvals for its second product, Cedroz and signed a number of distribution agreements. Post-period end, Eden signed an exclusive evaluation agreement with Corteva Agriscience, a leading agricultural inputs company. We believe the COVID-19 pandemic is likely to impact the ability to actively market Eden's products and could delay additional product authorisations in key regions. Given these uncertainties, we are withdrawing our forecasts and move our recommendation to Under Review.
Interim results were in line with the period end trading update, posting a record half-year sales. Both UK and US sites are operating normally. Crucially, H2 has started well, with no significant reduction in demand resulting from COVID-19. Ongoing close dialogue with customers remains encouraging, with management alert to the potential for order book disruption. The company remains cautiously optimistic and, as such, forecasts remain unchanged. Having raised £2.5m in January and £0.4m of asset finance with Hitachi Capital, the group looks to have sufficient cash to complete its current expansion and relocation programme, which remains on track. Encouraging progress continues with Airbus and a supply agreement reached with a major Tier 1 supplier, while today it has announced its first low volume production order from Airbus for the A380.
Against a backdrop of generally negative company announcements, Hardide bucked the trend by releasing solid interim results for the 6 months ended March 2020, noting limited impact to date from COVID-19 and a positive trading outlook. Furthermore, the allimportant move to new facilities and corresponding capacity expansion is both on track and on budget. Several of Hardide’s end markets will clearly be feeling the impact of COVID-19. However, we feel the importance of Hardide’s technology to its customers by extending the useful life of components and its diversity of end markets across multiple sectors including oil & gas, aerospace, flow control, power generation and precision engineering is enabling it to weather the storm. We leave our forecasts unchanged and see potential for an upgrade should end markets maintain strength and H2 margins match those of H1.
JMAT’s preliminary FY results might give a first indication of future (car) volumes and some perspectives on the developments in the battery materials business. The ‘preparation’ of the company erased c.-25% of EBIT. The justification therefore looks to us rather disconnected to the presentation by the company as management also swung into the line of companies unable to provide a 2020 guidance.
FY profitability was below both our and consensus estimates: (reported £388m; AV: £477m, consensus: £516m).
Companies: Johnson Matthey