iEnergizer has released interim results for the 6m to 30 Sep 2019. Revenues for the period were $96.2m, with Adj, EBITDA of $29.1m and Adj. Dil. EPS of $0.11, against full year expectations of $193.0m revenues, $54.0m Adj. EBITDA, $0.21 Adj. EPS. We leave FY20E/FY21E P&L forecasts unchanged, noting several isolated tailwinds in H1’20A. Payment of an interim dividend of 5.2p (ex-div 21 Nov) yields 4.6% FY20E, supported by FCF of 6.3% FY20E. We reiterate our Buy rec. with 345p TP (15x FY20E EV/EBITDA) offering 28% upside.
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.
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iEnergizer has announced it expects trading to be ahead of current expectations for FY20E following a strong start to H1’20E. We upgrade forecasts by c.6% for FY20E, moving revenues from $182.2m to $193.0m, and Adj EBITDA from $51.0m to $54.0m at a constant margin of 28%. We maintain our previous growth profile into FY21E forecasts and so see c.6% upgrades for Adj EBITDA. We also adjust for FX and include an assumption of a 5.2p interim dividend payment, following the company’s announcement of intent to pay one the other week, albeit await final clarity on the quantum. Our TP, on 15x FY20E EBITDA moves mechanically to 345p. Re-iterate Buy.
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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iEnergizer, the Indian outsourcing provider, this morning released their FY19A results showing total revenues of $177.1m, up 12.9% YoY (Arden est $172m,) and EBITDA of $50.1m, up 29.7% (Arden est $48.0m), representing a standout 28.3% margin. We upgrade our FY20E forecasts by 3.1% at EBITDA level to $51.0m, and release FY21E forecasts (EBITDA $52.9m); 28.0% margin. The Company has reinstated a regular dividend as of these results, with 10.4p (13.3c) offering a yield of 5.2% FY20E. We increase our target price to 315p to put the shares on 15.0x EV/EBITDA FY20E. Buy.
IMC Exploration Group (NEX: IMCP), focused on acquiring and exploring prospecting licence areas w hich have high potential for natural resource, is looking to admit its shares to the standard list and will withdraw for the NEX Exchange. TBC
Companies: CER PRES THR TEK KWG BBB RCN IRR ACP IBPO
iEnergizer today announced the successful refinancing of its term loan for an aggregate amount of $45.5m with its existing lenders. The revised facility has been secured on favourable terms and allows the Company to reinstate a regular dividend – details of the policy will be announced in June 2019. We see this news as substantially de-risking the investment case and increase our PT to 250p (13.0x FY20E EV/EBITDA) to reflect the improved risk-reward profile. Buy.
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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iEnergizer’s trading update confirms revenue to be ahead expectations for FY19E, and operating profit to be significantly ahead, due to multiple H2’19 contract wins in higher margin work, currency tailwinds, and moving outsourced work in-house. We substantially upgrade FY19E forecasts to revenue: $172.0m (4.1% incr.), EBITDA: $48.0m (11.6% incr.), EPS 18.7c (13.3% incr.). We also upgrade FY20E forecasts to acknowledge sticky revenues on a minimum contract length of 2 years, at a slightly lower yet sustainable EBITDA margin of 27.2%; FY20E revenue increases to $181.9m (4.4% incr.) and EPS to 18.9c (12.6%) incr. Management remain on track to reinstate a dividend for H2’19, supported by FCF yield of 10.3%.
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The market has not faced quite so many conflicting challenges for a number of years, whether related to global geopolitics, trade wars, ongoing Eurozone issues or the “will they, won’t they” saga of Brexit. In our Best Ideas, we sought to highlight stocks that present investors with interesting opportunities following recent market moves. Those stocks, we believe, warrant investor attention, in many cases for uncorrelated or stockspecific reasons, regardless of the near-to-medium term market direction. These stocks, in general, represent attractive and well-managed businesses or assets, with share price catalysts and where valuations or recent stock performance provide investors with a good entry point.
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iEnergizer enjoyed a continuation of impressive top-line growth in the period, with revenues up 9.5% year on year to $82.4m (H1’18 $75.2m). Whilst BPO (H1’18 sales $48.1m) and Content Delivery ($34.3m) are split out in the interims, management view the business as a whole going forward – acknowledging the increasing synergies across service offerings.
The June IPO of Knights Group Holdings, a Top-100 regional law firm, marked the fifth entrant to the burgeoning UK-listed legal sector. Following recent expansion of our coverage across all five listed legal firms, complemented by coverage of three broader support services peers with exposure to the sector, we revisit and build upon our views on this rapidly evolving sector.
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Strix has released an AGM statement indicating that trading in the early part of the year has been solid, the new financing facilities have been put in place, product development is on track with 14 new products released during the year and the factory move remains on schedule and to budget. The current trading period is an important one and the scheduled trading update 23rd July should provide more colour on the underlying performance as well as the early indications from the new products already released and the outlook for those that are scheduled to be released in H2. The resilience of the Strix business has been reaffirmed during the current situation with financial guidance having been maintained and the final dividend committed to, a 10% increase yoy.
Companies: Strix Group
Despite some initial integration issues with WatBio (since resolved), Filta generated strong organic growth (+16% YoY) and delivered results in line with expectations. Given ongoing uncertainty around the pace at which self-isolation measures will be eased, we maintain our Hold rating, and will look to reinstate forecasts once visibility improves.
Companies: Filta Group
TClarke's trading update is refreshingly positive in all key aspects of investors' current COVID fears and hopes. The decision to fully pay the 2019 final dividend sustains income attractiveness (4% yield on the final alone), the avoidance of trading losses in the teeth of the industry lockdown period (after a profitable Q1/20) demonstrates resilience whilst maintenance of net cash balances through April and May illustrate a robustness of cash flows despite reduced activity levels. It has also maintained the order book and has moved quickly to re-structure the cost base ensuring that margin recovery is not entirely dependant upon market improvement. Prudently and we believe reasonably, we are removing all forward forecasts until visibility on revenue recovery and productivity rates into H2/20 become clearer. However, TClarke's operational strengths, financial robustness and cash coverage of dividend in the most testing of circumstances gives us renewed confidence to uphold a Buy recommendation.
FY results ahead due to a waiver of the management bonuses and final dividend is proposed. Current trading is impacted by COVID but there are clear signs of improvement.
Judges Scientific, the group focused on acquiring and developing companies in the scientific instrument sector, has announced the acquisition of UK based ‘Health Scientific Ltd', a world leading maker, and global exporter, of calorimetry instruments. The initial cash consideration equates to £5.3m, with a further £2.0m cash earnout if profits hit £1.22m in 2020. The business generated £4.4m of revenue and an adjusted EBIT of £0.88m (20% EBIT margin) to April 2019, and is expected to have an even stronger year to April 2020, suggesting a ‘6x EBIT takeout multiple' if the earnout target is hit.
Companies: Judges Scientific
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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In the midst of a crisis, Judges has made what we think is an excellent acquisition in a high growth sector (lithium battery testing). Heath Scientific fits all of Judges’ acquisition criteria and is a business that is well known to management. We think that the current crisis may well throw up more opportunities and, with its strong balance sheet, Judges is well positioned to capitalise on this. FY20E EPS increased by 1.8% and FY21E by 3.2%. DCF based TP raised from 5245p to 5380p. CY21E PE 26.3x. Buy.
New Equity Driving Growth
Costain has raised £100m of gross proceeds. We reduce FY 20 and 21 FD EPS by 45% and 59% due to the dilution.
Companies: Costain Group
TP Group's FY19A results were in line with our expectations, with strong organic revenue growth of +16% YoY. Whilst the business remains resilient, with a large net cash position and a record order book, COVID-19 has caused uncertainty around the timing of some pipeline opportunities. Therefore, in line with a number of other companies, TP Group is withdrawing market guidance. We also withdraw our forecasts and place our recommendation Under Review.
Companies: TP Group
Filta Group (Filta) announced FY’19 results pretty much in line with our numbers. Adjusted EBITDA was £3.2m, vs. our £3.3m estimate, and revenue was £24.9m, vs. our £25.1m expectation. These figures confirmed that the integration of Watbio was back on track and the business was trading well until COVID-19 struck. Most of Filta’s customers are currently closed, but the company is optimistic that they will bounce back one distancing restrictions are lifted. We have removed our 2020 forecasts.
Trading has recovered from the initial hit from COVID-19, with improving B2B activity adding to strong B2C trends. Revenue has been better than previously expected at both DX Freight and DX Express, with this now running at 10-15% below normal levels for this time of the year, compared with the initial 33% impact at the commencement of the lockdown.
Companies: DX Group
Avation is a lessor of 48 commercial aircraft to a diversified airline client base. Intra-day yesterday, the group announced that, as a result of the present uncertain backdrop caused by COVID-19, the Board had withdrawn from the previously announced strategic review and formal sale process, and that it was no longer in active discussions with any interested parties. The key reasons behind this were 1) the present uncertainty meaning that an attractive valuation was seen as unlikely to be achieved at this present moment in time and 2) the distraction of the process in the day to day operational activities of the business.
Petards supplies advanced security and surveillance systems to the Rail, Defence and Traffic Technology markets. Intra-day yesterday, the group confirmed that its RTS Solutions subsidiary had secured a multi-year renewal agreement for the provision of software support services to one of its major rail customers.
Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning, the group has released full year results to 31 December 2019, alongside providing an update on progress against the present COVID-19 backdrop. In line with the market updates provided in February and April, group revenue in the year increased by 3.2% to £7.1m, whilst revenue from continuing operations, excluding the Onboard business that was disposed of in the year, increased by 7.2% to £6.7m, driven by traction being gained with new products and services. The gross margin in the year increased by 280bps to 53.9% reflecting the greater proportion of software and service income. This resulted in a trading loss after tax before exceptionals of £89k, which post exceptionals of £412k that predominantly related to the disposal of OnBoard, resulted in a loss after tax of £501k. As previously reported, the year-end net cash position stood at £850k, which reflected an increase of £554k in the year; this post £1.1m of new product development expenditure and cash costs associated with the disposal.
Companies: AVAP TST PEG
The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
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De La Rue remains challenged. New management has to navigate a difficult Currency market and consequent concern over its finances. The swift response in terms of a turnaround programme is a positive start, accelerating cost cutting initiatives and cash management measures, including suspension of the dividend. Restoring stability and rebuilding confidence in the investment case is likely to take some time.
Companies: De La Rue