Strong H1 results, prospects good, investing in the future WEY's H1 results this morning reflect both the positive effect of proactive actions taken by the company last year and strong demand from the market at large. Sales up 43% YoY and PBTA of
£0.3m (2019: £0.1m) reflect increases across both sides of WEY's business and are accompanied by margin uplift (62% gross margin as against 56% last year). The company is a well-established leading supplier of online education, having built a 15-year track record of excellence in its sphere. Covering the half year ending on February 29th, the period of the results precedes the lockdown; however this morning's statement lays out the heightened demand for WEY's product which is an inevitable result of the new focus on remote working and online learning. WEY is plainly extremely well-placed to grow in the current environment, and it has made significant investments in educational quality and in marketing – in both cases including senior and wellrespected hires. The Covid-19 crisis has generated a new appreciation of online education from parents, pupils and educational authorities, who increasingly see this as a real, practical and highly effective substitute for traditional education, adding to the already strong demand across
WEY's brands. Our 30p-plus fair value assessment rests on the inherent opportunities and is also supported by the strong balance sheet (£6.6m of net cash, +£1.6m in the period).
Companies: Wey Education
Topline beat, healthy progress all round, reiterate views
WEY's update this morning reflects progress which is well-balanced between the two businesses and shows how the increased focus seen since the start of FY19 is paying off. With a new FY20 sales total of c.£7.5m flagged by the company (WHI forecast: £6.7m) organic growth of 25% was achieved across the InterHigh online school and in Academy 21, twice the forecast rate. A leading supplier of live online education the company is well-placed to benefit from growing demand for this product. While sales are well ahead of expectation, the company is at pains to lay out its investment strategy for the business on the back of these better than expected revenues – to continue to generate strong growth by investing in educational quality and in marketing. Senior hires in both of these fields remain key, and while we make no changes to our earnings forecasts, we view the longer term prospects as increasingly underpinned by the enlarged and robust platform. WEY offers excellent value for parents coupled with a focus on quality and delivery. C.£5m of net cash helps in turn to underpin our 30p-plus fair value assessment.
Jersey Oil & Gas (JOG) – Corporate – Acquisition and Corporate Update
Market Cap £30.2m Share Price 137.5p
Jersey has this morning announced that it has agreed terms to acquire the 70% of Licence P2170 held by Equinor for a contingent consideration. As a result of the acquisition, subject to normal completion conditions, Jersey will hold 88% of the licence and become operator. The licence contains the company's Verbier discovery in addition to exploration prospectivity. The contingent consideration will consist of i) $3M upon OGA sanctioning a field development plan for Verbier ii) $5M upon first oil from Verbier and iii) royalty payments (ranging from 5% to 2% in respect of 70% of the oil produced from the acquired block) on the first 35 million barrels produced from the block.
Wey Education (WEY) – Corporate – Appointment highlights heavy-weight strategy
Market Cap £18.2m Share Price 14.85p
Friday's announcement that Dr Sara de Freitas is to be appointed to WEY's executive team as Executive Director of Education highlights the company's long-standing commitment to educational quality and fostering engagement at a time when it has already flagged that it plans to grow and develop the management team. We read the appointment of a heavy-weight educationalist such as Ms de Freitas, with significant and long-term experience, as a further reflection of the strategy of growing the core business, with the Board keen to push forward from the company's position of strength. At the time of the final results in November, the company flagged new recruitment mechanisms which had already yielded important hires, and the announcement on January 24th appears well-aligned to the company's strategy and objectives.
Journeo (JNEO) – Corporate – City of Edinburgh Bus Station order
Market Cap £4.6m Share Price 56p
Journeo is a specialist provider of both on and off-vehicle tailored solutions to the transport community. This morning, the company has released an RNS confirming receipt of its first tranche of work under the £4.8m City of Edinburgh Council bus station contract that was announced in December 2019.
Companies: JOG JNEO WEY
WEY’s results this morning describe a year in which the company decided to terminate overseas joint ventures and non-core activities, paying a price for this in exceptional costs, but then went on to surprise on the upside, exceeding our £95k PBTA forecast by a factor of three (and outperforming substantially on cash). With a partial contribution from Academy 21 in the prior year, underlying revenue growth was strong at 36%, mainly on the back of new student wins – combined with steadily rising average pricing, suggesting a compelling model for growth. As a provider of true live education in the growing space of online/ virtual schooling, WEY is a beneficiary of positive underlying drivers and has two well-established brands which extend to a leadership role, in conjunction with the Department of Education, in upgrading the regulatory framework. This year’s re-focusing has highlighted the fundamentals of the company’s two large business streams, while removing costs and enhancing the core attractions (high margins, a growing market, management, entry barriers). Underlying growth is fed by a wider understanding of online education and WEY’s value proposition both for parents as well as the pressures on public bodies including secondary schools. Led since November by a new and experienced Chairman and a CEO steeped in online education, the company benefits from £5m of net cash on i
This morning’s update from WEY, issued just at the company’s year end, is very encouraging in demonstrating that actions that have been taken are achieving results, if anything earlier than expected. At £6m (at least) revenues for year to August 2019, the sales line has exceeded our £5m FY forecast by a substantial margin. It is good to see that the strong momentum is not confined to one activity but is across the board in InterHigh and Academy21. With increases in marketing spend highlighted, together with continuing investment in teaching and lesson excellence, our profit forecast is only marginally increased, particularly at this relatively early stage with the company’s financial year just ending. However, we see vindication of the strategy of focusing on the mainline businesses and potential future upside on the back of this, allied to the company’s established education services platform
Brickability - The br icks supplier , w hich a lso ha s a hea ting a nd plumbing business a s w ell a s a roofing division, expects to join the junior market at the end of this month with a market cap of circa £150m
Companies: PPC GRA MPM KWG AOGL OKYO WEY TRP PHD EVG
WEY is an educational group operating a range of fully interactive educational businesses, including the UK’s only true online secondary school. Interim results clearly demonstrate the momentum the business is now seeing under new leadership, following the sad passing away of the previous chairman. With a strategic review refocusing the business on its core brands of Interhigh and Academy21, it is pleasing to see H1 revenue of £2.7m, up 54.7% (organic c.35%). As a result, Wey reports an adjusted profit before tax of £124k (H1-18: £23k), which bodes well when set against our unchanged full year break even expectation. Although marketing spend is expected to increase in H2 (note new brand ambassador Colin Jackson, and pending radio advertising campaign), and there is a little revenue still to be booked for H2, we believe risk, is clearly towards the upside with respect to 2019 estimates. Net cash at the end of the period stood at a very healthy £5.0m. Our fair value assessment (see note published 20/02/19) is set at 35p.
Induction Healthcare Group plc—a healthcare technology company focused on streamlining the delivery of care by Healthcare Professionals looking to join AIM. Expected raise of £14.58m at 115p, market cap of £34.07m. Expected 22 May 2019.
SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m
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
Companies: JSE HUR MIDW BAR SRE WEY POLX ANG SML MYX
WEY Education (WEY) – Corporate – Not to proceed with small acquisition, reflecting integrity of company’s due diligence process
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Wey Education plc is a UK-based educational group delivering online education services in the UK and around the world. The tragic loss of its Executive Chairman towards the end of last year has necessitated a refocusing of Wey’s strategy, the details of which were announced in early February. Under the Chairmanship of Barrie Whipp, and led by CEO Jacqueline Daniell, the Group is now set to be more focused and streamlined around its existing businesses of InterHigh and Academy21. Coupled with a revised sales and marketing campaign, Wey is seeking to capitalise on the growing demand for online-based education, alongside targeted overseas opportunities to be achieved from the UK. Although there is a material rebasing of our estimates, we believe near-term forecast risk significantly reduces with potential, certainly in 2020E, towards the upside. Our DCF valuation conservatively sees fair value at 35p.
WEY Education (WEY) – Corporate – Strategy review, update and potential M&A
Gama Aviation (GMAA) – Corporate – Trading update – downgrade to earnings expectations | Frontera Resources (FRR) – Corporate – MOU Signed with Baker Hughes | i3 Energy (I3E) – Corporate – Operational Update and New Corporate Presentation | WEY Education (WEY) – Corporate – Solid FY18 results, showing strong growth; forecasts reduced
Companies: GMAA FRR I3E WEY
Wey report a solid set of FY18 results, underpinned by significant growth in UK operations, in a year in which future growth was a key focus. Revenue increased 73% to £4.2m (underlying +29%), slightly ahead of expectation, and with adjusted EBITDA (stripping out non-repeat marketing and exceptional costs) increasing 161% to £0.45m (WHI Adjusted £0.21m). Net cash at the end of the period stands at a very healthy £4.0m-plus. With a diverse geographical reach, WEY is an educational group operating a range of fully interactive educational businesses, including the UK’s leading online secondary school. The first overseas ventures have been secured with Nigeria said to be progressing well, while negotiations with the potential Chinese partner (with whom an MOU has been signed) continue. Our forecasts are reduced to take account of more cautious assumptions in this connection and more generally.
Caledonia Mining (CMCL) – Corporate – Blanket mine resource update | Jersey Oil & Gas (JOG) – Corporate – Interims | Parity Group (PTY) – Corporate – Inline H1’s generate double digit profit growth; drivers strong | Modern Water (MWG) – Corporate – Interims – progress continues; FY expectations unchanged Petards (PEG) – Corporate – Interim results illustrate a good performance and strong visibility | WEY Education (WEY) – Corporate – Nigerian strategy taking shape
Companies: CMCL JOG PTY MWG PEG WEY
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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
Full-year results were at a record level and slightly ahead of expectations by £0.2m at the adjusted PBT level, or 2.8% better at the EPS level. Cash generation was also stronger than expected, resulting in net cash of £3.2m. The dividend was maintained – a sign of confidence. Good strategic progress was made, helped by the integration synergies of Pacer and new product development programmes. Our forecast and price target remain under review given COVID-19-related uncertainties.
Companies: Solid State
The announcement that Avon Rubber is to sell milkrite | InterPuls, its dairy division, to DeLaval Holding for £180m gross proceeds is strategically logical and financially compelling. The fit of dairy and defence has always looked slightly anomalous and the terms of the deal show that the opportunity to augment dairy through value-accretive deals is difficult given the scale of the business and opportunities. Management must now recycle the cash balances that will be created into Avon Protection, where there are a greater number of potential investments.
Companies: Avon Rubber
Brick and concrete products manufacturer Forterra has raised c. £55m gross in an equity placing in order to maintain its strong balance sheet and support the Group's continued investment programme. It was accompanied by, in our view, a reassuring trading statement which we believe is backed by yesterday’s brick industry data and comments from housebuilders, which suggest that demand has been recovering from its lockdown lows, before the PM’s promises to “build, build, build” housing and infrastructure.
Successful K3 Capital placing to raise £30.45m (gross) at 150p to fund the £9.3m acquisition of Randd UK Ltd, an R&D tax credit specialist with an LTM EBITDA of c.£2.0m, with a margin of c.50% and revenues typically contracted for 5 tax years with many recurring thereafter, followed by future potential deals in SME exposed markets. K3 has established itself as an innovative company that is able to effectively gather, generate and mine large quantities of data in order to scale up M&A services to SMEs. Transferring these lead generation capabilities to adjacent SME markets can allow rapid growth from proven models, at scale.
Companies: K3 Capital Group
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
Further Profitable Growth to Come
discoverIE reported FY20 results ahead of our forecasts for underlying operating profit and EPS. Looking through short-term COVID-19-related disruption, the company has set new strategic targets for the next five years. These are a continuation of the strategy to grow the Design & Manufacturing business organically and via acquisition and include the target to increase the group operating margin from 8.5% (pro forma) to 12.5%. We maintain our normalised operating profit and EPS forecasts.
Companies: Discoverie Group
Smart Metering Systems (SMS) has announced that it has emerged from the recent Covid-19 uncertainty in a strong financial position and taken the decision to return funds received from the Government under the Coronavirus Jobs Retention Scheme. Current net cash of £48m (not including furlough grant) is ahead of previous expectations and underlying profitability for the year to 31 December 2020 is expected to be in line with expectations prior to lockdown, despite the obvious interruptions to meter installation activity that it has caused. During lockdown essential emergency field engineering work continued and SMS completed the sale of a proportion of its meter asset portfolio for a gross cash consideration of £291m (£282m net). In March 2020, SMS announced that it would rebase its dividend to 25p (prospective yield 4.3%), index linked to FY24 and commencing payments in October 2020, quarterly thereafter. A phased resumption to meter installation activity commenced on 1 June 2020.
Companies: Smart Metering Systems
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.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP BOXE ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
Marlowe has raised £40m in new equity to finance the acquisition of Elogbooks (£7.3m cash upfront and up to £6.8m contingent deferred) and accelerate consolidation of their markets. We update our forecasts to reflect this transaction and COVID-19 trading conditions (FY21E Adj EBITDA unchanged at £24m).
Updating forecasts following 2019 results
Companies: Trackwise Designs
Full year results ahead - robust position against uncertain near-term backdrop
Solid State is a manufacturer of computing, power and communications products, and value added distributor of electronic components. This morning, the group has released full year results with PBT and EPS slightly better than our upwardly revised forecasts had assumed and reflecting a strong margin performance in the year. As previously flagged, cash generation was particularly strong. The group entered FY 2021E with a strong order book, which is reported to have stood at £37.9m as at 31 May 2020, an increase of some 5.6% from a year earlier. With little in the way of cancellations or deferrals of orders, Q1 2021E revenue has held up well, whilst order intake has been just under 15% lower than the prior year, which suggests a weaker revenue performance in Q2/Q3 but with the tender pipeline implying a potentially stronger Q4. Reflecting the present uncertainty, we leave our forecasts under review for the time being. Fundamentally, and backed by a strong balance sheet, we believe that Solid remains well positioned to come through the current crisis and will emerge as one of the winners when normal service resumes.
The Smart Zones customer base is expected to reopen, to a large extent, this weekend. The reopening of pubs will bring forward a revised billing profile and markedly improve the Smart Zones revenue base. Smart Machines continues to operate profitably and the group's Business Interruption Loan should buttress the balance sheet through this year. While our forecasts remain withdrawn we can see an encouraging pathway to normalised trading next year.
Companies: Vianet Group
As flagged in the April trading update, Solid State’s FY20 results showed a 19.7% growth in revenues and 34.3% jump in adjusted profit before tax. Demand from the medical and food retail sectors is strong but weakness in the oil & gas and commercial aviation sectors related to the coronavirus pandemic is likely to result in lower year-on-year sales during Q2 and early Q321. While management sees potential for a Q4 recovery, the current range of FY21 profit outcomes is wide, so it is not providing guidance.