We highlight the strong Workday numbers overnight which provides cause for enthusiasm for growth equities, the SaaS software sector and most specifically within AIM, could augur well for Kainos, given their close partnership on consulting and implementation. Beyond the beat, most noteworthy comment was that management saw no impact from Brexit as yet nor the trade tensions in the US and China. With enviable growth rates of 32% in the quarter, we highlight few names in AIM such as CloudCall* offer such compelling opportunity.
Companies: 7DIG CALL TRAK ESYS FST KNOS PHD QTX SAG SEE TRCS
The latest update from Frontier Smart Technologies, out this morning, implies a worsening balance of risk reward for the shares. With Science Group ruling out a statutory merger, and material uncertainty arising over the Q4 order book, the group’s cash position and covenants, we reiterate our sell recommendation.
Companies: Frontier Smart Technologies Group
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.
Companies: AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE CYAN JET2 DEMG ELM EMR FPO FST GTLY GENL GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR HYR IBPO IOG INDI JHD JOG KAPE KEYS KCT KGH LAM LIT LOK MACF MANO PCA PANR PXC PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG SOM TWD TRAK TSG TRI VNET VTC ZOO ZTF
Frontier Smart has released a trading update and revised full year outlook. While the group’s long term strategic plan remains in place, near term competitive pressures in Digital Radio, combined with delays in the ramp-up of the new Smart IoT Licencing business, is now likely to impact full year revenue and profitability. As a result, the group now expects to be loss making in the current financial year. The Board is confident however that the combination of actions already taken to improve Digital Radio market share, new product launches, and positive indications on Smart IoT Licencing will result in a return to EBITDA profitability in H2’19 and for FY’20 as a whole. Today’s update is clearly disappointing but we remain confident in the group’s well invested, market leading IP and see multiple routes to leveraging this IP to deliver on management’s medium term objectives.
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.
Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE JET2 DEMG EMR FPO FST GTLY GENL INCE GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR APP PXC PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF
Frontier Smart has released its FY’18 results showing group revenues down 21% versus a strong comparative. FY’18 contains two contrasting halves: H1 sales were adversely impacted by Norwegian DSO overstocking issues, whilst H2 saw strong recovery. The group delivered FY’18 trading EBITDA of $0.8m, having posted a $2.1m EBITDA loss in H1. Outlook looks more positive, with modest growth expected in DAB (regulatory-driven) and Smart IoT (licencing and non-audio). Valuation remains attractive at 0.4x FY’19 EV/sales, with our SOTP implying an intrinsic value range of 73p – 103p.
FY18 results offer no surprises for FST, following their pre-close trading update in January which gave guidance on revenues, EBITDA, and net debt and to which we realigned forecasts. The Group edged ahead on revenue with $41.8m for the year against our forecast of $41.3m. EBITDA of $0.8m was in line, with net debt of $2.5m slightly under our revised $2.1m, yet ahead of our original forecast of $3.0m for the year. Notably, the trading outlook confirms early successes in non-Audio IoT and progress in licensing; suggesting a cautious, yet positive view to 2019. On FY19E forecasts of $42.5m we retain our PT of 62p to put the shares on an un-ambitious 0.8x EV/Sales. Buy.
We release FY19E forecasts for FST and align FY18E numbers with guidance issued in their trading update last month. Whilst we downgrade our FY18E revenue from $46.6m to $41.3m, EBITDA was broadly in-line, and Net Debt beat with $2.1m vs expected $3.0m. Looking ahead, we highlight early enjoyment of licensing revenues (NRE at this stage) in FY19E and expect maiden revenues from the Company’s exploration of non-voice IoT applications. Continued price weakness since summer 2018 is in our view unwarranted, with the shares currently trading on just 0.4x FY19E revenues. We believe this materially undervalues a company with exposure to a healthy midterm pipeline of opportunity and re-iterate our PT of 62p. Buy.
Frontier Smart Technologies has announced its selection by KOHLER, a global leader in kitchen and bathroom products, to help launch its new Verdera Voice Smart Mirror with integrated Google Assistant. Whilst not expected to deliver material unit quantum as a niche, high-end product, the announcement represents a potentially significant milestone in successfully broadening Frontier’s revenue base into non-audio IoT. Frontier Smart trades on <0.4x FY’19 EV/Sales, which materially undervalues the strong core DAB business and Smart IP in our view. With the product launching in Q4 19, this announcement has limited impact on our forecasts and we leave our FY’19E numbers unchanged.
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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.
Companies: 7DIG ABBY AMS ANX ARS ATYM AVON BLVN PIER CGS CAML CALL CSRT TIDE JET2 DEMG ELM EMR FPO FST GTLY GENL GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KEYS KCT KGH LAM MACF MOD MKLW OXIG PCA APP PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TWD TRAK TRI VNET VTC ZTF
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.
Companies: ORCP IOF FOX TEG XLM TRMR FST SNG ARE SRB
Frontier Smart’s trading update shows delivery of the expected H2 recovery following a challenging first half. FY18E revenues are in-line (‘not less than $41.0m’ versus N+1: $41.6m) despite overstocking of digital radios post-FM shutdown in Norway impacting H1. Full-year trading EBITDA expectations are also in-line at $0.8m, with H2 showing strong improvement (H2: +$2.9m; H1: Loss of -$2.1m) resulting from implemented R&D cost control and H2 sales recovery. FY19 guidance targets further improvements in EBITDA, driven by Smart Audio and non-audio IoT licenses, and normalisation of DAB revenues following the Norway DSO. We re-introduce FY19 numbers, forecasting group revenue growth of +5% y/y and EBITDA margins of 3% (+100bps y/y); yet we see scope for upgrades to forecasts should traction with IOT partners continue and cost reduction programmes implemented in 2018 exceed expectations.
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.
Companies: ARS GTLY GENL KEYS KGH MNO RBGP TWD 7DIG ABBY AMS AMER ANX ARS ATYM AVON BLVN PIER CGS CAML CALL CSRT TIDE JET2 DEMG ELM EMR FPM FPO FST GTLY GENL GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KEYS KGH LAM MACF MNO MKLW NAH OXIG PCA APP CAKE PDG RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TWD TRAK TRI VNET VTC ZTF
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LoopUp has announced a very strong H1 period, in line with the previous trading update and reflecting a number of months of exceptional performance. This is allowing the business to invest in the major identified new opportunity, to provide telephony within Microsoft Teams, where the early signs are extremely positive. We look forward to further detail on the Teams pipeline and sales levels over time.
Companies: LoopUp Group plc
Covid has accelerated the digitisation of all things physical. No more so than in the €10 trillion global construction industry, which some experts reckon has 5 years of catching up to do. A non-insignificant task (eg Crossrail & HS2) that could take decades to play out, but equally realise 100s of £bns of cost, time & productivity savings annually. The €8bn BuildTech sector (10%+ CAGR – see below) is at the heart of this transformation. Providing the glue & ‘digital twins’ that bind all the inter-connected ‘property lifecycle’ parts together – eg CAD/CAM (design), project mgt, visualisation, AI, asset maintenance (operate) and BIM (Building Info Modelling).
Companies: Eleco Plc
ZOO has provided a short trading update to accompany its AGM which will be held later today. The business is performing well…double-digit revenue growth y/y across H1 is clearly a strong result given the market disruption, and is tracking very well towards our full-year figure. We make no changes to estimates (which we reinstated in July) but will consider revisiting them at the time of the H1 results in early November.
Companies: ZOO Digital Group Plc
As flagged in the July trading update, the Eleco group (formerly Elecosoft) has delivered impressive first half financials in the face of the global pandemic. However, the results are somewhat overshadowed by the retirement of Executive Chairman, John Ketteley, after 23 years in the role. The COO, Jonathan Hunter, takes over as CEO and the Deputy Chairman, Serena Lang, steps up to Chairman. Both are very experienced and offer safe hands to guide Eleco forward through the unprecedented conditions of COVID-19. In the early stages of the pandemic, the group demonstrated its resilience as H1 revenue slipped just 4% YoY with 57% revenue being recurring. Moreover, benefiting from reduced cost of travel and marketing, H1 adj. PBT rose 12% YoY to £2.2m. The profit uplift was matched by strong cashflow, improving net cash from £1.1m at YE to a very healthy £4.4m at the end of June. Forecasts remain under review due to uncertainty in the COVID-19 environment, but Eleco continues to be well positioned – not just to weather the storm of pandemic, but to deliver a strong financial performance across the full year.
Given that Pelatro has visibility of over $5m of revenue for FY20E, we are leaving our forecasts unchanged following the interim results. The pipeline is strong and we are cognisant that the mix of business signed in H2E will have a proportionate impact on reported performance this year. Pelatro is trading at the lower end of its 12-month price range which creates a buying opportunity.
Companies: Pelatro Plc
Ideagen is a leading supplier of information management software, specialising in Integrated Risk Management (IRM) solutions to highly regulated industries. Consistently recognised in the Gartner Magic Quadrant since 2016 for its solution set, Ideagen has developed a best-of-breed IRM suite through a blend of internally driven R&D and strategic acquisitions, earning the group significant presence in its core markets. Our mantra remains that the three certainties in life are death, taxes and regulatory compliance – Ideagen is positioned to grow from strength to strength, as organisations worldwide are faced with increasingly demanding regulatory standards, and the requirement to provide a referenceable trail of accountability. As the group embarks on its twelfth consecutive year of growth, coupled with the potential upside of inevitable acquisitions, we believe Ideagen is poised for ongoing acceleration into the coming years.
Companies: Ideagen Plc
Interim revenue to June is in line with 1H19 including the benefit of Celtech (acquired April 2019). Recurring data services revenue grew 19.9%, while elements of implementation suffered from COVID-19: Services and Installation -4% and Consultancy & Maintenance -10%. A focus on cost control resulted in furloughed staff (now returned to work) from a larger cost base than 1H19 after the Celtech integration, and some August redundancies in areas where customer activity has reduced and will likely stay low. Nevertheless, the group won significant business in the period from several major customers as a well as a new Outdoor Payment Terminal contract. A pipeline of £12.5m for 2H20 offers typical 2H strength for the group, derived from recurring revenue and the visible order book, subject to obvious concerns about the ability to implement projects. Net cash (excl. IFRS16) of £1.6m includes gross cash of £4.1m and gross bank debt of £2.5m, with £1.5m headroom in the undrawn April 2023 bank facility.
Companies: Universe Group Plc
LoopUp recently unveiled a major extension to its ambitions – the group is aiming to become a leading global provider of telephony “inside” Microsoft’s Teams product. The opportunity is clear and growing, as enterprise customers look to use Teams for “normal” external phone calls, and LoopUp seems well placed to deliver a differentiated offering using its existing infrastructure and knowhow. In this document we provide an overview of the new platform and explain its strategic significance.
Instem has delivered strong H1 20A results in our view. Despite the backdrop of COVID-19, all three business areas continue to perform well. Notably, the Informatics business made particularly impressive progress in the period. Management commentary on the outlook is positive and we maintain headline forecasts following the announcement. In addition, we increase our forecast FY 20E closing net cash position by £1m. This reflects revised assumptions on working capital movements in the second half.
Companies: Instem Plc
ZOO Digital is one of the companies whose business models have stood it in good stead during the COVID-19 pandemic; its cloud-based platform has proved to be a key attribute over the last six months. Indeed, the changed working practices within the dubbing industry have helped to educate more potential users about the benefits of remote operating and the quality of performance that can be achieved when using the ZOOdubs platform. In our view, ZOO’s Capital Markets Day (CMD) presentations - a recording is available here - achieved a rare combination of being both informative and clear as to those operational benefits and the financial implications (a roadmap to U$100m of revenue) for the Group within an evolving market. We highlight some of the main messages from the speakers – from outside the company in several cases – which covered the market for localisation services, the use and benefits of ZOO’s platform and the technology behind the service.
ABB to raise £13.7m for M&A; Reiterate Buy
Companies: Sumo Group Plc
Salarius Ltd. (91.7% owned by TEK) has signed a distribution agreement with FXM Ingredients Inc. to distribute MicroSalt® in Mexico and Latin America.
Companies: Tekcapital Plc
Renalytix has officially commercially launched the KidneyIntelX testing platform with its launch partner Mount Sinai. The test is now fully integrated into the Mount Sinai health system, and goes beyond mere patient testing into a holistic approach to CKD patient support with Mount Sinai’s care delivery, physician education and support and billing pathways. This is a pivotal milestone for Renalytix triggering first commercial testing revenues, and was achieved in less than two years since Renalytix first IPOd in November 2018. It is estimated there are approx. 66,000 Diabetic kidney disease patients at the Mount Sinai health system, representing a significant initial addressable market opportunity. We continue to expect the launch and similar integrations of the KidneyIntelX platform into two further health care systems in FY’21. Simultaneously, Renalytix also announced agreements with LabCorp and an unnamed national medical logistics provider to use additional service centres to support the launch with the collection of blood samples at centres close to home or by primary physicians within the Mount Sinai system. Given the ongoing Covid-19 pandemic and the impact on physician visits, we believe this is beneficial and aids the use of KidneyIntelX to remotely monitor patients. This also provides a logistics framework to scale this process across multiple territories in the US.
Companies: Renalytix AI Plc
H1 results were ahead of our estimates. However, excluding select factors, profits were well above our expectations. Sumo’s strong underlying results positions it to outperform current market expectations. In addition, Sumo announced the acquisition of Pipeworks, which we estimate could drive 18% earnings accretion even based on conservative forecasts. Given the relatively modest share price reaction, Sumo now trades at a lower multiple than prior to the acquisition.
Watchstone has this morning released interim results to 30 June 2020. During the first six months of the year, the group returned a total of £50.5m/110p per share in cash to shareholders, with a further £18.4m/40p per share post period end in July. The H1 2020A underlying EBITDA loss stood at £1.4m, which excluded Watchstone's only remaining operating business, ingenie, held within discontinued operations. Encouragingly, ingenie saw a much improved trading performance in the six month period, with revenue increasing by £1.5m to £4.8m and the post-tax loss in the period reducing to £0.7m from a £1.8m loss in the comparative period. The net cash position as at 25 September 2020 is reported to have stood at £17.2m (including £2.0m held in escrow), equivalent to 37p per share. Importantly, the Board is ‘confident of returning further cash sums to shareholders in due course'.
Companies: Watchstone Group Plc