Instem has delivered another year of double digit revenue growth, in line with expectations. Progress has been made across all three business streams, buoyed by strong demand from new and existing customers. A key highlight is cash generation, with Y/E net cash £3.2m better than expectations at £26.7m (pre-IFRS16). The outlook remains positive, with further organic growth opportunities in areas such as SEND exploitation and Informatics. The company remains in active discussions with a number of acquisition targets following the £15.0m fundraise in July. The valuation remains extremely undemanding and we continue to see significant upside potential for a business with multiple organic and acquisitive growth opportunities.
Companies: Instem plc
Instem has delivered a positive trading update for the year to 31 December 2020 – revenue growth was “in excess of 11%”, suggesting a performance in line with our estimates, and net cash appears to have ended the year extremely strongly, with a figure of £26.7m vs our expectation of £22.4m.
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.
A record H1 performance, led by increased SaaS adoption and growth in Outsourced Services, which has driven double digit organic revenue growth and a step change in profitability. The outlook remains buoyant and the recent fundraise has provided meaningful firepower to further consolidate the market and drive a step change in the scale of the business. Instem remains one of our Best Ideas for 2020.
Instem’s H1 20E trading update confirms that trading was in line with the Board’s expectations during the period. The group also reported doubledigit organic revenue growth and strong operational cash generation for the period. Instem has also now received shareholder approval for the (oversubscribed) placing of 3.6m new ordinary shares at a price of 435p, raising approximately £15.0m net of expenses. Additionally, three members of the Board have sold 0.7m shares at the same price. The placing and the team’s sales represent 17.7% and 0.9% respectively of the Group’s enlarged share capital, which will significantly increase the free float of the group’s shares. The proceeds from the primary placing will be used to advance existing acquisition targets in line with the group’s stated M&A strategy.
Instem has announced the completion of an oversubscribed £15.75m (gross) equity fundraise, the proceeds of which will be used to advance negotiations on a number of acquisition targets. These range in size from small bolt-ons ($2-5m revenues) to more substantial strategic acquisitions ($15-20m+ revenues) in complementary areas. Management expects all to be earnings accretive in the first full year, with a targeted minimum return on investment of 10% initially, rising to 15% over time. We update our forecasts only for the new shares issued and the cash received. We make no provision for acquisitions not yet completed. An illustrative financial model based on a 10% ROI suggests scope for a minimum 17% uplift to our undisturbed FY21 EPS forecasts, rising to 23% in FY22, with a higher ROI resulting in greater accretion.
Instem’s audited FY19 results showed strong double-digit organic growth, with an ongoing transition to SaaS (now 25% of group revenues) and strong growth from SEND services and the Informatics offering. Given the current backdrop, we have moderated our assumptions around new business wins offset partially by lower discretionary expenditure. The net PBT impact is ~£0.5m this year and next, which in our opinion is relatively minor in the grand scheme of things. The fundamental point remains that Instem is a market leader in its field with high barriers to entry. It has a robust, resilient model, multiple secular growth drivers and a solid strategic and financial position. The balance sheet remains strong with substantial net cash.
Instem has reported FY 19A results consistent with the March-20 trading statement and in line with our forecasts. Double-digit revenue growth was confirmed for the year, alongside margin improvement and cash generation. Furthermore, revenue visibility remains high and operationally, all three business areas continue to deliver. We make reductions to forecasts following the announcement (FY 20E EBITDA -8%, FY 21E -9%), reflecting a more prudent view on the medium/longer term outlook for the group. Having seen limited impact from COVID-19 to date and with £6m gross cash on the balance sheet, we retain our view that Instem is well positioned to weather macro-driven turbulence.
Instem has released a trading update in lieu of FY 19 results scheduled for March 30. The announcement confirms the FY 19 outcome was in line with both the Jan-20 trading update and our forecasts. With COVID-19-driven disruption to the global economy ongoing, the release provides no commentary on outlook - we therefore maintain FY 20E and FY 21E forecasts at this stage and will revisit estimates in due course. We continue to consider Instem well placed to weather macro turbulence and note the £6m cash position – the business is, in our view, defensively positioned.
Instem has delivered a year of double digit revenue growth with EBITDA in line with expectations. Good momentum was in evidence across all areas of the business, underpinned by ongoing buoyant market conditions. Recurring revenues continue to increase, driven by the ongoing transition to hosted SaaS solutions, and renewal rates remain at a high level. Technology-enabled outsourced services grew strongly as expected, with the SEND market continuing to be a major growth driver, complemented by good progress from the Informatics business as AI-based solutions gain greater acceptance across the pharma industry. We make no change to our forecasts at this stage. Instem was one of our Best Ideas in 2019 and performed well over the year (and since). We look forward to further strong progress as the rest of the year progresses (29% EPS growth in FY20E).
Instem’s trading update for the twelve months ending December 2019 confirms that all three key business areas (Data Collection, Regulatory Solutions and Informatics) are performing well. The business is expected to deliver revenue growth of c12% for the year – in line with our forecasts, and the closing cash balance well ahead of our expectations. Management commentary on the outlook is positive; we make no changes to earnings estimates following the announcement but upgrade cash forecasts.
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As a nation, we love knocking ourselves. However in truth, we’re actually a pretty pioneering bunch. For instance, the experts at Oxford University & AstraZeneca have developed one of the world’s 3 most important vaccines in double quick time. Plus, many other British firms are creating similar breakthrough Covid inventions, such as Kromek.
Companies: Kromek Group Plc
H1A delivered a very resilient performance given the backdrop of halted deliveries and reduced manufacturing capacity. Orders and shipments are resuming and a ramp up in activity levels is expected in H2. A cash outflow in H1A has been supported by new committed facilities and gross cash levels look set to support the business successfully through the second half and beyond.
Gamesys has reported a positive pre-close trading update. Strong momentum continued into Q420 and management now expects FY20 pro forma revenue and adjusted EBITDA will be at or above the upper end of current market expectations. We increase our FY21 and FY22 adjusted EBITDA forecasts by 4–6% due to higher revenue growth from a larger active customer base, and a higher and stable EBITDA margin that reflects ongoing investment in growing a sustainable business with a focus on responsible gambling. On our new forecasts, the free cash flow (FCF) yield for FY21e is 10.1% and the dividend yield is 3.0%.
Companies: Gamesys Group PLC
WEY Educaon (WEY) – Corporate – Trading significantly ahead; strong momentum prompts new ’21/’22E forecast
Touchstar (TST) – Corporate – Update points to a robust trading performance and strong cash generaon in the year
Companies: Wey Education PLC (WEY:LON)Touchstar plc (TST:LON)
A busy post-YE update reveals a strong H2 performance despite the second wave of COVID-19, and management expects to meet our FY20 forecasts of revenue and adj. earnings growth. As noted last year, there will be a £1.6m exceptional provision in FY20 for replacing its US tracking devices as 3G service ends there in 2022; it will not affect FY20 adj. earnings but will impact FY21 cashflow. YE net cash was slightly above expectations at £10.6m despite a laudable repayment of all government COVID support received. Most of that cash balance should be distributed in the return of the supplemented final dividend, subject to conditions at the time of the declaration in March. Looking ahead to FY21, management sees notable Fleet growth opportunities post-COVID and is flagging an extra c.£1m investment – mainly in sales & marketing – with a new focus on revenue expansion, and we expect to see the benefits of that in FY22. The CFO, Dan Mendis, will supervise this Fleet expansion, moving to the role of Group Commercial Director while Emily Rees joins to replace him in April. We adjust our FY21 forecasts accordingly and issue FY22 expectations for growth. With the business well on track, we raise our TP from 435p to 450p.
Companies: Quartix Holdings Plc
iEnergizer announced the proposed payment of a special dividend worth 49.4p ($0.668) per share. The group has stated the stock will go ex-div on 14th January 2021, with a pay date of 5th February 2021. At a total value of £94m ($127m), this dividend represents a significant payout for shareholders, c.13% of Group's market cap of £730m. We acknowledge this to be a clear signal of confidence in the growth trajectory and current operations.
Companies: iEnergizer Limited
Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. The group has this morning released a year-end update, pointing to the fact that the Board expects to report a profitable outcome for the year (H1 2020A PBT £130k, PAT £150k). Importantly, the positive cash generation seen in H1 2020A has continued into H2, with Touchstar ending the year with a net cash position of £1.6m (gross cash £1.9m), a further increase of £300k from that reported at 30th June.
Companies: Touchstar plc
Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb. Moonpig, the digital greeting card company, is planning an IPO with a potential valuation of £1bln, according to multiple media reports. Further details expected to be announced over the next two weeks.
Companies: ZPHR PANR PRSM SENS CYAN G4M ITX CRCL FEN ZIN
Crimson Tide has reported a strong set of H1 results evidencing very strong sales momentum backed by long-term contracts and cash flow. H1 sales grew by 40% and EPS by 154%. Net cash has improved to £0.8m at June 2020 from nil at December 2019. The strategic focus on transportation and supermarkets is working well, partnerships are improving routes to market, and there is growing traction from investments in innovation. We have left our forecasts unchanged for now, but recognise positive pressure and have upgraded our target price from 3.1p to 4.3p. We reiterate our view that Crimson Tide’s valuation will be dictated by its ability to convert the significant opportunity rather than short-term metrics. H1 results show the group is nicely on track to do exactly that.
Companies: Crimson Tide Plc
Material acceleration of strategic plan
Companies: MelodyVR Group PLC
Following Fonix successfully raising £45m through an oversubscribed IPO on 12 October, we initiate our coverage with a target price of 150p. The investment case is focused upon Fonix leveraging its proprietary, cloud-based platform to expand with existing clients and win new clients within a robust UK phone-paid services market. The structural strength of Fonix’s platform is demonstrated by Fonix experiencing no churn from major customers in the past six years, which reflects that Fonix benefits from strategic integration and strong relationships with its clients. Fonix’s FY20 gross profit and EBITDA grew by +22% and +36% respectively, and we conservatively forecast +11-12% EBITDA and EPS growth in FY21 and FY22. On 12m forward EV/EBITDA of 10x and an EFCF yield of 7%, Fonix looks considerably undervalued compared to AIM payment and finnCap Tech 40 peers that are trading on 12m fwd EV/EBITDA of 17-20x with 7-17% EBITDA growth, and EFCF yields of 1-3%. We base our 150p target price on 15x FY22 EV/EBITDA or a 5% FY22 EFCF yield, and look forward to Fonix’s trading update in early 2021.
Companies: Fonix Mobile PLC
It’s often said that ‘Rome wasn’t built in a day’. What’s less well appreciated is that many international capitals could literally become ‘ghost towns’ overnight, if attacked by terrorists, rogue nations &/or organised criminals, who successfully detonated a ‘dirty bomb’.
It has been a year the likes of which we have never seen before, and hope never to see again. The description of the impact of the CV19 pandemic as K-shaped certainly feels accurate, with some sectors being well placed to benefit from the creative disruption that has engulfed the world, accelerating structural changes, while others through no fault of their own have been severely impacted. This has been the case for the Dowgate portfolio of corporate clients, with our quoted clients falling into three groups. The first, comprising Cambridge Cognition, GRC, The Panoply, S4 Capital and Water Intelligence have on average seen their share prices double this year as structural changes accelerated by CV19 have been accompanied by strong execution. The second, comprising Franchise Brands, OTAQ and SEEEN, have experienced share price declines averaging a third as their businesses have either been directly impacted by CV19 or their growth aspirations curtailed. The final group comprises those companies which have been bid for this year, namely Be Heard, Hunters Property, Huntsworth and Reach4Entertainment. Looking into 2021, we expect continued strong performance from the first group and a rebound in the second as the world returns to normal. Finally, having completed Series A/B rounds for a range of private companies this year, we hope to bring these entrepreneur-led, growth companies to market in 2021.
Companies: COG FRAN GRC OTAQ TPX SFOR SEEN WATR
MobilityOne Ltd* (MBO.L, 9.5p/£10.1m) | Maestrano plc (MNO.L, 7.0p/£5.6m) | GetBusy plc (GETB.L, 86p/£41.6m) | Solid State plc (SOLI.L, 580p/£49.5m)
Companies: MBO MNO GETB SOLI
ZOO’s H1 FY21 included a tumultuous few months as COVID-19 effectively shut off work on new media content production which impacted subtitling projects, but studios rapidly adopted Cloud-based dubbing and the group’s digital packaging business enjoyed a dramatic rebound in fortunes. We note the positive commentary in today’s RNS and upgrade our FY21E and FY22E estimates to reflect the recent performance and, in particular, the exceptionally strong H2 trading that the group is enjoying.
Companies: ZOO Digital Group plc