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
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.
Companies: Instem Plc
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.
Instem has announced the acquisition, for up to $4.6m, of a US-based provider of software for safety assessments. Leadscope’s software provides computer models that predict toxicity of chemical compounds – the systems are so advanced that the FDA allows them to replace animal testing in certain limited situations. A strong fit with Instem’s existing safety assessment business and its KnowledgeScan offering, this deal appears a well-considered and useful extension to the group’s position.
Instem has bolstered its Informatics offering with the bolt-on acquisition of US-based Leadscope for up to $4.6m. The deal looks highly complementary, adding a leading player in the field of computational toxicology, an area with significant structural growth potential and strong regulatory drivers. We upgrade our FY20 and FY21 EPS forecasts by 6.5% and see scope for material revenue synergies over time. Instem remains one of our best ideas for 2019 and we see the addition of Leadscope as adding to an already strong organic growth outlook.
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GB Group (GBG) expects to report underlying revenue growth of 10% y-o-y for H121, with a one-off contract in the US making a material contribution to revenues. Combined with strict cost control this resulted in adjusted operating profit growth of 26% y-o-y and a £32m h-o-h reduction in net debt. With management guidance for revenue well ahead of our and consensus forecasts for FY21, we have upgraded our revenue and EPS forecasts for FY21–23. Despite COVID-19 related pressure on new business in the short-term, we view GBG as well placed to benefit from the accelerated shift in the digitalisation of business processes.
Companies: GB Group PLC
An H1 update to September reveals a robust performance notwithstanding a challenging macro backdrop - sales (ex. Coral) are just “slightly lower” y/y, indeed if also excluding an intentional move away from hardware-based Support, we estimate core revenue grew c.+7%. This was underpinned by continued strong growth in US SecPay: +80% y/y, now ~32%/group sales, while in the UK, we estimate sales fell by c.-11%. Here, Covid impacted transactional sales (rather than any permanent loss of business) such that a future recovery is likely in our view. Despite the lower sales and GP, it‘s impressive to note profitability is expected to be in line with 1H20 (AOP: £3.4m) following tight cost management. Looking ahead, there’s reason to be optimistic, as in US SecPay, large enterprise tenders that were paused in H1, may resume in H2. Meanwhile in the UK – and despite the headline sales figure – business activity is already reassuringly strong: total new business won grew 8% y/y in H1, this includes the major £4m/6yr contract with Capita and TfL announced in August. In addition, closing net cash of £12.9m (£2m FCF) continues to offer strategic options. We reiterate that this a high quality company, with a robust and cash generative UK business, while leadership position in a nascent and fast growing US market.
Companies: Eckoh plc
Gamesys Group’s Q320 trading update is ahead of expectations with pro forma revenue growth of 31% and an improved financial position. As in previous quarters, the company increased the active player base responsibly and benefitted from new game launches. We increase our revenue forecasts for FY20–22 by 5.7–7.0%, and EBITDA forecasts by a slightly lower 2–3% as management further invests in growing a sustainable and repeatable business, while ensuring revenue growth is done responsibly. This follows an EBITDA upgrade of 7.8% for FY20 at the time of the interim results. For FY21e, the free cash flow yield is 9.2% and the dividend yield is 2.9%.
Companies: JP7 GYS JKPTF
This new Q3 update is a welcome addition to QTX reporting calendar, particularly as it reveals impressive resilience through the pandemic; far better performance than originally thought. Management expects FY 2020 revenue and FCF to be in line with consensus forecasts but with earnings substantially ahead. There is a caveat on the impact of the second wave of COVID-19, but so close to YE the risk is relatively low and we raise our forecasts appropriately. Fleet is the driver; despite the impact of lockdowns on new subscriptions in Q2, the subscription base has grown 11% YoY across the 9 months to 168k, fuelling 7% YoY growth in Fleet revenue. The annualised subscription base has risen 5.3% from £20.8m at YE to £21.9m in September, comfortably underpinning our FY 2021 forecast.
Companies: Quartix Holdings Plc
Expected profitability in H1E will be consistent with the level delivered in the interim period last year, albeit at a substantially higher margin. Order flow had seen some disruption from COVID-19 in fiscal Q1E and into Q2E but the September cycle for RFPs and order wins has been encouraging. Our FY21E forecasts are unchanged, and with the stock at the bottom of its trading range, we maintain our buy recommendation.
Companies: Shearwater Group plc
AGM statement as expected; Resume with a Buy
Companies: CloudCall Group PLC
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
Benefiting from the pandemic-driven surge in sofa shopping, Asos has released strong FY20 results. However, the strong trading performance in FY 20 and a good start to FY21 were not enough to relieve management’s cautious view on the outlook.
The recent return rate has started to climb back from the bottom in April and the macro-economic consequence of COVID-19 may start to weigh on consumer demand. We should see the sales growth pace and profitability normalising in the coming months.
Companies: ASOS plc
Gaming Realms is a creator and licensor of innovative games for mobile, with operations in the UK, U.S. and Canada. Flagship brand Slingo® is a highly popular and unique game genre which combines elements of slot, bingo and table gameplay. These games are licensed by some of the biggest online gaming operators in the world, including DraftKings, Sky Betting & Gaming and GVC, and distributed directly to operators or via global partners such as Scientific Games & Relax Gaming using the company's proprietary Remote Game Server platform.
Companies: Gaming Realms PLC
essensys’ FY’20E prelims highlighted strong US performance. Group sales rose 9% y/y to £22.5m (recurring: +19% to £19.4m) underpinned by the US, were 59 new site adds drove recurring sales up +45% y/y to £8.1m. Lockdown saw some sales cycle elongation, yet Group recurring sales were stable h/h, 19 new sites were added in H2 and pipeline includes 47 new contracted Connect sites to deploy. Outlook remains positive, and reintroduced N1Se numbers forecast 15% CAGR in recurring sales to FY’22E. We also explore the adjacent addressable opportunity presented by the essensys STEP product which we estimate to be worth £90m pa in London alone (US market many multiples of that). Valuation at 2.9x EV/sales is at a c.50% discount to peers exhibiting similar attractive SaaS metrics and top-line visibility.
Companies: essensys PLC
Allergy Therapeutics (AGY.L): Initiation of field trial | Sensyne Health (SENS.L): Research agreement with Milton Keynes University Hospital
Companies: Allergy Therapeutics plc (AGY:LON)Sensyne Health Plc (SENS:LON)
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.
Companies: Sumo Group Plc
Audioboom plc* (BOOM.L, 177.5p/£24.9m) | Starcom plc* (STAR.L, 0.85p/£3.0m)
Companies: Audioboom Group PLC (BOOM:LON)Starcom Plc (STAR:LON)
Interims reveal a particularly strong trading period for the group, with underlying organic sales growth accelerating to +20% c/c (previously mid-single digit), underpinned by both strong trading in the US (+c.50% u/l) and the UK (+11%). Additionally, Eckoh benefitted from a large perpetual Coral licence deal, bringing reported sales growth to +37%. In our view, these results speak to the strong proposition, opportunity and momentum Eckoh across its markets. We leave FY u/l forecasts unchanged but acknowledge they look more than achievable. Currently trading on a 5% FCF yield, rising to 6% in FY21E, we think Eckoh offers a unique investment opportunity.
FY19 revenue increased 16.9% to £19.4m following a strong H2/19, c9% ahead of forecast. New products released included Concurrent's first AI board, aimed at the military market. Order intake was strong, especially during H2/19, continuing into 2020. Inevitably COVID-19 has caused uncertainty about H2/20 activity levels and potential delays from customers, though there has been no immediate slow-down. Concurrent is a supplier to some of the world's most prominent defence companies in the UK and US and continues to supply these customers uninterrupted. Given COVID-19 related uncertainty we have taken a prudent view and trimmed our FY20 revenue (and consequently PBT forecasts). With over £10.5m cash and no debt, a strong order book and top tier customers, Concurrent is continuing to invest in R&D and progress its plans to add new software and hardware product ranges and enter new markets.
Companies: Concurrent Technologies Plc