CVS Group (CVSG LN) FY18 – Progress on various fronts but some temporary growth pains | Spirent Communications (SPT LN) Interims in-line; FY second half weighted as expected | Vp (VP/ LN) AGM statement confirms strong start to FY19
Companies: CVSG SPT VP/
Avon Rubber (AVON LN) Interims in line | boohoo.com (BOO LN) Leading e-commerce fashion brands undervalued | Oxford BioMedica (OXB LN) Kymriah® gains FDA approval in second indication | Photo-Me International (PHTM LN) CGT strikes could be taxing for French Photo-ID, but not materially so | Realm Therapeutics (RLM LN) FY results in line, lead programmes on track | Spirent Communications (SPT LN) Q1 update highlights expected H2 weighting
Companies: AVON BOO PHTM RLM SPT OXB
Spirent’s results last week showed good traction from the group’s strategic growth areas (Lifecycle Service Assurance and Application Security), which combined with effective cost control, resulted in strong earnings growth and excellent cash generation. The group remains heavily H2 weighted, but we believe it is well placed to deliver a long awaited return to top-line growth going forwards. With gross margins remaining strong and management maintaining a tight grip on costs, we expect the growth to result in continued margin expansion across our forecast period. We make significant upgrades to all forecast years and increase our target price to 139p. Buy.
Companies: Spirent Communications plc
Spirent has reported its results for the year to December 2017. Group revenue and adj, EBIT are both slightly ahead of expectations, with a strong performance in Lifecycle Service Assurance and good cost control in Connected Devices offsetting some weakness in Networks & Security. Effective tax management in FY’17 has resulted in 43% adj. EPS growth to 7.55 cents, well ahead of our 6.3 cents estimate. Cash generation was also strong, with net cash at the period end of $128.4m. This has resulted in the group increasing the FY dividend to 4.08 cents and announcing a 5.0 cent special dividend, to be paid in May ’18. We do not expect to make any major changes to our headline revenue and adj. EBIT expectations for FY’18, which show a long awaited return to top line growth. The group will also benefit from US tax reform, with an effective tax rate of 17% expected. Spirent remains a heavily H2 weighted business, but we believe these results are a step in the right direction, with significant margin expansion possible over the medium term.
Applied Graphene Materials (AGM LN) Collaboration on W Motors Fenyr SuperSport car | ATTRAQT Group (ATQT LN) Opportunities intact, focus on execution | Domino’s Pizza Group (DOM LN) Good set of finals and strong start to FY18 | Frontier Smart Technologies Group (FST LN) Strong results with more to come | Spirent Communications (SPT LN) Good progress in FY’17 | Summit Therapeutics (SUMM LN) Enrolment opened for an additional group in PhaseOut DMD trial
Companies: AGM ATQT DOM FST SPT SUMM
Spirent Communications is a world leader in providing products and services for test and measurement of communications systems across fixed and mobile voice, data and video applications and networks.
In this report we argue that the company is positioned for increased earnings growth in the coming years, based on the success of the recent cost-base reduction program, and the company’s strategic alignment to the major growth drivers in the market place.
Spirent has released its Q3 trading update showing a number of key contract wins and a continued focus on cost management. Revenue for the 9 months to September ’17 was $326.1m versus $324.4m at the same point last year, with adjusted EBIT significantly higher at $33.4m (2016: $20.6m). Net cash at the end of Q3 was $115.6m. We leave our forecasts and target price methodology unchanged meaning our DCF derived TP remains 116p. After the recent share price weakness this results in our recommendation moving to Buy. Execution remains key in the crucial Q4 period, however with a safe yield of 3.2% and a return to high double-digit EBIT margins possible over the medium term, we believe the shares are attractive.
Spirent’s H1’17 interim results showed increased operating margins and good cash generation, but a return to top line growth remains illusive. Networks & Security was the star performer in H1 (+11%) but the transition to 400G Ethernet is causing project delays that will result in a weaker H2 than expected from the division. With Lifecycle Service Assurance expected to be significantly second half weighted and Connected Devices still in decline, the group has a lot to do in H2’17. We have reduced our FY’17 revenue forecast by 5%, but expect continued cost cutting to offset this, resulting in no change at the adj. EBIT level. We stay at Hold with a 116p target price.
Bioquell (BQE LN) Positive trading continues | Earthport (EPO LN) Partnership with Kotak Mahindra Bank | Ground Rents Income Fund (GRIO LN) Further clarification on doubling assets | Oxford Metrics (OMG LN) Further product innovation at Vicon | Porta Communications (PTCM LN) Strategic investment and debt reorganisation | Spirent Communications (SPT LN) Still waiting on return to top line growth | StatPro Group (SOG LN) Scale and sales hires should drive organic growth | UDG Healthcare (UDG LN) Solid Q3 update overall, but Sharp weakness an irritation
Companies: BQE SPT OMG UDG PTCM GRIO EPO SOG
A G Barr (BAG LN) Weak H1 update. We move to Sell | BBA Aviation (BBA LN) Signature outperforming; ERO still challenging | Dialight (DIA LN) Sales decline and high non u/l costs, but strong cash-flow | Elementis (ELM LN) Challenging H1, well positioned for future recovery | Greggs (GRG LN) A successful first half and a reassuring start to H2 | RhythmOne (RTHM LN) Another positive step | SDL (SDL LN) Building confidence in strategy execution | Spirent Communications (SPT LN) Headwinds mask underlying progress | T. Clarke (CTO LN) Solid H1 performance and confident outlook
Companies: SPT GRG DIA BAG CTO ELM BBA RTHM
Avon Rubber (AVON LN) Solid progress in subdued markets | Futura Medical (FUM LN) Recruitment closed in Eroxon® trial | Spirent Communications (SPT LN)
Solid Q1 trading update
Companies: AVON FUM SPT SPA
Spirent has released a short Q1 update for the period to March 2016. Revenue of $102.7m and adjusted operating profit of $1.8m is an improvement on the weak Q1’15 ($96.6m and $3.6m loss respectively) and in-line with expectations for the full year. The group’s largest division, Networks & Applications, continues to perform well (+14% revenue growth) with the expected tough conditions in Wireless and Positioning resulting a 9% drop in revenue. Strong cash generation resulted in $16.2m free cash inflow (Q1’15 $12.5m) resulting in $115.2m cash at the period end. The key tenants of our buy stance remain intact (high gross margins and the ability to reduce the cost base if revenue growth does not materialise) and we believe the group is capable of delivering EBIT margins well in excess of our FY’18 forecasts. We retain our 103p target price and Buy recommendation.
Spirent has announced the appointment of Paula Bell as CFO. Rachel Whiting had previously announced her intention to retire at the AGM in May so we are pleased to see the group has found a suitable replacement, albeit Paula will not start until September. As CFO of Menzies plc Paula has overseen a number of strategic changes which we feel will stand her in good stead for this appointment. We continue to believe that Spirent is capable of delivering EBIT margins will in excess of our FY’18 forecast of 13.4% (peak 25% in FY’12). We leave our target price at 103p. Buy.
Amino Technologies (AMO LN) Contract extension with Vodafone Netherlands | Spirent Communications (SPT LN) Appointment of CFO | Zotefoams (ZTF LN) MuCell momentum building
Companies: AMO AGM ELM SCPA SYNT VCT BYOT PIM SYN ITX VRS SPT ZTF CRDA
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Quickline has today announced that it has joined CityFibre’s full fibre networks so that it can provide ultrafast broadband to homes in Doncaster, Leeds, Huddersfield, and Batley & Dewsbury in 2021. These urban areas are all adjacent to where Quickline will have its own fibre-backed wireless infrastructure, and to provide a retail broadband service to subscribers, Quickline will wholesale access to CityFibre’s network. This will see Quickline manage its marketing and customer relationships in these areas, and Quickline will pay CityFibre an installation charge and monthly fee for each subscriber that Quickline signs up to CityFibre’s network. The expansion in Quickline’s reach will enable Quickline to draw upon its strong foundations in Northern England, further develop its reputation for delivering subscribers high-speed broadband, and organically grow its subscriber base with minimal upfront cost. This highlights that Quickline’s momentum is continuing to accelerate, after it won four tenders in September-December 2020 to provide fibre-backed network coverage to 32k premises in the next two years. It also means that momentum is continuing to build strongly for the Bigblu Broadband investment case, and we look forward to hearing more about BBB’s progress at its FY20 results in March.
Companies: Bigblu Broadband plc
CAP-XX Ltd* (CPX.L, 4.5p/£19.9m) | Gfinity plc* (GFIN.L, 3.8p/£28.9m) | MTI Wireless Edge Ltd* (MWE.L, 44p/£38.7m) | Newmark Security plc* (NWT.L, 1.175p/£5.5m)
Companies: CPX GFIN MWE NWT
Calnex Solutions has announced very strong maiden interim results, with H1/21 revenue up 37% to £7.7m and adjusted PBT up 90% to £2.3m. Calnex has firmly established a trusted reputation worldwide, launching multiple first to market telecoms and network testing solutions. The exponential growth of data creation and secular migration of industries to cloud computing along with the long-term transition of the telecoms industry to 5G is driving demand for high value test instrumentation. Given the strength of H1/21 reported today we have upgraded our revenue forecasts for FY21E and FY22E by 10.6% and 12.2% to £15.4m and £16.4m and increased forecast EPS up 24.1%. and 14.3% respectively. Calnex is accelerating its growth investment plans, ahead of our previous expectations, expanding both R&D and sales capacity to capture increased market share within a substantial and growing global market.
Companies: Calnex Solutions Plc
Following the formal end of takeover discussions, we are able to recommence our coverage of Telit. Today’s trading update reveals Telit has performed very well through a year overshadowed firstly by the restrictions of the COVID pandemic and then by the distractions of potential bids. When the pandemic began in early 2020, Telit was able to act quickly and decisively, moving some 850 employees to home working within a few weeks. Although customer demand naturally slowed, operations have continued uninterrupted throughout the period and the business has displayed great resilience. We take this opportunity to reissue forecasts for FY20 and FY21 and set a near-term target price of 345p based on 14x EV/EBITDA, in line with the current average on the finnCap tech indices.
Companies: Telit Communications S.p.A.
MTI Wireless Edge Ltd | CAP-XX Ltd
Companies: MTI Wireless Edge Ltd
Calnex Solutions is a leading provider of test and measurement hardware and software solutions that enable performance validation and standards conformance of critical infrastructure associated with telecoms and high-speed data networks. 5G network evolution is a significant, long-term driver of growth for the business along with the continued expansion of hyperscale datacentre enterprises and their increasing participation in telecoms infrastructure markets. Calnex has established a trusted reputation worldwide, launching multiple first to market testing solutions. We have initiated coverage with very conservative forecasts given the strong financial track record with historical revenue CAGR of over 27.7% between FY18 and FY20. Calnex is profitable, cash generative and entered FY21E with a record order backlog.
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.
Companies: ABBY AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CDM CSRT TIDE CYAN JET2 DEMG ELM EMR FPO FDEV GTLY GENL GHH GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KAPE KEYS KWS KCT KGH LAM LIT LOK MACF MANO MOD OXIG PCA PANR APP SRE PHC PMO RBW RMM RBGP RSW RNO ROR SUS SCPA SEN SHG SOLG SOM SUMO TM17 INCE TWD TRAK TRI VNET VTC ZOO ZTF
Update to forecasts – Neutral
Companies: Vitec Group PLC
Blackbird plc* (BIRD.L, 17.5p/£58.8m) | MTI Wireless Edge Ltd* (MWE.L, 31.5p/£27.7m) | Mirada plc* (MIRA.L, 90.0p/£8.0m) | Brave Bison plc* (BBSN.L, 1.375p/£8.4m)
Companies: BIRD MWE MIRA BBSN
Interims are in line with the guideline full-year performance we quantified at the time of the June prelims –£5m of EBITDA and £5.3m of free cash flow derived from £53m revenue, with guidance of consistent performance in 2H20. We reintroduce forecasts for FY20, £9.5m EBITDA from £105m revenue, as 3Q sees the re-invigoration of projects postponed through COVID-19 and the opportunity for recovery into 2H20 and FY21, on top of £3m annualised cost savings. Cloud & software grew to 25% of group revenue; recurring revenue is at 74%; and new CEO Ioan MacRae’s measures to deliver efficiency and growth will increasingly bear fruit in 2H20 and FY21. Even if you think our 600p (11.5x a depressed level of EBITDA) target is wrong, the current share price is more so, with a current FY20 P/E of 6.0x and EV/EBITDA of 5.6x, and 1H proof of credible FY forecasts.
Companies: Maintel Holdings Plc
Q2 EBITDA was slightly better than expected, down by only 3% yoy despite an expected 7% revenue decline. As a result the EBITDA outlook for 2020/21 has been slightly raised.
We have a Buy on the stock which offers significant upside potential to our target price as it has not recovered since mid-March and is still down by 50% ytd. Now that the dividend has been cut, we continue to believe that BT merits a much higher share price.
Companies: BT Group plc
As in Q1, a quite correct resilience to the COVID-19 impacts in Q2. The good news is indeed the H1 EBITDAal margin, which was stable yoy despite the slight decline in revenues. Free cash flow should therefore be at least €5bn for the whole year. So we have no concerns about Vodafone’s dividend and we remain at Buy on the stock.
Companies: Vodafone Group Plc
ADT has produced a resilient set of interims despite being impacted by the lockdown and is well positioned to benefit from recovery both from an operational and financial leverage point of view. Group revenues declined by 8% yoy in H1 with Managed Services seeing a 6% organic decline, mainly due to weaker project work (-17%) while recurring Managed Services revenues decline was held to 3%. Margins and cash flow remained robust with senior net debt reduced to £24.8m from £27.9m at end March and c. £10m headroom on the RCF. ADT trades on an historic FCF yield of >6%, but this should rise to >10% as recovery begins.
Companies: AdEPT Technology Group Plc