UK Defence Budget spend and four Small Cap players
Companies: Somero Enterprises, Inc. (SOM:LON)SRT Marine Systems plc (SRT:LON)
The Interims are as announced in the October update; H1 2021 was better than expected considering the lockdown and leaves SRT well positioned to benefit from meeting Systems delivery milestones, receiving major cash payments and signing new contracts in H2. As last year, H1 revenues are just from Transceivers, with no Systems milestones booked in the period. Last year, that was a quirk of timing in project deliveries, but this year Systems deployments were paused due to the pandemic. Despite global lockdowns, the Transceiver business is growing impressively on the back of new products and channels. Meanwhile, Systems recommenced delivery of the Philippines BFAR system and awaits news on three major contracts in the Middle East, expected to be signed and started this H2. Importantly, the group cash position is strong; £8.5m of Systems payments and the £5.3m April refinancing left gross cash of £5.0m at September; vital for working capital to deliver the Philippines project, which continues to make solid progress. Otherwise, investors await the anticipated new Systems contracts currently in negotiation. The fundamental demand drivers for Maritime Domain Awareness (MDA) systems remain undiminished and the validated sales pipeline remains firm at 17 new contract opportunities totalling £550m.
Companies: SRT Marine Systems plc
Intercede (IGP): Corp Interim trading update | SRT Marine Systems (SRT): Corp SRT remains in a strong position for H2 deliveries
Companies: Intercede Group plc (IGP:LON)SRT Marine Systems plc (SRT:LON)
Today’s results for YE March 2020, are somewhat historic having been flagged by the trading update back in April. However, they do reflect the impact that COVID-19 has had on international business, as well as actions SRT has taken to secure its future. Lockdowns put a hold on existing and new system projects, causing a delay in both revenues and expected contract signings during the final months of FY 2020 through H1 2021. Also, we highlight that SRT has prudently impaired an existing long-standing contract for a monitoring system in the Middle East to clear the decks for a new larger contract that includes both monitoring system and transceivers. Existing Systems contracts are again under way, with £8.5m received on deliveries, and negotiations have restarted on the expected new contracts. Meanwhile, the Transceivers business grew by 24% in the FY 2020, and surprisingly, is reported to be trading marginally ahead of last year in FY 2021 to date despite COVID restrictions.
Avacta (AVCT): Corp | Belvoir Group (BLV): Corp | Byotrol (BYOT): Corp | Chariot Oil & Gas (CHAR): Corp | Destiny Pharma (DEST): Corp | Omega Diagnostics (ODX): Corp | SRT Marine Systems (SRT): Corp | Telit (TCM): Corp
Companies: AVCT BYOT CHAR ODX SRT DEST TCM BLV
Belvoir Group (BLV): Corp Moving the strategy forward | genedrive (GDR): Corp Trading and COVID-19 Test Update | InnovaDerma (IDP): Corp FY trading update | SRT Marine Systems (SRT): Corp Projects business recommences after lockdown
Companies: IDP SRT BLV GDR
ANGLE (AGL): Corp Utility in Head & Neck Cancer – peer reviewed paper | Circassia Pharmaceuticals (CIR): Corp Strategic shift | KRM22 (KRM): Corp Consolidation of Irisium | SRT Marine Systems (SRT): Corp Bank backs recent raise with a further £2.5m of cash
Companies: SRT AGL KRM
Companies: SRT BEG TUNG HCM BLU SO4 DDDD GFIN ECSC AGL
Avacta (AVCT): Corp | D4T4 Solutions (D4T4): Corp | Real Good Food (RGD): Corp | SRT Marine Systems (SRT): Corp
Companies: AVCT D4T4 RGD SRT
FY Mar 2020 results appear to be ahead of expectations with revenue of £18.8m against our £17.5m forecast (as revised last month); we adjust our expectations accordingly. COVID-19 restrictions are of course imposing delays on both existing projects and the imminent signing of the new contracts due in the Middle East. To deal with this, SRT has implemented an operating plan to reduce costs and has significantly strengthened its cash position, raising between £2.8m and £7.3m. This is being done through a £1.8m equity raise; a £1.0m issue under the existing Secured Medium Term Note Programme; and an application to its main bankers for a facility of up to £4.5m under the Coronavirus Business Interruption Loan Scheme. The funding will enable SRT to maintain the required levels of development and deployment through the current period of restrictions. We are withdrawing our FY Mar 2021 forecasts pending greater visibility.
Amino Technologies (AMO): Corp | SRT Marine Systems (SRT): Corp
Companies: Amino Technologies plc (AMO:LON)SRT Marine Systems plc (SRT:LON)
The virus outbreak has led to delays in key new Middle East contracts that had been expected to be signed – with c.£14m revenue booked – during H2. The virus issue is understandably taking priority with governments and border forces, and the contracts worth an aggregate £65m should now be signed post YE. Although the Philippines contract delivery remains on track, delay to the new contracts cuts FY 2020 guidance significantly; revenue falling from £30.4m to £17.5m and Adj. PBT of £3.7m swinging to an Adj. LBT of £3.8m. We now expect YE net debt to be c.£4m. The cashflow will be supported by drawing on the £10m secured loan note programme until some major milestone payments (c.£10m) are received from the Philippines in H1. This is a matter of timing, with management confident (underpinned by written assurance after three years of work) that the contracts will indeed be signed later this year as the crisis eases. Further guidance will be given on FY 2021 but we feel these contracts could see revenue exceed £50m with Adj. PBT in double figures. The long-term strategy and delivery remains in place. These contracts are not going away; just a short-term delay due to a global issue.
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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
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
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
Companies: TIME ALU ANCR BLV CONN CRC STU GATC HAT LEK MMH MCB MWE NXR NTBR NOG PAF PEG RFX SRC TEF TEG TPT VTU WYN XLM
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.
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Update to forecasts – Neutral
Companies: Vitec Group 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
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
Today’s update demonstrates 20% operating profit growth at the technology group specialising in comprehensive radio frequency communication solutions across multiple sectors for the first nine months - a function of revenue growth (+2%) coupled with cost savings and operating leverage. A good performance given the global backdrop. EBIT margin increased 150bps to 10.1% and this higher margin means MTI remains on track to meet our FY20 profit forecasts albeit on a lower revenue base and we reduce revenue forecasts by 6%. We anticipate limited cost inflation in FY21 and hence profit forecasts remain unchanged but we trim revenue. We also introduce FY22 forecasts. MTI has a diversified business and each division can point to structural growth drivers. Despite a good share price performance this year (+28%), the current price fails to reflect MTI’s track record and growth potential, balance sheet strength and yield. We set a new fair value (63p from 46p), equivalent to an FY21 EV/EBITDA of 11.4x falling to 10.1x in FY22.
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
We are adjusting our estimates following completion of the SpaceQuest acquisition just before the end of FY20. With a negligible income and cash flow impact in FY20 due to the timing, the deal will be reflected in an expanded balance sheet. However, with an EBITDA margin of more than 20% and significant growth expected in FY21, the deal is a major enhancement to group performance going forward.
Companies: AAC Clyde Space AB