Corporate life is full of tricky decisions, often having to weigh up various scenarios, each perhaps involving numerous competing forces and associated risks. Therefore it is nice when occasionally a ‘no-brainer’ comes along. Earlier today, Blancco announced that it had lifted its stake in its Japanese JV (FY19 PAT +£1.2m) from 51% to 80% by issuing 813,253 new shares at 132.8p (or £1.08m) to its local ‘mobile reseller / ITAD’ partner Aucnet (Ticker: 3964, Tokyo Stock Exchange, £271m market cap). Here Aucnet is 44.3% owned by Flex Corporation (Singapore based contract electronics manufacturer), and will continue to act as an important route to market in Japan, Asia and other parts of the world, retaining its 20% stake in the JV.
Companies: Blancco Technology Group plc
Registration document approved for Helios Towers. The Group provides essential network services, flexible infrastructure solutions and reliable power supply to mobile network operators in five African growth economies. Revenue increased 7 per cent. year-on-year to US$191m (H1 2018: US$178m), with Adjusted EBITDA up 15 per cent. year-on-year at US$99m (H1 2018: US$86m) for the six months ended 30 June 2019. Pricing rumoured at 115p to 145p implying valuation of up to $1.8bn. Expected Oct 2019.
Companies: IDEA WCH QUIZ TRMR SYM CLP CDM JET2 CERP BLTG
In the world of corporate branding, you know you’ve cracked it when people start using your name as a ‘verb’ in everyday life. Google has achieved this in ‘Search’, Skype for video calls, Airbnb in house-sharing & Uber for ‘ride hailing’. Similarly ‘Blancco-ing’ a hard-drive, smartphone, server or PC is rapidly becoming engrained in the lexicon of IT professionals, who need to delete confidential files.
Watershed events by their very nature have the power to reshape entire industries. Take cyber-security, which this week saw the UK's data privacy regulator (ICO) slap fines of £183.4m & £99.2m for GDPR breaches on British Airways & Marriott Hotels respectively. Enormous sums of money that will surely send shivers down the spines of Boardrooms worldwide.
Beating expectations and securing large contracts with blue chip clients are two of the best ways of building a world class company. This morning Blancco achieved both. Not only landing a new 3 year $1.2m expansion agreement with an existing Fortune 500 software group to provide its Drive Erasure solution across their worldwide data centre footprint. But also saying that FY19 sales would be “marginally” and adjusted EBIT “comfortably” ahead of consensus. Driven by a whole host of macro trends – not least concerns over ID theft / cybercrime, tightening regulation (eg EU GDPR & PCI DSS, 2018 California Consumer Privacy Act, etc), the re-provisioning of 100ms of smartphones/servers every year and the desire to reduce corporate IT costs without compromising security.
Rarely does quality come cheap, or that’s the accepted wisdom. The FTSE though is an ’irrational beast’, failing sometimes to recognise ‘deep value’ opportunities right under its nose. Take Blancco, the world’s #1 data erasure & mobile diagnostics software developer. The company is expanding rapidly, operates in a fabulous untapped niche, and generates almost all its revenues from repeat business, ongoing contracts and/or SaaS. In turn providing excellent forward visibility, positive cashflows and improving profit margins. The perfect triumvirate for long term investors.
Blancco reported FY18 results marginally ahead of its recent trading update; despite the focus on stabilising the business and improving internal controls, profitability was maintained over the year. The new management team’s focus on three key markets (Mobile, Enterprise and IT Asset Disposition (ITAD)) and targeted investment in R&D should help the company maintain its market leadership and lead to a reacceleration of revenue growth.
As Nasdaq reaches nose-bleed levels, many fund managers are scratching their heads to find reasonably priced tech stocks. A lot depends though on where one looks. Cast the net a little further down the food chain and in our view Blancco, the world’s #1 data erasure & mobile diagnostics software developer, fits the bill.
Long term Blancco shareholders are undoubtedly a hardy bunch. An essential trait given the difficulties (some self-inflicted) the company has endured over the past 2 years. The good news is that the bleeding now seems to have stopped, with real progress being made under the new leadership team.
Blancco’s FY18 trading update confirms that despite weaker than expected revenue growth, work on reducing the cost base resulted in a better than expected operating margin of 11%. Positive cash flow in H2 reduced the net debt position to below our forecast. We have revised our forecasts to reflect lower revenues but stronger profitability, resulting in an upgrade to our normalised EPS forecasts of 49% for FY18e and 10% for FY19e. With the appointment of a permanent CFO, the new management team is now complete, and we expect more detail on strategy when the company reports FY18 results in September.
Kore Potash— advanced stage mineral exploration and development company whose primary asset is its interest in the Sintoukola Project, a potash project located in the Republic of Congo. ) Measured, Indicated and Inferred Mineral Resource of 5,953Mt at an average grade of 22.0% KCl. Offer raising $13.14m with market cap of £56.4m. Due 29 March.
Perfomatrix PLC, a global end to end Performance Marketing technology and services company headquartered in the UK, is looking to join AIM in early April 2018, offer TBC
Crusader Resources, an ASX-listed public company incorporated in Australia, which is primarily focused on the exploration and development of gold assets in Brazil. POSTPONED
SimplyBiz, a Financial Services Firm, looking to join AIM raising £30m via placing and £34.6m via a sale of existing ordinary shares at 170p giving a market cap of £130m. Expected 4 April
Polarean - Medical drug-device combination company operating in the high resolution medical imaging market. Offer raising £3m at 15p with market cap of £11.01m. Due 29 March
Companies: ARK EMIS WRES TLY GFIN BLTG IRON
Blancco’s H118 results reflect the non-recurrence of one-off licence deals signed in H117 as well as a period of restructuring. Despite the weak H1, management has a sufficiently strong sales pipeline that it expects to meet previous guidance for FY18. The company is now in better shape for the soon to be appointed new CEO to drive sustainable, cash-generative revenue growth.
The phenomenal take-up of cloud services is turning the IT industry on its head. Here corporate networks and in-house data centres are being replaced by third-party hosted (eg Amazon, Google and Microsoft) services, streamed from almost anywhere on the planet.
The stock continues to tumble and now trades at roughly a quarter of its share price just 12 months ago.
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The group has released a positive trading update, signalling a strong H2 and performance ahead of expectations. The new guidance points to a 6.7% upgrade to revenues and a 10.5% upgrade to EBITDA. Cash generation has been notably strong, at about $26m, which will drive an increase in supplemental dividends with a dividend yield of 7.1%. We raise our TP from 255p to 285p, based on a target P/E of 14x, giving decent upside to the current 11.6x.
Companies: Somero Enterprises, Inc.
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Less than a fortnight after a major new contract announcement in West Africa, Capital has announced the expansion of its operations at Barrick Gold’s Bulyanhulu Gold Mine in Tanzania. The contracts include a five-year laboratory services contract for MSALABS, together with a two-year underground grade control drilling contract. Capital commenced operations at Bulyanhulu in February 2020, undertaking a deep hole delineation drilling program. The successful execution of this resulted in an expansion of services, with two underground rigs added to operations from May. The new contract will expand the underground fleet to four, utilising two rigs from the existing fleet and including the acquisition of a further two rigs.
Companies: Capital Limited
Trading to date in FY 2021 has been positive, with no sign of an adverse impact from the second national UK lockdown. Net new business across both divisions is described by management as encouraging and the new business pipeline remains very healthy. With volumes better than expected and margins improving DX is on track to perform materially better than market expectations and we have, consequently, upgraded FY 2021 EPS by 29% and FY 2022 by 15%, driven by stronger assumptions in DX Freight. We have also raised our FCF-based target price from 29p to 33p and reiterate our view that the group is in a strong position to rebuild profitability by winning new business and improving efficiency, productivity and margins.
Companies: DX (Group) Plc
Management is delivering right on cue to its resumed guidance as per the 1 October trading update. H2 revenue recovery is back close to pre-pandemic levels and operating margins have returned to target 3% in quick time – and are sustainable at that level too. Having upheld dividends through this challenging period and actually extended the order book (up 17% YoY and also c3% higher than last reported), TClarke is firmly re-establishing a growth trend on arguably more solid foundations. The share price is 10% higher since the last trading update but in our view remains significantly undervalued against a prospective FY21E EV/EBITDA ratio of 3x, a PE of c6x, yield 4.6% and double-digit FCF yield.
Companies: TClarke plc
We release prudent FY20E and FY21E forecasts as Xpediator continues to gain momentum and operations revert to pre-COVID levels. The Group has made strategic progress year to date. It has implemented a strict cost reduction programme which should drive annualised cost saving of over £0.5m, restructured and strengthened its management team and further integrated acquisitions. Additionally, it is in the process of consolidating its site portfolio, driving further costs out of the business. We believe the market continues to undervalue Xpediator's geographically diverse revenue base, flexible low fixed cost operating model and positive financial outlook. Accordingly, we move our recommendation from Under Review to Buy.
Companies: Xpediator Plc
Directa Plus has announced that in the October collaboration agreement with NexTech Batteries, it has achieved above 400 Wh/kg (watt-hours per kilogram, the usual measure of energy density) in a practical system. NexTech produced several full-scale pouch format cell prototypes using its proprietary cathode and electrolyte materials (with Directa plus graphene) producing 410Wh/kg of specific energy at a weight only slightly below 30g. For comparison, standard Lithium-Ion batteries have an energy density of 100-265 Wh/kg.
Companies: Directa Plus Plc
Volex has reported interim results that are in-line with expectations following a strong trading update in mid-October. Of far greater significance is today’s announcement of the proposed acquisition of DEKA for a consideration of up to €61.8m on a debt free basis. DEKA is a leading and highly profitable power cord manufacturer, strategically located in Turkey, that serves leading European white goods manufacturers. The acquisition should close in early CY2021, subject to expected Turkish Competition Authority approval. We foresee 15% earnings enhancement in FY2022E with further opportunities for revenue synergies with Volex in the Far East as its operations also vertically integrate, production efficiencies increase and the cost of production falls. The statement highlights that pro forma net debt/EBITDA remains under 0.4x and this provides scope for further bolt-on acquisitions alongside a new $70m RCF and $30m accordion, also announced with the interims.
Companies: Volex plc
Xpediator has delivered a healthy trading update, breaking several revenue records during H2 2020. Furthermore, the outlook for FY21 remains promising, reflecting recovery to more normal levels in Transport Services, a full-year impact of the Nidd acquisition, the turnaround of underperforming businesses, and new ventures. The £6m PBT forecast for FY20 highlights an improving margin, albeit this represents a shortfall from FY18. In our opinion management actions, plus recovering markets, can take the Group to peak margins over the next 18-24 months: delivering a marked increase in profitability.
Brick and concrete products group Forterra has raised its guidance for FY 2020E to above the current consensus range and reinstated dividends following trading in Autumn which exceeded its previous expectations and which has continued strongly despite the second lockdown. We have increased our FY 2020E revenue, EBITDA and EPS estimates by 3%, 14% and 46% respectively, and cut our net debt projection. We have introduced FY 2021E estimates showing further strong expected growth.
Companies: Forterra Plc
SThree has released a brief update ahead of the scheduled Q4 trading update expected on 12th December. The key headline is that an improving trading backdrop over the last few months has driven a better than expected profit performance. Market consensus was clearly too light with the company now guiding for an FY’20 outcome above the top end of the range of expectations. We have updated our forecasts accordingly and now look for FY’20 PBT and EPS of £28.1m / 13.3p respectively – a PBT upgrade of +53% on our previous estimate. Although the company has not formally reinstated full guidance, we are taking this opportunity to publish our estimates for FY’21. SThree has shown good resilience through this pandemic. The combination of STEM industry specialism and the inherently higher short term visibility of the contract focus has afforded SThree management a greater degree of flexibility when it came to aligning the necessary cost actions with the strategic ambitions of building market share in the key, global STEM markets. Costs and headcount have been cut, but they have been targeted and selective. The net result has been an increasingly positive tone in trading commentary, culminating in yesterday’s explicit upgrade. Has this been fully priced in by the market? To an extent yes, with the shares now standing +57% above the May 2020 lows and outperforming the peer group year to date. However, despite this outperformance (share price and operational) SThree still stands at a material valuation discount to its peers. We continue to find the extent of this valuation gap hard to justify.
Companies: SThree plc
The new ammendments to the UK CfD renewable energy support scheme opens up an opportunity for tidal energy to compete against floating offshore wind. We think the two technologies can deliver similar costs but that tidal, and specifically the already permitted capacity at Atlantis’s MeyGen site, has a marginal advantage in terms of readiness.
Companies: SIMEC Atlantis Energy Ltd.
H1F21 revenue was £107m, down 14.8% y/y (H1F20: £125.6m) and down 11.9% sequentially (H2F20: £121.5m). Q2F21 revenue was up 5.3% y/y, indicating a trend to recovery in the post-lockdown period across both, Ireland and the UK. The strength of LTHM's business model is supported by the diversity of its customer base and the expanse of its product offering, allowing it to withstand fluctuations in demand across market sectors. We believe LTHM stock is a relatively low risk investment given the strong cash position (131.6p/share), no debt and a stable yield. The stock trades at 8x EBITDA, compared to its peer average of ~11.1x, on what are more compelling metrics.
Companies: James Latham Plc
Macfarlane has released a strong trading update for the 4 months to October 31 2020 highlighting second half revenue and PBT to date being ahead of 2019 and the expectation that 2020 PBT will be broadly in line with 2019, a strong recovery from the uncertain position at the interim results. Separately, the Group has announced that CFO John Love will be stepping down from his role and the Board to be replaced by Ivor Gray, current Group Financial Controller and Company Secretary. We expect this to be a seamless transition given Ivor's experience in the Group and represents very well managed succession planning by the Board. Reiterate buy rating.
Companies: Macfarlane Group PLC (MACF:LON)Macfarlane Group PLC (5K6:FRA)
We have today released a new note on The Ince Group plc - this is the first of a series of "explainer notes" that take an in-depth look at the various aspects of the Ince investment case our investors have told us require more clarification. This edition examines the partner remuneration model - the headline for which is that this isn't discretionary bonus, it's more of a revenue share that partners are given in lieu of pay. Thus their remuneration is entirely variable, rather than representing a fixed cost.
Companies: Ince Group plc