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Air Partner has issued a further shareholder update, confirming PBT of at least £10m in the first five months of the year to June, an increase of £2.5m since the last update to May. The Group continues to deliver impressive results despite a challenging market backdrop. As has been the case throughout the COVID-19 crisis, performance has been driven by strong activity in the Freight and Group Charter divisions. Crisis driven activity is expected to reduce in H2, with an anticipated recovery in the Group’s core activities, where the update reports positive early indications across the Group’s divisions. The balance sheet is very well supported, with net cash at 30th June standing at £13m post the recent £7.5m fund raise. The Group continues to have access to total debt facilities of £14.5m. Whilst visibility for H2 remains limited, we believe the Group is well placed to deliver a strongly profitable FY21 result.
Companies: Air Partner
Whilst Arena delivered FY20E results in line with our expectations, this has inevitably been overshadowed by the challenges posed by COVID-19 to the industry. Arena acted swiftly to cut costs and preserve cash, such that it currently has a c£23.5m cash balance. This is enough to see the company through into 2021, even if the global event market remains heavily disrupted for the rest of the year.
Companies: Arena Events
Gaming Realms is a creator and licensor of innovative games for mobile, with operations in the UK, U.S. and Canada. Through its unique IP and brands, Gaming Realms brings together media, entertainment and gaming assets in new game formats.
Companies: Gaming Realms
The group has today announced the conclusion of a structured development and succession plan implemented by the Board over the past 2 years. CEO Phil Maudsley will be succeeded by Paul Kendrick at the end of the current financial year (March 2021). Phil leaves the group in excellent shape, having completed a major transformation of the group over the last 10 years, from a heavily indebted mini conglomerate to a digital-first value business with bright growth prospects. Studio Retail’s transformation from a small Christmas catalogue retailer to an agile online value retailer back by a strong integrated credit operation was clearly evidenced by the June update, highlighting the best growth rate in the listed retail space (+55% YTD). Phil will be involved over the remainder of the current year to ensure a smooth transition and handover to Paul who has made a significant contribution to recent strategic and operational enhancements, and who leads the business forward with a clear and exciting 5 year growth plan.
Companies: Studio Retail Group
Halfords 3Q IMS is in our view positive with PBT forecasts for FY 2020 held at £50-55m and good LFL in Retail cycles +5.9% and Autocentres +4.6% where most of new management development work has been focused. Retail Motoring products LFL -2.7% continues to show impacts of discretionary spend softness in our view. Management retains its caution about near term demand prospects overall and its development programme in Autocentres and key aspects of the business overall (notably new integrated website) moves up a notch in calendar 2020. This said PBT guidance for 2019/20 has been maintained and this trading shows promise in our view.
Companies: Halfords Group
Directorate change: DWF has announced that Andrew Leaitherland will step down as Group CEO and a managing partner of DWF Law LLP and DWF LLP with immediate effect and will be replaced by the Group’s Chairman Sir Nigel Knowles. Sir Nigel has over 40 years of experience in the legal sector and was previously. Global Co-Chairman and Senior Partner of DLA Piper. We believe he has the experience and leadership qualities required to lead the Group through the near-term challenges it faces. Chris Sullivan, Senior Independent Non-Executive Director, has been appointed as interim Chairman.
Companies: DWF Group
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.
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AFC Energy is a global leader in the fuel cell sector. It has a proven fuel cell technology which it is commercialising through its H-Power™ product, an off-grid electric vehicle charging system which is run on hydrogen and produces no emissions. The company's core fuel cell technology is a liquid alkaline fuel cell called HydroX-Cell(L)™. The company is also developing a solid alkaline fuel cell called HydroX-Cell(S)™ , the critical component of which is a is a solid electrolyte which upon validation will be marketed under the AlkaMem™ trademark. We expect the AlkaMem™ product to have multiple electro-chemical applications outside of fuel cells. The purpose of this note is to compare AFC Energy's products, markets and business strategy against its listed peers Ceres Power and ITM Power. The note also assesses the state and outlook of the hydrogen market in addition to the proton exchange membrane market, which is relevant for AFC Energy's AlkaMem™ product. As a reminder, we believe AFC Energy has a fair value of 27p/sh.
Companies: AFC AFC AFC
New management has put in place a strategy which the February interim results revealed was returning the group to growth with very encouraging LFL statistics and attractive returns on refurbished outlets. In March, however, in response to COVID-19 and following UK Government guidelines, all venues had to be closed.
Management initiatives have materially reduced the cash burn while the group is unable to trade, and the group’s lender has been very supportive in significantly increasing the borrowing facility.
Management is now proposing an equity issue, the rationale for which is to strengthen the leverage ratio to create a more appropriate capital structure moving forward, to allow an immediate return to the estate refurbishment programme and to be able to potentially take advantage of strategic opportunities as they arise as the sector emerges from the COVID-19 crisis.
Companies: Revolution Bars Group
We called the stock wrong ahead of these prelims. Instead of market forecasts being upgraded, fresh guidance has led to downgrades. While frustrating for expectant shareholders, this is not a profit warning but a ‘delay’ in the recovery of lost margin (FX mitigation), and an ‘acceleration’ of investment into services and customer capability which should generate a return in outer years. Pending the new CEO’s strategic update in Sept, though, Halfords growth plans in FY20/FY21 are unclear. Including nil growth in FY1, our new forecasts suggest a 6% 3-yr EPS CAGR. Until there is clarity the market will sit on its hands, and collect a 5.3% yield (or 3.5% on the final) in the meantime. To reflect this flat near term growth dynamic, our reduced 12-month target price of 350p is based on a 25% sector discount (6.0x EV/EBITDA). Hold.
The proposed acquisition of easyGym stacks up strategically and financially. It further reinforces the Groups roll-out and consolidation led growth model and strengthens its position in the value segment. Current trading is strong with positive commentary around the premium pricing initiative. We will publish formal forecasts in due course but our preliminary analysis suggest 9%/8% EPS accretion in FY19/FY20. Premium pricing success should add at least a further 5% to these estimates, implying a look through FY19 P/E of 18.5x vs a 3 year EPS CAGR >30%. We lift our 12m TP to 335p – Buy.
Companies: Gym Group
Quiz’s warning came as a shock, particularly so soon after a positive AGM update. Our post mortem reveals the revenue shortfall is almost entirely due to the erratic demand dynamics of its 3rd party online web partners. Each key partner appears to have experienced unrelated drops in growth beyond the unseasonal transition from summer to autumn. Rather than being Quiz led, whose own performance online and in-store has remained strong, these were factors outside its control. Downgrades of c35% now strip out all growth from these partners but we would not be surprised to see growth reappear if/when partners address the issues. Buy on this set-back.
Companies: Quiz Plc
N Brown is taking crucial steps in its transition to being a pure-play online retailer (currently 77% of sales) and to strengthen its leading position in the under-serviced market for fashionable plus-size apparel. While strategic updates may be on hold until a new CEO is appointed, the company closed the loss-making portfolio of high-street stores in H119 and further brand consolidation seems inevitable. The shares trade on a low FY19e P/E of 5.5x and yield 7.2%.
Companies: N Brown Group
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
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We highlight the strong Workday numbers overnight which provides cause for enthusiasm for growth equities, the SaaS software sector and most specifically within AIM, could augur well for Kainos, given their close partnership on consulting and implementation. Beyond the beat, most noteworthy comment was that management saw no impact from Brexit as yet nor the trade tensions in the US and China. With enviable growth rates of 32% in the quarter, we highlight few names in AIM such as CloudCall* offer such compelling opportunity.
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