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U.S. futures and European stocks dropped on Friday as investors mulled a reported conflict among policy makers over a stimulus package for the single-currency region, as well as political upheaval in France.
The Stoxx 600 Index fell after Bloomberg News reported the European Central Bank is facing a potential rift over how much their emergency bond-purchase program should stay weighted toward weaker countries such as Italy. The euro fluctuated following French President Emmanuel Macron's decision to name a new prime minister after asking his government to resign. Rolls-Royce Holdings Plc slumped after the British jet-engine maker said its exploring options to raise funds to strengthen its balance sheet.
The dollar was slightly down, posting its first weekly drop in a month, while American cash equity and bond markets were shut for Independence Day. President Donald Trump will attend an early July 4 celebration at Mount Rushmore with thousands of guests who won't be required to wear masks, while his U.K. counterpart Boris Johnson urged Britons to act responsibly as pubs prepare to re-open and the government lifts quarantine rules on travel for 60 countries.
The friction at the ECB highlights the risk to markets should promised stimulus measures fall short. Investors continue to weigh policy support and upbeat economic data against relentless new outbreaks of the virus. U.S payrolls figures Thursday fuelled optimism of a V-shaped recovery in the world's biggest economy, even as Florida reported that infections and hospitalizations jumped the most yet, and Houston had a surge in intensive-care patients. Emerging-market stocks posted the biggest weekly gain in a month.
Elsewhere, crude oil dipped but remained on track for a weekly gain.
Companies: TGL JSE IAE ADME BP/ DGOC ENOG NTQ NTOG PMO RBD ROSE RDSA UKOG TRIN
Material acceleration of strategic plan
Companies: Melodyvr Group Plc
This is a positive trading update for a period impacted by the pandemic restrictions and uncertainty. The COVID-related global slowdown caused an 8% LFL YoY revenue decline to $166.5m in H1, but an improving gross margin and management’s temporary cost controls have protected earnings sufficiently to be ahead of H1 LY (adj. EBITDA of $16.0m). ‘Profit in cash’ (adj. EBITDA less capex and lease payments) is also ahead of the $2.6m seen LY. In fact, cashflow has been very healthy, net cash rising from $48.2m to $55.7m in the period, notably boosted by collections from the divested automotive business. A pleasing aspect of H1 is the continuing growth in higher-margin IoT services, up 12% YoY despite COVID. Easing of restrictions in H2 should see a return to more usual revenue and profit levels, and our FY 2020 earnings growth expectations remain unchanged despite revenue falling YoY – thanks to the cost savings management implemented. Looking further out to next year, a return to revenue growth and continued profit improvement is anticipated for FY 2021, due to pent-up demand and greater IoT adoption on concerns over physical restrictions in future pandemics. At the interim stage, Telit is well positioned to continue to deliver its impressive track record for earnings growth (we expect 9% adj. EBITDA growth this year and 19% next). Currently on an EV/EBITDA multiple of just 3.3x, the shares are deeply undervalued for a stock delivering such consistent profit progress with a very solid balance sheet in these uncertain times.
Companies: Telit Communications
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: OPM 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
The Board has finally decided to suspend its final dividend for 2019/20 and all dividends for 2020/21. This move is structural and not really linked to the Covid19 crisis in that it is to invest in FTTP and 5G, and to fund a major new 5-year modernisation programme.
These announcements are a first buy signal although the recovery will take time and the group must now stabilize its revenues which will not be easy given the Covid19 pandemic context.
Companies: BT Group
CAP-XX Ltd* (CPX.L, 3.1p/£10.1m) | Gfinity plc* (GFIN.L, 1.675p/£12.0m) | MTI Wireless Edge Ltd* (MWE.L, 38.5p/£33.8m) | Newmark Security plc* (NWT.L, 1.05p/£4.9m) | Mirada plc* (MIRA.L, 95.0p/£8.5m)
Companies: CPX GFIN MWE NWT MIRA
Wentworth Resources (WEN LN)c; £0.40 Price Target: Initiation of coverage - Wentworth Resources is one of the very few small cap E&P names whose profile should be appealing to ESG focused investors. Wentworth is solely focused on producing natural gas, the cleanest fossil fuel (and the preferred transition fuel to renewable energy). Gas is used instead of coal to support the rapidly growing electricity demand in Tanzania where Wentworth is one of only two established gas producers. The company is headed by Katherine Roe, one of the few female CEOs in the sector. With gas sold at a fixed price, the business is profitable irrespective of the oil price. Wentworth is member of a very small group of E&P juniors that offers a dividend yield (almost 8% for 2020, one of the highest in the sector). The dividend distribution could grow. FY20 WI production is estimated at ~21 mmcf/d. With ~150 bcf of WI 2P reserves and 230 bcf of WI 3P reserves, production is expected to grow by ~50-100% as power capacity is added. While the production plateau is very long, the shares trade at EV/DACF multiples of only 2.0x in 2020 and 1.0x in 2021. The current share price is 45% below our Core NAV (NPV15% on the 2P reserves). Maintaining 27 mmcf/d WI production until licence expiry recovers the 1P reserves and requires hardly any capex. The shares are worth £0.26-0.33 under these assumptions (NPV10%-NPV15%). (1) Adding a compressor should boost WI production to 35 mmcf/d in 2024 and adds £0.06-0.08 per share. (2) Extending the licence duration beyond 2031 would allow the drilling of a sixth well to increase WI production to 42 mmcf/d, convert 80 bcf of possible reserves into the 2P category and boost our valuation to £0.64 per share (~3.8x current levels). (iii) Wentworth estimates 0.6 tcf of WI prospective resources on the licences. At US$1/boe, this has an additional unrisked value of £0.40 per share. Our target price of £0.40 per share represents >2x the current share price.
Diversified Gas & Oil (DGOC LN): Borrowing base update | Jadestone Energy (JSE LN): Acquisition in Indonesia and arbitration in Vietnam | Premier Oil (PMO LN): Not acquiring the additional 25% WI in Tolmount | Reabold Resources (RBD LN)/ADX Energy (ADX AU): Well test results in Romania | Royal Dutch Shell (RDSA/B LN): 2Q20 update | UK Oil & Gas (UKOG LN): Planning consent rejected in the UK | PetroNeft Resources (PTR LN): Update in Russia | Energean (ENOG LN): Update on acquisition of Edison E&P | Sound Energy (SOU LN)C: LNG head of terms in Morocco | Solo Oil (SOLO LN): US$5 mm Equity facility
Companies: PMO RDSA RDSB WRL UKOG
Gamma’s H1 trading update reports another strong performance. In light of that, while management expects full year revenue to be within consensus range, it anticipates that EBITDA and EPS for FY 2019E will be slightly above the range of market expectations. As a result, we are assuming greater overhead efficiency than we had previously allowed for and we are increasing our FY 2019E EBITDA estimate by £1 million to £56.5 million - with the expectation of reassessing this further (positively) at the time of the interims in September. The update confirms that there has been continued growth in the UK across both direct and indirect channels. Cloud PBX sales have performed well again but there is a nod to the effects of an increasingly competitive market in the statement. Additionally, during the period, Gamma implemented the first phase of its digital transformation program in the Direct business. In all, this represents another strong period of growth for Gamma which, as CEO Andrew Taylor notes, balances near-term delivery with the execution of the Group’s longer term strategy.
Companies: Gamma Communications
Bill McDermott stood down on Friday after a decade building up SAP as the world's leading enterprise software company, handing the task of completing its transition to cloud computing to new co-CEOs Jennifer Morgan and Christian Klein. SAP announced the management overhaul, with immediate effect, after rushing out third-quarter results that showed it gaining traction in its drive to offer a more streamlined range of services and boost profitability. The company’s stock has climbed 21% this year. It’s up 75% in the past five years, topping rival Oracle, which is up 46%, and the S&P 500′s 54% gain.
Companies: MVR TRAK CPX CALL ECK IMMO LOOP NET SEE TCM TRCS QTX VRE
Oil posted the biggest weekly plunge since 2008, capping its most dramatic week in recent memory as major producers prepare to drench the market with supply just as the coronavirus crushes demand. But prices jumped following the close, after President Donald Trump said the U.S. would fill the nation's strategic reserve. Losses for the week totalled 23% after the collapse of talks between members of the OPEC+ group triggered the biggest crash in a generation. Instead of reaching a deal to cut output to mitigate the fallout from the virus, producers led by Saudi Arabia and Russia embarked on a war for market share and pledged to pump more.
Companies: TGL TXP VLU EGY GTE CNE DGOC ENQ SQZ UKOG TRIN TLW PHAR
FY 2019 saw a strong financial and operational performance. The management team is working hard to optimise its sales strategy and pursue further cost reductions. The results of its efforts are already visible in much improved financials: growth in all the ongoing businesses and in all regions; and stronger margins from better revenue mix and streamlining. The sale of Automotive in February 2019 focused Telit on Industrial IoT, removed a heavy R&D burden and left the group very well-funded. Cash is to be partially returned to shareholders depending on the developing Covid-19 situation. Even in an uncertain times, the year leaves Telit very well placed with tremendous upside to build LT value through numerous opportunities as a global leader in the growing IoT market.
Telit has moved to preserve its profit levels during the COVID-19 pandemic. The widespread lockdown of unknown duration is likely to slow some of its YoY revenue growth, and we trim our FY 2020 revenue expectations, although we do still continue to expect LFL growth (excluding the two months of Automotive in FY 2019). Despite its significant cash reserves from the disposal, management is prudently adopting a cost-reduction plan to ensure the company’s earnings are maintained at the targeted level. Notably this involves a temporary 15% salary reduction for senior management and a reduction in all areas of discretionary spending, including opex and capex. Strategic plans (such as long-term product development and the movement of production outside China) will be unaffected. We are pleased to hear the supply chain remains steady with minimal disruption in module production as the lockdown across Asia is partially lifted. At this stage, we leave FY 2021 forecasts unchanged, given a strong market position.
Quite a good Q4 supported by improving commercial momentum in Europe. The annual EBITDA grew eventually by 2.6% yoy reflecting the cost programme’s success.
The €0.09 dividend is maintained.
Vodafone is more highly indebted after its deal with Liberty-Global, but its dividend (cut last year) seems now more in harmony with its balance sheet. Besides, the monetisation of its infrastructure is continuing. Given therefore the slight growth Vodafone should offer in the coming years, we maintain our Buy recommendation on the stock.
Companies: Vodafone Group
Gamma’s AGM statement contains a sensible degree of caution around the impact of COVID-19 on the economic backdrop, mixed with its continuing growth story. The group is seeing strong demand for Cloud PBX and UCaaS (Unified Communications as a Service) products in the UK but notes some slowdown in new orders and a lengthening of sales cycles. The business model has successfully moved to home working and, with a high (93%) proportion of recurring revenue, the outlook remains bright. We take a prudent view in reducing our revenue estimates although the impact on EBITDA is more muted. The Group has a strong balance sheet, is cash generative and retains its previously announced dividend payment.
Gamma is acquiring around 80% of HFO Holding AG (HFO), one of the leading SIP Trunk providers in Germany, for an initial consideration of €20.4m in cash with an option to purchase the remaining shares over the next three years. In line with its stated strategy, Gamma can invest and use its commercial strength and expertise to accelerate HFO’s growth and replicate the Group’s success in the UK by developing a market leading position in Germany. Noting net debt of €2.9m when the deal closed, the implied historical EV/EBITDA multiple of about 10x compares with Gamma’s equivalent of 18.7x. We estimate that the deal will be 4% earnings enhancing in the first full year of ownership and our estimate upgrades reflect that. The European markets for cloud telephony in which Gamma is now represented will ultimately overtake the UK in size, providing Gamma with significant future growth potential. We view this acquisition as another significant step in Gamma’s strategic aim to expand into Europe via exposure to another lucrative market opportunity.