Edison Insight Strategic perspec ve | Company profiles - June 2018 - Baystreet.ca
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Edison Insight Strategic perspec ve | Company profiles June 2018 Published by Edison Investment Research
Contents
Global perspectives 2
Company profiles 10
Edison dividend list 74
Stock coverage 76
Prices at 22 June 2018 Published 28 June 2018
US$/£ exchange rate: 0.7513 RUB/£ exchange rate: 0.0120
€/£ exchange rate: 0.8771 NIS/£ exchange rate: 0.2088
C$/£ exchange rate: 0.5739 NOK/£ exchange rate: 0.0924
A$/£ exchange rate: 0.5643 HKD/£ exchange rate: 0.0957
NZ$/£ exchange rate: 0.5228 CHF/£ exchange rate: 0.7592
TRY/£ exchange rate: 0.1623 SGD/£ exchange rate: 0.5582
MYR/£ exchange rate: 0.1880 EGP/£ exchange rate: 0.0420
Welcome to the June edition of Edison Insight. We now have over 400 companies under coverage, of
which 127 are profiled in this edition. Healthcare companies are now covered separately in Edison
Healthcare Insight. Click here to view the latest edition.
The book opens with a strategy piece from Alastair George, who believes that the US vs rest of the
world trade confrontation is becoming the dominant narrative. We cannot rule out at this point that
negative responses in financial markets may be a prerequisite to negotiating a face-saving route out of
the situation for all sides. However, earnings estimates show few signs of the impact of tariffs or
disappointing UK and eurozone economic data and robust growth for 2018 remains the consensus
forecast. Profits forecasts have even risen in the US in recent months and the median US company is
now expected to deliver close to 20% earnings growth in 2018.
However, offsetting the benefits of strong US profits growth is the prospect of tighter US monetary
policy and larger fiscal deficits. The recent trade protectionism-related flight to safety is understandable
but in our view current US 10-year Treasury yields still appear too low. Emerging markets may
continue to struggle as the Fed remains focused on US domestic condition. There is no change to our
cautious outlook. We continue to believe developed equity markets are in a period of consolidation.
Valuations are moving closer towards long-run averages with markets simply trading sideways as
profits grow while monetary policy is normalised.
This month we have added Aladdin Blockchain Technologies, Kape Technologies and MagneGas to
the company profiles.
Readers wishing for more detail should visit our website, where reports are freely available for
download (www.edisongroup.com). All profit and earnings figures shown are normalised, excluding
amortisation of acquired intangibles, exceptional items and share-based payments.
Edison is an investment research and advisory company, with offices in North America, Europe, the
Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and
deep multi-sector expertise. At Edison Investment Research, our research is widely read by
international investors, advisors and stakeholders. Edison Advisors leverages our core research
platform to provide differentiated services including investor relations and strategic consulting.
Edison is authorised and regulated by the Financial Conduct Authority. Edison is a registered
investment adviser regulated by the state of New York.
We welcome any comments/suggestions our readers may have.
Neil Shah
Director of research
Edison Insight | 28 June 2018 1Global perspectives: Beware the incentives
Analyst
The US vs rest of the world trade confrontation is becoming the dominant Alastair George
narrative. A trade war may not make sense to many investors but does now +44 (0)20 3077 5700
represent a potentially serious challenge to the global trading system. We also institutional@edisongroup.com
cannot rule out at this point that negative responses in financial markets may be a
prerequisite to negotiating a face-saving route out of the situation for all sides.
Earnings estimates show few signs of the impact of tariffs or disappointing
UK and eurozone economic data. Despite a significant slowing of economic
momentum in the UK and Europe, consensus (I/B/E/S) forecasts there still call for
8-9% 2018 earnings growth on a median basis. In the US, profits forecasts have
stepped up in recent months. The median US company is now expected to deliver
close to 20% earnings growth in 2018.
Offsetting the benefits of strong US profits growth is the prospect of tighter
US monetary policy and larger fiscal deficits. US bond market investors still
have to contend with rising short-term interest rates and a substantial increase in
the issuance of US Treasuries to finance Trump’s tax reform. Furthermore, this is
happening at the same time as the US Fed attempts to reduce the size of its
balance sheet. The recent trade protectionism-related flight to safety is
understandable but in our view current US 10-year Treasury yields still appear too
low in the context of rising US interest rates and a substantial increase in Treasury
issuance.
Emerging market (EM) policymakers are becoming concerned with the Fed’s
US-focused monetary policy. Unfortunately for EMs, with US growth boosted by
a pro-cyclical fiscal stimulus and unemployment below target, we believe the Fed
is likely to stay the course for now. As a result, emerging markets appear set to
continue to struggle during 2018, even if earlier studies suggest a classic EM
liquidity ‘crisis’ seems some way off.
There is no change to our cautious outlook. We continue to believe developed
equity markets are in a period of consolidation. Valuations are moving closer
towards long-run averages by markets simply trading sideways as profits grow
while monetary policy is normalised. Over the last month, downside risks have, in
our view, increased as the rhetoric on trade has sharpened considerably across
both the Pacific and Atlantic.
Edison Insight | 28 June 2018 2Trade war: Beware the incentives
Will only a correction get politicians to agree a face-saving solution?
The rhetoric on trade continues to escalate. In recent days, the US administration has indicated that
it will impose additional restrictions on foreign investment in US strategic industries while China’s
President Xi Jinping has reportedly stated in a private meeting with US chief executives that China
will not turn the other cheek but will punch back. Both leaders at present appear committed to a
collision course. On the face of it, the US is taking aim at China’s ambition to be a significant global
power in economic, political and technological terms. China, on the other hand, could be seen to be
overplaying its emerging market status.
We can understand that many investors will struggle to understand the US administration’s trade
strategy. It is well known that the goods deficit the US carries with the rest of the world is not the
whole story. Corporate tax strategies and a reliance on intellectual property (IP) or technology
based information businesses mean that the raw trade numbers may seriously overstate the US
trade deficit with the rest of the world.
The truth is the first casualty of a trade war
For example, US$50bn of annual Apple sales in China do not appear as a US export, nor is the
California-generated IP used to build them recorded in the trade data. After being built by a sub-
contractor in a bonded zone in China, China-destined iPhones are reportedly sold to Apple’s Irish
subsidiary before being imported into China. To add to the confusion, each of Apple’s China-
assembled iPhones in fact widen the US trade deficit when imported into the “domestic” US market,
despite estimates of China’s value-add being only $10 per device. Sophisticated international tax
planning, endemic in new, high-growth industries therefore has the by-product of creating large
distortions in the trade data.
However, in this trade war the first casualty is likely to be the truth; investors therefore need to
quickly move onto the incentives for continuing hostilities. The perceived political gains for Trump
are to be seen to be strong on trade and in support of the American worker. Therefore, backing
down from the confrontation now established with both the EU and China without a face-saving
deal is likely to be difficult. [We do however acknowledge that Trump’s foreign policy has proved
unpredictable elsewhere; North Korea has moved from pariah status to a potential member of the
world economic community in less than a year. Furthermore, confirmation that the Congress-
supervised CFIUS process for review of foreign purchasers of US assets, rather than a procedure
based on an executive order, represents a pragmatic softening of the US position and a modest win
for trade doves in recent days.]
US could hide its strength and bide its time – but it is not a vote winner
Within 15 years, the US may be overtaken by fast-growing China as the world’s largest economy.
However, the US still dominates in many important areas, such as use of currency, capital markets,
technology, intellectual property, international business and banking. In addition, there is no reason
why these areas of specialism should not continue to grow if such activities remain competitive and
inward investment is welcomed.
Rather than tariffs and restrictions on investment, the optimal strategy to maintain influence over
the long term would appear to be to further amplify and firmly embed this US infrastructure –
whether financial, intellectual or monetary – as widely as possible. This, however, requires a long-
term perspective and has close to zero immediate electoral appeal. ‘Saving’ current US blue collar
jobs is an easier message to communicate to voters, compared to providing an economic
framework to support the prospective job market of the future. Furthermore, the beneficiaries of
Edison Insight | 28 June 2018 3tariffs are concentrated in key voter constituencies while the loss of consumer purchasing power is
diffuse with, initially at least, limited voter impact.
In the eyes of China, US policy could also be viewed as misguided. The “Made in China 2025”
initiative, although recently downplayed in public, aimed at moving up the value chain to secure a
greater share of the global economic value-add. To take the same iPhone example, China may
envy the US$200 accruing to Apple per device compared to the paltry US$10 accruing to Chinese
assembly.
Therefore, in some respects Trump’s tariffs on China’s goods industry and restrictions on
technology transfer only serve to validate the “Made in China 2025” strategy, and increase the
pressure for China to move up the value chain independently of the US. Furthermore, if China
cannot turn sufficient profit in older industries or high-tech assembly, it may in China’s eyes also
seem counterintuitive to see a higher-cost nation such as the US incentivise investment in such
unproductive areas of the global economy.
We view the escalating trade rhetoric with increasing concern. Due to its political drivers in the US,
and in combination with the highly unlikely prospect of China choosing to forego its full role as the
world’s largest economy, including mastery of the most challenging and sophisticated future
technologies, the risks of a prolonged conflict are clear.
Fighting a trade war on two fronts carries additional risk
The US administration has also caused a significant shock in terms of the US/EU relationship. It
was only recently that EU officials were rebuffed in their attempts to seek a tariff waiver for imports
of basic commodities. Now, US officials are working on the national security implications of
imported cars from the EU. The attraction of national security concerns is that they allow the
imposition of tariffs or other measures without breaking WTO rules.
The US would certainly not be the first nation to invoke rather intriguing national security concerns
to protect domestic industry from foreign competition or investment. Inward investment in China is
also subject to significant restrictions. Even in developed markets, French President Macron could
equally be cornered by the 2005 “Danone Law” aimed at preventing PepsiCo from launching a bid
for Danone, on the basis that yoghurt manufacture was also in some way strategic. In 2008, the
French government also activated a €20bn policy of taking stakes in French companies deemed of
national importance to dissuade potential international bidders. With these precedents, foreign
investment restrictions appear, unfortunately, less of a novelty.
For EU policymakers, after placing “gesture” tariffs on goods produced in Trump’s electoral
strongholds (bourbon, jeans and motorcycles) the next step for the EU is not so obvious, as it runs
a surplus with the US. We would expect a digital tariff to be high up on the agenda, not least
because a digital turnover tax has been proposed by the EU commission only earlier in the year.
It must have been frustrating for the EU to have failed to grow a domestic digital economy like the
US. In addition, traditional EU firms have been placed at a tax disadvantage compared to
sophisticated US digital or e-commerce players. We believe US tech may represent the next level
of any escalation in tensions. Reportedly, Apple executives believe prior regulatory delays in iPhone
product approvals in China carried a political dimension. We note the recent market
underperformance of the US tech sector, for which 60% of revenues are overseas compared to
30% for the S&P 500 overall.
Trade tariffs are a well-worn path to confrontation and a reduction in economic productivity and
growth which is perhaps why there are few academic supporters and also concerns being raised b
international organisations such as the IMF or BIS. It is becoming increasingly clear however that
political positions in China, the US and EU are hardening. However, without a priced-in market
‘cost’ (and by implication a ‘victory’ when a compromise deal is reached), there is so far little
Edison Insight | 28 June 2018 4incentive for politicians to discuss a solution. We therefore see increased reason for running a
cautious portfolio positioning as a global market decline may be a prerequisite to a resolution on
trade.
Earnings revisions: No sign of a trade war (yet)
US estimates rising again while Europe and UK remain stable
Even as tariffs dominate the headlines, the impact on the corporate sector has to date been limited
to a few high profile announcements such as Daimler or Harley-Davidson who respectively have
highlighted US tariffs as a reason for lowered guidance and relocation of production.
Yet despite a significant slowing of economic momentum in the UK and Europe, consensus
forecasts there still call for 8-9% 2018 earnings growth on a median basis, unchanged over the last
quarter. In the US, profits forecasts have stepped up again in recent months. The median US
company is now expected to deliver close to 20% earnings growth in 2018 according to I/B/E/S
consensus estimates. Therefore, while there remain legitimate concerns and ‘headline risk’ in
respect of US trade policy, in our view strong profits growth offers a meaningful counterweight to
the negative developments in international trade.
Exhibit 1: Unweighted consensus earnings revisions index for 2018
111.0
109.0
107.0
105.0
Index lev el
103.0
101.0
99.0
97.0
95.0
Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18
US UK Europe ex UK EM
Source: Thomson Reuters I/B/E/S, Edison calculations
As Exhibit 1 shows, there is relatively little to say about European earnings forecasts. Consensus
estimates have remained remarkably stable on a median basis over the last three months and have
risen on a weighted-average basis (not shown), in part due to currency depreciation over the
period.
This currency depreciation is in our view a belated reaction to the divergence in economic
prospects between the US and Europe. Despite some improvement over the last week, eurozone
and UK economic surprises remain firmly in negative territory, Exhibit 2. In contrast, the Atlanta Fed
GDPNow model has risen to indicate a very strong 4.5% annualised growth in US GDP this quarter.
Edison Insight | 28 June 2018 5Exhibit 2: Continued weakness in Eurozone and UK economic surprise indices
150
100
50
Index lev el
0
-50
-100
-150
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18
US Eurozone UK
Source: Thomson Reuters
For US estimates, we note a helpful second leg higher in recent weeks. The US economy is
perhaps starting to deliver some of the benefits of the fiscal stimulus introduced at the turn of the
year. Typically, estimates rising this strongly would be expected to result in stronger market
performance than we have seen year to date. However, offsetting the positive news on profits is a
US Federal Reserve which appears determined to continue on its path of normalising US monetary
policy, even as volatility builds in emerging markets.
Despite this volatility, earnings estimates for emerging markets also appear to have stabilised in
recent weeks after falling from the peak reached in Q118. Full year 2018 EM earnings growth is
also still forecast to be over 15%, a figure which suggests that weaker EM performance may be due
to investors re-positioning for a stronger dollar rather than fear of weakening corporate
fundamentals.
Global implications of rising US bond yields
Tighter monetary policy and larger US fiscal deficits point to higher yields ahead –
and a higher risk premium for emerging markets
Events in Italy during early June may have highlighted a crowded short position in long-term bonds,
with US 10-year yields falling by 0.25% to 2.75% during a week of political uncertainty. However,
US bond market investors still have to contend with rising short-term interest rates and a substantial
increase in the issuance of US Treasuries to finance Trump’s tax reforms. Furthermore, this is
happening at the same time as the US Fed attempts to reduce the size of its balance sheet. Current
10-year yields appear too low in the context of a continued economic expansion and emerging
market policymakers are becoming concerned.
A recent opinion piece in the Financial Times by the governor of the Reserve Bank of India, Urjit
Patel, suggests that the recent turmoil in dollar funding in emerging markets has arisen not because
of rising interest rates but because of the combination of increased issuance of US Treasuries to
finance US tax cuts and the simultaneous reduction in the Fed’s balance sheet. Patel is not alone
among emerging market policymakers in becoming concerned; Indonesia’s recently appointed
central bank governor Perry Warjiyo has also expressed similar views recently.
Patel states bluntly his opinion, as the head of one of the world’s leading emerging market central
banks, that unless the US Fed responds to this increased US Treasury issuance by adjusting its
plans to shrink its balance sheet, a crisis in EM dollar funding markets is inevitable. He also
highlights the recent reversal of capital flows, with foreign capital now fleeing emerging markets at
the rate of US$5bn per week. In his view, the Fed should change course on its balance sheet
reduction programme which was in any case designed before Trump’s tax cuts became a reality.
Edison Insight | 28 June 2018 6Unsurprisingly for a senior central banker, his views are confirmed by the substantial upward
revision to expected US Treasury issuance over the last 12 months as a result of US tax reform,
Exhibit 3. Compared to expectations a year ago, an additional US$260bn of US Treasuries will
have to be absorbed by private markets in 2018 and US$430bn in 2019. The US fiscal deficit is
forecast to remain close to 4% of US GDP from now until 2022, rather than 2.5% over this period
only a year ago. The additional funding requirements are therefore substantial and will place
upward pressure on long-term US interest rates.
Exhibit 3: Significant upward revision to US funding requirements in 2018
60% 1400
Priv ate market issuance USDbn
50% 1200
% chg from prior estimate
40% 1000
30%
800
20%
600
10%
0% 400
-10% 200
-20% 0
2013 2014 2015 2016 2017 2018 2019 2020
Year on year revision to issuance estimate (LHS) Est. private market issuance (RHS)
Source: Treasury Borrowing Advisory Committee (TBAC) presentation
In some respects, this easing of US fiscal policy is exactly what the US Fed hoped for - only much
earlier in the cycle. Earlier this decade, there was ample slack in the economy and below target
inflation which would have created the conditions for policy rates to remain low even as borrowing
expanded. However at this juncture, the Fed’s room for manoeuvre is more limited with
unemployment at 3.8%, below its long-run estimate of 4.3-4.7% and inflation already close to
target.
There is also a significant amount of Fed credibility invested in its current policy of gradually
normalising US monetary policy, both in respect of interest rates and the size of the Fed’s balance
sheet. In terms of the Fed’s balance sheet, Fed Chair Powell stated in November 2017 that the
balance sheet would decline by US$1.5-2trn over the next three to four years, and at a rate of
US$50bn per month by late 2018. This compares to a peak level of quantitative easing of US$85bn
per month earlier this decade. However, following the implementation of December’s US tax reform,
this quantitative tightening will occur during the same period that the US will be running a 4% fiscal
deficit.
In terms of figures, while there is necessarily significant uncertainty, academic estimates suggest
that each incremental 1% increase in the US fiscal deficit corresponds to a 0.25% increase in US
bond yields. Following the 2% increase in the forecast fiscal deficit over the last 12 months, this
indicates upward pressure in the region of 0.5%. The impact of the Fed’s quantitative tightening is
also difficult to estimate with precision, not least because it is unprecedented. However, term
premium estimates published by the Federal Reserve Bank of New York indicate that 10-year yields
may have fallen by as much as 100bp due to the impact of quantitative tightening, Exhibit 4.
Edison Insight | 28 June 2018 7Exhibit 4: Term premium compression due to QE may be reversed with quantitative tightening
6
5
4
10y term premium %
3
2
1
0
-1
-2
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: Federal Reserve Bank of NY
Therefore, we would be inclined to put the impact of a deliberately gradual US quantitative
tightening at not more than 0.5% over the next 18 months. Finally, there is the steady recovery of
inflation expectations close to 2% and rising estimates of the neutral rate of interest, which Fed
policymakers currently estimate at 0.8% (real). Adding these factors together suggests US bond
yields should be moving closer to 4%, rather than 2.9% currently.
In respect of Patel’s view that the Fed should change course on its balance sheet reduction to avoid
an inevitable emerging market crisis, this would be a significant shift in the Fed’s position, given its
often-repeated intention to reduce the balance sheet “gradually and predictably”. In addition it has
also been stated that the primary Fed tool for responding to changes in the outlook is interest rate
policy.
Fed policymakers will be aware of research which suggests a linkage between the flow of US dollar
credit and US monetary policy. This link is not as straightforward as it may appear at first sight.
When US policy rates are rising during an expansion, growth in credit provided to emerging
markets is positively correlated with rising US rates, as banks search for yield. It is only when the
stance of monetary policy shifts – from accommodative to restrictive – that the risk of a flight to
safety out of emerging markets markedly increases. At the present time, the US Fed views interest
rates as being in a process of normalisation and that they remain accommodative; therefore, at
least some data do not support the view that an emerging market crisis is imminent, even if it may
remain a risk for a later date.
Despite the concerns from emerging market policymakers, while the US Fed may not be on a pre-
set course in respect of reducing its balance sheet, to change course would require a meaningful
international dislocation in our view, justifying a switch in focus to international financial conditions
rather than US domestic factors. In any case, we believe the Fed considers the primary tool for
managing near-term shifts in the outlook is interest rate policy. In respect of current conditions, the
spread between 2-year and 10-year rates is already uncomfortably narrow and any widening
through higher long-term rates may even be welcomed in the short term.
Bank of International Settlements (BIS) data suggest that there is US$10trn of offshore US dollar-
denominated debt with approximately 30% of this allocated to emerging markets. BIS estimates
also highlight derivative transactions which imply a similar additional amount of synthetic dollar
liabilities. The link between US policy rates and the potentially volatile behaviour of US financial
institutions in allocating credit offshore at various points of the cycle is therefore important.
For dollar-reliant emerging markets, the economic risks associated with using short-term interest
rates to deter capital outflows also has many unfortunate precedents. However, at least the nature
of these problems are now well understood as a result.
Edison Insight | 28 June 2018 8These gentle shots across the bows of the Fed’s balance sheet reduction policy, even in the context
of a strong US economy, highlight that political and economic risk may be brewing in respect of
global financial conditions. Should US economic growth remain strong, US rates are likely to
continue to rise. A switch to risk-averse lending behaviour by international financial institutions – if
Fed policy ultimately becomes restrictive – could again lead to a repatriation of capital out of
emerging markets. While current interest rates are still some way from that point, it may be a real
factor in 2019. Recent emerging market volatility and the underperformance of the largest global
banks in recent weeks suggests investors are starting to price this in.
Conclusion
The politics of trade are now being felt in the day-to-day movements in global markets and the US
administration appears to be determined to stay on a collision course with China. Positions are
hardening across the world and a market decline may be a prerequisite for resolution. While Trump
may be backing away from more extreme forms of investment restrictions in recent days, this is just
a further example of the policy volatility which is unhelpful for investors.
Against this challenging political backdrop, 2018 forecast profits growth has to date remained
robust and 2018 profits forecasts are even rising again in the US. Notwithstanding the risks from
trade, we still view the highest probability scenario for global equities as a benign de-rating, where
markets trade sideways as profits grow. During this period, and absent negative political shocks,
there are fundamental reasons in respect of US Treasury issuance and the Fed’s quantitative
tightening to expect higher US bond yields than currently prevail.
There is no change to our cautious outlook, although we are dismayed by global trade
developments in recent weeks and the risk of a sharper decline – but quickly followed by a face-
saving resolution on trade – has in our view risen. In a subdued equity market, investors should
remain focused on company- or event-specific ideas to drive portfolio returns.
Edison Insight | 28 June 2018 9Sector: Technology 1Spatial (SPA)
Price: 4.0p
Market cap: £30m INVESTMENT SUMMARY
Market AIM
1Spatial recently held its first capital markets day for a number of years. We see this as a
positive signal that, following a substantial transformation programme, management is
Share price graph (p)
confident in its strategy and prospects. The recovery programme has been based on three
fundamental principles – get the strategy right, assemble a strong team and build closer
customer relationships. The capital markets day indicated that the company has made good
progress on all three fronts. We maintain our view that an FY19e EV/sales multiple of 2.0x
(vs 1.7x on current forecasts) is justifiable, implying a value of c 5p per share, with plenty of
scope for further growth from there.
INDUSTRY OUTLOOK
Company description The GIS industry is large and growing – P&S Market Research estimates the global GIS
1Spatial’s core technology validates, software, services and hardware market at $9.0bn, forecasting a 10.1% CAGR to reach
rectifies and enhances customers’
geospatial data. The combination of its $17.5bn by 2023. Software is estimated to account for around half of this market at present,
software and advisory services with growth forecast at c 9% through 2023, whereas the revenue opportunity for services is
reduces the need for costly manual
checking and correcting of data. expected to grow more rapidly – at c 12% from around $3.5bn at present.
Y/E Jan Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual 14.3 19.4 23.1 2017 15.1 (0.9) (12.8) (1.75) N/A N/A
Relative* 16.8 8.6 18.4 2018 16.9 0.4 (1.5) (0.19) N/A 122.1
* % Relative to local index
Analyst 2019e 17.8 1.0 (1.0) (0.13) N/A 32.1
Dan Ridsdale 2020e 18.8 1.7 0.3 0.04 100.0 16.2
Sector: Media 4imprint Group (FOUR)
Price: 1795.0p
Market cap: £504m INVESTMENT SUMMARY
Market LSE
An upbeat AGM statement in May indicated that good momentum had continued through
the early weeks of the new financial year. We edged up our forecasts to reflect revenues to
Share price graph (p)
date running ahead of budget at +16% year-on-year. It is still too early to assess the impact
of the additional marketing spend on brand awareness that was factored in at the time of the
finals. Even without any benefit from this initiative, earnings are set to increase by a CAGR
of over 12% for FY18-19e. Strong cash generation is funding the brand and marketing
investment, as well as paying out a progressive dividend, on top of the supplementary
payment made for FY17.
INDUSTRY OUTLOOK
The US promotional products market is substantial; estimated at $23.3bn and with the
Company description industry body ASI indicating growth of around 3.5% in FY17, with the growth driven primarily
4imprint is the leading direct marketer by the larger distributors. It nevertheless remains highly fragmented. The brand awareness
of promotional products in the US,
Canada, the UK and Ireland. 97% of programme is designed to help extend reach within the target customer profile, rather than
2017 revenues were generated in the broadening into new demographics. The core audience remains business owners with more
US and Canada.
than 25 employees, ie those with a sufficiently large business to benefit from a quality range
of promotional products, but not so large as to want to commission items in house.
Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (US$m) (US$m) (US$m) (c) (x) (x)
% 1m 3m 12m
Actual (5.5) 1.1 9.1 2016 558.2 40.8 38.4 98.7 24.2 14.3
Relative* (3.4) (8.0) 5.0 2017 627.5 45.1 42.5 107.7 22.2 15.0
* % Relative to local index
Analyst 2018e 707.5 47.1 44.0 122.0 19.6 14.8
Fiona Orford-Williams 2019e 778.3 54.3 51.2 140.1 17.1 12.5
Edison Insight | 28 June 2018 10Sector: Oil & gas AJ Lucas Group (AJL)
Price: A$0.34
Market cap: A$251m INVESTMENT SUMMARY
Market ASX
AJ Lucas offers investors exposure to the most advanced UK shale appraisal programme.
Current activity is focused on drilling at Preston New Road where AJL has approval to drill
Share price graph (A$)
and test up to four horizontal wells. To date one horizontal well has been drilled and a
second is nearing completion. An application for hydraulic fracturing of the first of these
wells has been submitted to the government. Given uncertainties, we currently utilise a
probabilistic approach to valuation estimating a 67% chance of commercial success for UK
shale (NPV15>0). At a group level, incorporating AJL’s operating business units and net
debt, we derive a P50 (mid-case) valuation of A$0.86/share.
INDUSTRY OUTLOOK
AJ Lucas has investments in the exploration and commercialisation of shale gas in the UK
Company description through licence equity interests and a stake in Cuadrilla. Central government supports the
AJ Lucas has investments in the exploitation of shale gas resource in order to increase domestic energy security and to
exploration and commercialisation of
shale gas in the UK through licence support intermittent renewable energy sources.
equity interests and a stake in
Cuadrilla. AJL also has two
Australia-based operating business
units: Drilling Services (LDS) and
Engineering & Construction (LEC).
Y/E Jun Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (A$m) (A$m) (A$m) (c) (x) (x)
% 1m 3m 12m
Actual 0.0 (4.3) 39.4 2016 126.0 (2.4) (12.7) (4.93) N/A N/A
Relative* (2.7) (8.5) 26.6 2017 122.6 (8.7) (36.3) (6.67) N/A N/A
* % Relative to local index
Analyst 2018e 122.1 (5.4) (23.7) (3.46) N/A N/A
Sanjeev Bahl 2019e 97.3 1.1 (12.0) (1.89) N/A N/A
Sector: Technology Aladdin Blockchain Technologies (NMI)
Price: €26.00
Market cap: €349m INVESTMENT SUMMARY
Market DUS
Aladdin is an early-stage software company seeking to use big data, blockchain, artificial
intelligence and machine-learning technologies to improve preventative medicine and the
Share price graph (€)
efficiency of delivering healthcare. Although the long-term goal is to be a big data analytics
play, the shorter-term focus is on developing applications to build a healthcare ecosystem in
order to gain access to patient data. Aladdin’s first operations are in China, it has just
announced entry into the Indian healthcare market and it plans to expand into other Asian
markets.
INDUSTRY OUTLOOK
Blockchain, AI and big data are increasingly being seen as tools to improve the efficiency of
healthcare provision, with a view to both reducing costs and improving patient outcomes.
Company description Current use cases include apps for medical appointment bookings or remote/AI generated
Aladdin is an early-stage healthcare diagnoses, and chatbots. Other examples include the aggregation and analysis of electronic
software company. It intends to
leverage novel technologies including medical records, and the provision of audit trails to improve the security and integrity of
blockchain, big data and AI to create a records.
healthcare ecosystem to improve
efficiency, security and patient
outcomes.
Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (€m) (€m) (€m) (c) (x) (x)
% 1m 3m 12m
Actual 7.7 100.0 N/A 2016 N/A N/A N/A N/A N/A N/A
Relative* N/A N/A N/A 2017 N/A N/A N/A N/A N/A N/A
* % Relative to local index
Analyst 2018e N/A N/A N/A N/A N/A N/A
Katherine Thompson 2019e N/A N/A N/A N/A N/A N/A
Edison Insight | 28 June 2018 11Sector: Mining Amur Minerals (AMC)
Price: 5.2p
Market cap: £34m INVESTMENT SUMMARY
Market AIM
So far in 2018 Amur has increased its resource at Kun-Manie by 50%, to 1.58Mt NiE at a
grade of 1.02% NiE. Significantly, the increase was achieved at a cost of US$30.87/t
Share price graph (p)
contained nickel cf Amur's resource multiple immediately prior to the upgrade of
US$51.36/t. The increase means that Kun-Manie now ranks third among the world's
greenfield nickel sulphide deposits. It will also form an important input into an updated PFS.
INDUSTRY OUTLOOK
Based on new assumptions incorporating a higher percentage of underground mining for
longer, we calculate fully diluted (at 4.4p/share) values for concentrate sales (toll smelting),
low-grade matte, high-grade matte and refined metal project options of 15 US cents, 27c,
26c and 46c, respectively, at a nickel price of US$7.50/lb. Developing the project
Company description incrementally over five years, we value it at 26c per share. Internal estimates also project
Amur Minerals is an exploration and that Kun-Manie will be one of the ten lowest cost producers in the world, with C1 cash costs
development company focused on
base metal projects in Russia’s far in the range US$2.61-2.77/lb Ni.
east. Its principal asset is the
Kun-Manie nickel sulphide deposit,
comprising over 1.5Mt of contained
nickel equivalent in at least five
deposits.
Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (US$m) (US$m) (US$m) (c) (x) (x)
% 1m 3m 12m
Actual (7.6) 1.1 (11.1) 2015 0.0 (4.1) (1.9) (0.4) N/A N/A
Relative* (5.6) (8.1) (14.5) 2016 0.0 (3.8) (3.8) (0.7) N/A N/A
* % Relative to local index
Analyst 2017e 0.0 (1.9) (1.8) (0.3) N/A N/A
Charles Gibson 2018e 0.0 (3.8) (3.7) (0.2) N/A N/A
Sector: Financials APQ Global (APQ)
Price: 90.0p
Market cap: £70m INVESTMENT SUMMARY
Market AIM
APQ is a global emerging markets company targeting a sustainable and growing dividend
as well as capital growth, by focusing on investment opportunities with the potential to
Share price graph (p)
generate significant income and long-term growth. The company benfits from a
non-executive International Advisory Council of market experts that assists management by
providing valuable insights and market intelligence from around the world. This body has
been further strengthened with the addition of a consultant specialising in cryptocurrency,
blockchain and distributed ledger technology. The end-April unaudited book value per share
was $1.1174 (c 83.98p). A first quarterly dividend per share of 1.5p, in respect of the 3
months to 31 March 2018, was paid during the month (FY17 an aggregate 6.0p) and the
company says it remains confident of meeting its 6% yield target with DPS well covered by
economic earnings.
Company description
INDUSTRY OUTLOOK
APQ is a global emerging markets
company targeting a sustainable and
growing dividend as well as capital APQ seeks to benefit from secular long-term growth in emerging markets and a focus on
growth, by focusing on investment income returns.
opportunities with the potential to
generate significant income and
long-term growth.
Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual (3.7) (5.3) (13.9) 2016 N/A N/A 0.6 0.71 126.8 N/A
Relative* (1.6) (13.9) (17.2) 2017 N/A N/A N/A N/A N/A N/A
* % Relative to local index
Analyst 2018e N/A N/A N/A N/A N/A N/A
Martyn King 2019e N/A N/A N/A N/A N/A N/A
Edison Insight | 28 June 2018 12Sector: Mining Auriant Mining (AUR)
Price: SEK2.38
Market cap: SEK235m INVESTMENT SUMMARY
Market NASDAQ OMX First North
After five years of gold production via both gravitational and heap leach recovery methods,
Auriant’s Tardan plant is now being remodelled to a single carbon-in-leach (CIL) process
Share price graph (SEK)
flow route, which is expected to improve metallurgical recoveries by c 31% and halve total
cash costs to c US$523/oz. Simulataneously, Auriant is also completing a DFS on
Kara-Beldyr. Combined, the two are expected to achieve management’s goal of 3t (or
96,453oz) of gold output per year from FY22 (vs 809.5kg or 26,049oz in FY17 and 500kg or
16,076oz in FY18e).
INDUSTRY OUTLOOK
Auriant raised US$7.1m via the exercise of warrants in March. On the basis that
management raises an additional US$10.1m in cash via equity in the next 12 months at a
Company description price of SEK2.47/share, we estimate that Auriant is capable of generating average cash
Auriant is a Swedish junior gold mining flows of US$38.6m pa, average earnings of US$31.5m and average EPS of 18.1 cents in
company, focused on gold exploration
and production in Russia. The the period FY22-33. Discounted at 10% pa, we value the resulting stream of dividends to
company has two producing mines shareholders at US$0.82/share.
(Tardan in Tyva and Solcocon in
Zabaikalsky), one advanced
exploration property (Kara-Beldyr in
Tyva) and one early stage exploration
property (Uzhunzhul in Khakassia). Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (US$m) (US$m) (US$m) (c) (x) (x)
% 1m 3m 12m
Actual (2.9) 8.2 (29.2) 2016 43.4 22.0 7.8 36.4 0.7 0.2
Relative* 0.9 4.7 (26.2) 2017 33.5 8.8 (3.1) (5.8) N/A 1.0
* % Relative to local index
Analyst 2018e 20.3 2.9 (7.3) (5.6) N/A 3.0
Charles Gibson 2019e 40.4 20.0 11.1 6.6 4.1 2.9
Sector: Aerospace & defence Avanti Communications Group (AVN)
Price: 4.9p
Market cap: £106m INVESTMENT SUMMARY
Market AIM
Avanti has had a busy Q3. The company completed the conversion to equity of its 2023
notes and, following the $20.1m settlement due from the government of Indonesia at the
Share price graph (p)
end of July, it expects to complete further lines of funding to complement the restructuring.
Meanwhile, the successful launch of HYLAS 4 just after the Q3 end maintains the schedule
is to bring the satellite into operational service towards the end of July 2018. This satellite
should double capacity and mark an end to the investment phase. Overall, the removal of
financial constraint should support the company as it refines and implements its new
strategy.
INDUSTRY OUTLOOK
Avanti is building a Ka-band satellite network to service broadband connectivity for
Company description underserviced markets and remote locations in EMEA. In these markets it has been a first
Avanti Communications is a mover and it currently owns and operates three satellites in geostationary orbit. The
London-based, fixed satellite services
provider. It sells satellite data company's increasing focus on Africa is a reflection of the expected rapid growth of demand
communications services in its key for data transmission in the region. The potential in the market appears to be validated by
markets of enterprise, broadband,
carrier services and government. It has competitor announcements of future deployment of Ka-band capacity servicing Africa.
Ka-band capacity on four satellites.
Y/E Jun Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (US$m) (US$m) (US$m) (c) (x) (x)
% 1m 3m 12m
Actual (19.9) (59.1) (50.6) 2016 82.8 4.6 (67.0) (49.3) N/A N/A
Relative* (18.1) (62.8) (52.5) 2017 56.6 (34.5) (172.9) (104.5) N/A N/A
* % Relative to local index
Analyst 2018e N/A N/A N/A N/A N/A N/A
Andy Chambers 2019e N/A N/A N/A N/A N/A N/A
Edison Insight | 28 June 2018 13Sector: Aerospace & defence Avon Rubber (AVON)
Price: 1450.0p
Market cap: £450m INVESTMENT SUMMARY
Market LSE
Avon started the year with a new growth strategy and the H118 report showed that it is
bearing fruit. The enhanced product portfolio is driving order growth in both divisions. Cash
Share price graph (p)
performance has also been solid, which underpins selective future acquisitions, while the
disposal of AEF adds c £6m to cash. FX headwinds were visible in H118 given US
exposure, however management maintained guidance for the full year. Overall, the
approach is to grow the core, add selective product development and make
value-enhancing acquisitions to accelerate growth.
INDUSTRY OUTLOOK
The US defence budget environment looks promising for Avon as it increases army troop
numbers, while order activity has picked up closer to home. Avon is increasingly focused on
Company description higher price sophisticated mask systems. Meanwhile, growth has been encouraging in Farm
Avon Rubber designs, develops and Services, building greater visibility into the business. We maintain our view that Avon has
manufactures products in the
protection (70% FY17 sales) and dairy the market position, product portfolio and strategic ambition to further accelerate its growth
(30%) sectors. Its major contracts are through organic and inorganic means.
with national security and safety
organisations such as the DoD. Sales
are 75% from the US and 25% from
Europe.
Y/E Sep Revenue EBITDA PBT EPS P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual 0.4 16.5 44.1 2016 142.9 29.9 20.7 70.5 20.6 14.4
Relative* 2.6 5.9 38.6 2017 159.2 36.3 25.9 83.3 17.4 14.8
* % Relative to local index
Analyst 2018e 159.3 36.3 26.5 74.3 19.5 12.3
Annabel Hewson 2019e 165.1 38.4 28.5 75.3 19.3 12.5
Sector: Financials Banca Sistema (BST)
Price: €2.09
Market cap: €168m INVESTMENT SUMMARY
Market Borsa Italiana
BST published its Q118 results in May. Factoring receivables and pension and salary
backed loans continued to show good y-o-y growth at 35% and 68%, respectively. As
Share price graph (€)
expected, the shift in loan mix towards lower-risk/lower-yield assets, including VAT
receivables and pension and salary backed (CQ) loans, results in a reduction in the interest
income margin, but this is coupled with low impairment levels (22bp) and longer duration. In
June BST announced completion of its purchase of a stake in ADV Finance: a small deal
but cementing a relationship that should help develop the CQ business. The proposal,
which could lead to a reduction in risk weighting for CQ loans from 75% to 35%, has passed
an important EU committee stage. If implemented this would lead to a c 150bp increase in
CET1.
INDUSTRY OUTLOOK
Company description
Banca Sistema is a speciality finance The bank’s three-year plan outlined its focus on the two core areas of factoring and CQ
provider with a primary focus on
factoring receivables from the Italian lending; the plan targets 28% and 25% CAGR in lending to 2020 respectively. The political
public sector (public administrations). background in Italy is uncertain, but neither business area appears particularly sensitive to
The bank is also opportunistic, looking
to diversify and has developed salary- this.
and pension-based lending.
Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (€m) (€m) (€m) (c) (x) (x)
% 1m 3m 12m
Actual 7.5 (5.4) (7.6) 2016 81.5 N/A 35.7 32.85 6.4 N/A
Relative* 13.2 (3.5) (11.3) 2017 82.5 N/A 38.9 33.33 6.3 N/A
* % Relative to local index
Analyst 2018e 90.2 N/A 39.2 33.68 6.2 N/A
Andrew Mitchell 2019e 116.5 N/A 52.1 44.74 4.7 N/A
Edison Insight | 28 June 2018 14Sector: Technology Blancco Technology Group (BLTG)
Price: 78.0p
Market cap: £50m INVESTMENT SUMMARY
Market AIM
Blancco’s H118 results reflect the non-recurrence of one-off licence deals signed in H117 as
well as a period of restructuring, including the disposal of its Mexican subsidiary. Despite
Share price graph (p)
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 newly appointed
CEO Matt Jones to drive sustainable, cash-generative revenue growth.
INDUSTRY OUTLOOK
Blancco has developed patented technology to erase data on devices such as PCs, laptops,
servers, mobiles and tablets. Drivers of demand for data erasure include the risk of data
loss (and the associated costs and reputational issues) and regulation. We estimate that
Blancco has only penetrated a small percentage of the addressable markets for end-of-life
Company description and active erasure. Through a combination of direct sales, channel partners and ongoing
Blancco Technology Group develops market education, management is aiming to accelerate the adoption of its software.
and sells data erasure and mobile
diagnostics software. It is
headquartered in the US and has sales
offices in 15 countries around the
world.
Y/E Jun Revenue EBITDA PBT EPS P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual (7.1) 18.2 (48.3) 2016 21.2 5.4 4.1 4.16 18.8 N/A
Relative* (5.1) 7.5 (50.3) 2017 26.9 5.0 2.9 2.60 30.0 N/A
* % Relative to local index
Analyst 2018e 28.4 4.8 2.0 1.94 40.2 N/A
Katherine Thompson 2019e 31.4 6.3 2.7 2.73 28.6 N/A
Sector: Technology Boku (BOKU)
Price: 98.0p
Market cap: £210m INVESTMENT SUMMARY
Market AIM
Boku’s FY17 results confirmed growth in all metrics, as new merchant connections helped
drive a more than doubling of monthly active users and a tripling of payment volumes.
Share price graph (p)
Underlying costs actually fell year-on-year in FY17 and the company is on course to
generate positive operating profit and EPS in FY18. With net cash of $16m, Boku is in a
strong position to fund future growth, with products under development to use carrier data to
optimise e-commerce. We note that in May, Apple extended carrier billing to more
geographies and carriers.
INDUSTRY OUTLOOK
Direct carrier billing is an alternative payment method that uses a consumer’s mobile bill
(pre-paid credit or post-paid monthly bill) as the means to pay for digital content or services
Company description such as games, music or apps. Growth in the underlying digital content markets as well as
Boku is the largest independent direct the increasing penetration of smartphones is expected to drive growth in DCB transactions.
carrier billing (DCB) company. It
operates a billing platform that
connects merchants with mobile
network operators (MNOs) in more
than 50 countries. Its main offices are
in the US, UK, Germany and India.
Y/E Dec Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (US$m) (US$m) (US$m) (c) (x) (x)
% 1m 3m 12m
Actual (2.0) 18.8 N/A 2016 17.2 (12.3) (15.0) (8.0) N/A N/A
Relative* 0.2 8.0 N/A 2017 24.4 (2.3) (6.4) (3.2) N/A N/A
* % Relative to local index
Analyst 2018e 32.7 4.9 2.7 0.9 144.9 N/A
Katherine Thompson 2019e 40.1 11.6 9.8 3.2 40.8 N/A
Edison Insight | 28 June 2018 15Sector: Travel & leisure Borussia Dortmund (BVB)
Price: €5.76
Market cap: €530m INVESTMENT SUMMARY
Market FRA
While uncertainty about a head coach and Champions League qualification has been
satisfactorily resolved, there is no denying the challenge for Borussia Dortmund (BVB) in
Share price graph (€)
making a fresh start after its most difficult season since near-bankruptcy. Without
pre-empting new coach Favre, who takes over in July, radical change in the squad make-up
and size has already been indicated by management. Likely enhanced transfer activity
should therefore support our FY19 EBITDA forecast despite lower pretransfer income
expectations (still up 11%) on greater clarity of Champions League payout. However, for the
current year no such transfer offset is assumed (admittedly cautious), hence our 13%
EBITDA downgrade.
INDUSTRY OUTLOOK
Company description Unsustainable spend on wages and transfers is increasingly being penalised by UEFA
The group operates Borussia Financial Fair Play requirements. A 'break-even requirement' obliges clubs to spend no
Dortmund, a leading German football
club, DFB Cup winners in 2016/17 and more than they generate over a rolling three-year period. Sanctions vary from a warning to a
competing in last season’s UEFA ban from UEFA competition, fines and a cap on wages and squad size.
Champions and Europa Leagues
(Champions League quarter-finalists in
2016/17).
Y/E Jun Revenue EBITDA PBT EPS P/E P/CF
Price performance (€m) (€m) (€m) (c) (x) (x)
% 1m 3m 12m
Actual (2.7) 9.8 (10.0) 2016 376.3 86.7 73.8 68.2 8.4 11.9
Relative* 1.9 5.6 (8.5) 2017 405.7 74.1 61.1 56.4 10.2 43.4
* % Relative to local index
Analyst 2018e 530.0 117.0 100.0 92.4 6.2 N/A
Richard Finch 2019e 440.0 87.0 73.0 67.5 8.5 265.0
Sector: Technology Brady (BRY)
Price: 66.8p
Market cap: £56m INVESTMENT SUMMARY
Market AIM
At its capital markets day in early June, there was an underlying optimism as Brady's key
executives outlined how the group was evolving. Importantly, the evolution of microservices
Share price graph (p)
has provided a route to transition the business to the cloud, without requiring Brady to build
an entirely new mult-tenant platform. In May, Brady launched a new cloud-deployed version
of its physical trading and risk management solution for metals (Fintrade) that employs out
of the box pre-configured settings that make it usable from day one. Brady plans to roll out
further quick-start solutions for other commodities over the course of 2018. If Brady can
successfully transition to the cloud, there is a lot to go for as E/CTRM is an attractive growth
industry and Brady has a high-quality customer base.
INDUSTRY OUTLOOK
Company description Brady provides trading, risk and connectivity software solutions to the global commodity and
Brady provides a range of transaction energy markets – mining and oil companies, fabricators, traders, banks etc. The global
and risk management software
applications, which help producers, E/CTRM market was worth c $1.65bn in 2016 (Comtech) and is forecast to grow at c 6%
consumers, financial institutions and CAGR 2016-2020. Brady has a strong position in niche areas including commodity logistics,
trading companies manage their
commodity transactions in a single, credit risk, metals (number one globally) and European energy, yet has a relatively modest
integrated solution. market penetration overall (we estimate 1.5%).
Y/E Dec Revenue EBITDA PBT EPS P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual 4.3 14.6 (9.2) 2016 25.4 1.9 1.3 2.4 27.8 20.3
Relative* 6.6 4.2 (12.7) 2017 22.9 (2.1) (2.4) (5.0) N/A N/A
* % Relative to local index
Analyst 2018e 23.7 1.2 0.9 0.9 74.2 20.5
Richard Jeans 2019e 24.9 1.8 1.5 1.4 47.7 14.5
Edison Insight | 28 June 2018 16Sector: Oil & gas Canadian Overseas Petroleum (XOP)
Price: C$0.01
Market cap: C$15m INVESTMENT SUMMARY
Market LSE, Toronto
Following the unsuccessful drilling of the Mesurado-1 prospect in Liberia for which COPL
and operating partner ExxonMobil have now surrendered their licence rights, the company’s
Share price graph (C$)
focus has largely been on its Nigeria activities. COPL’s 50%-owned subsidiary, ShoreCan,
acquired an 80% interest in OPL 226 offshore Nigeria – containing the Noa West oil
discovery. The transaction is subject to ministerial approval and funding is required in order
to progress with appraisal and EPS development. COPL highlighted in its recent Q118
results that significant progress has been made in securing a financing package for OPL
226 project.
INDUSTRY OUTLOOK
COPL is actively pursuing opportunities in Nigeria and sub-Saharan Africa, its strategy
Company description being to generate stable cash flow from secure onshore and offshore assets. In addition to
Canadian Overseas Petroleum (COPL) OPL 226, the company has been awarded the PT-5b exploration licence onshore
is a Sub-Saharan Africa-focused E&P
company with exploration assets in Mozambique, adjacent to the gas producing Pande-Temane complex.
Mozambique and Nigeria.
Y/E Dec Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (US$m) (US$m) (US$m) (c) (x) (x)
% 1m 3m 12m
Actual (33.3) 0.0 0.0 2016 0.0 (8.6) (8.9) (1.5) N/A N/A
Relative* (34.6) (6.4) (7.5) 2017 0.0 (20.9) (20.4) (2.0) N/A N/A
* % Relative to local index
Analyst 2018e N/A N/A N/A N/A N/A N/A
Sanjeev Bahl 2019e N/A N/A N/A N/A N/A N/A
Sector: Alternative energy Carbios (ALCRB)
Price: €7.08
Market cap: €32m INVESTMENT SUMMARY
Market Euronext Paris
FY17 marked an important stage in the development of Carbios as it completed the
Thanaplast research project (receiving a €1m payment). Carbios also continued to make
Share price graph (€)
significant scientific progress and recently announced that, having previously discovered an
enzyme well-suited to degrading PET plastics into their original monomers, it has now been
able to significantly reduce the time of hydrolysis and thereby increase the potential flows of
PET waste that can be treated enzymatically. Preliminary figures for FY17 also showed the
benefits of the year’s capital raising measures – an equity issue of €3.6m and €1.5m in
equity line financing – which took net cash to €7.2m at year end (vs €4.7m at end June).
The reported operating loss was €4.65m compared to an underlying loss of €4.45m in
FY16. Our forecasts are under review.
INDUSTRY OUTLOOK
Company description
Carbios develops enzyme-based Growing focus on sustainability provides an attractive market opportunity for Carbios's
processes for biodegradation and
bioproduction of plastics, with a technology.
long-term aim of displacing current
recycling and production practices.
Y/E Dec Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (€m) (€m) (€m) (c) (x) (x)
% 1m 3m 12m
Actual (6.8) (7.9) (9.3) 2016 8.9 3.8 3.7 131.9 5.4 6.0
Relative* (3.0) (11.6) (11.4) 2017 1.0 (4.4) (4.6) (94.4) N/A N/A
* % Relative to local index
Analyst 2018e N/A N/A N/A N/A N/A N/A
Graeme Moyse 2019e N/A N/A N/A N/A N/A N/A
Edison Insight | 28 June 2018 17Sector: Technology Carclo (CAR)
Price: 79.4p
Market cap: £58m INVESTMENT SUMMARY
Market LSE
Delays in the placement of certain customer project awards and weaknesses in operational
performance, particularly in the Technical Plastics division, meant that Carclo did not meet
Share price graph (p)
management’s original FY18 profit targets, although the performance was in line with
revised guidance. Group revenues grew 6% y-o-y to £146.2m, with good growth in the
supercar lighting business and more modest growth in the Technical Plastics division.
Pre-exceptional EBIT declined by 13% to £10.8m as rising EBIT in the LED division and a
reduction in unallocated costs was offset by lower EBIT in the other two divisions.
Pre-exceptional PBT decreased by 18% to £9.1m. EPS (adjusted for exceptional items)
decreased by 19% to 9.8p, reflecting the dilutive effect of the October 2016 Placing
INDUSTRY OUTLOOK
Company description Most of the delayed contracts have now been placed and management has taken steps to
Carclo is a specialist in high-precision improve margins. Demand from medical customers for precision plastic moulding and for
plastic moulding principally in
healthcare, optical and automotive LED lighting in luxury cars, supercars and mid-volume models remains good so we leave
applications. Its two main end-markets our estimates and valuation range (144-153p per share) broadly unchanged.
are high-volume medical consumables
and low-volume, very high-value
automotive lighting.
Y/E Mar Revenue EBITDA PBT EPS (fd) P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual (13.7) (8.7) (55.1) 2017 138.3 17.0 11.0 12.1 6.6 6.2
Relative* (11.8) (17.0) (56.8) 2018 146.2 15.5 9.1 9.8 8.1 9.3
* % Relative to local index
Analyst 2019e 147.7 18.5 11.0 11.4 7.0 3.4
Anne Margaret Crow 2020e 157.8 20.1 12.1 12.5 6.4 3.6
Sector: General industrials Carr's Group (CARR)
Price: 147.0p
Market cap: £134m INVESTMENT SUMMARY
Market LSE
Group revenues rose by 13.2% y-o-y during H118 to £200.1m. This reflected a recovery in
the US feed block activity linked to an improvement in cattle prices and in the UK
Share price graph (p)
manufacturing businesses, as work progressed on the major contract that had been delayed
right until the end of FY17. In addition, sentiment in the UK farming sector continued to be
positive and the remote handling businesses benefited from strong order books relating to
the global nuclear industry. Pre-exceptional PBT grew by 22.0% to £10.9m. Operating profit
was slightly ahead of management expectations because of the level of demand for
agricultural inputs in the UK. In addition, the strengthened management at the UK precision
machining business enabled it to take advantage of the improved sentiment in the oil and
gas industry.
INDUSTRY OUTLOOK
Company description
Carr’s Agriculture division serves Read-across from Wynnstay Group's recent results confirms the positive outlook for UK
farmers in the North of England, South
Wales, the Borders and Scotland, the farming. For Carr's, the favourable prices that farmers are currently receiving for livestock
US, Germany and New Zealand. The and milk supports demand for feed, feed blocks, machinery and other agricultural inputs.
Engineering division offers remote
handling equipment and fabrications to Like its peer, we expect Carr's to have benefitted from the cold weather in early spring.
the global nuclear and oil and gas
industries.
Y/E Aug Revenue EBITDA PBT EPS P/E P/CF
Price performance (£m) (£m) (£m) (p) (x) (x)
% 1m 3m 12m
Actual 3.0 15.3 5.0 2016 314.9 16.5 14.2 10.8 13.6 11.3
Relative* 5.3 4.8 1.0 2017 346.2 13.9 11.9 9.4 15.6 8.9
* % Relative to local index
Analyst 2018e 375.1 19.0 16.2 12.8 11.5 8.8
Anne Margaret Crow 2019e 382.5 19.8 16.9 12.9 11.4 7.1
Edison Insight | 28 June 2018 18You can also read
