finnCap Research Company Note - 27 November 2018

Nov 27, 2018 / News

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Sector: Technology & Telecoms

Altitude Group (ALT): Trading update; NED appointment

Key data                              

  • Share price (p)                  85.8
  • Target price (p)                105.0
  • Market cap (£m)                              46.9
  • Enterprise value (£m)                    45.5

9 weeks post reporting of interims, Altitude has revealed a fleet of positive KPIs. Continuing progress has delivered 47% growth in numbers of members processing orders with 75% (73%) placing repeat orders; engagement with 65% (39%) of the AIM membership; 41% growth in numbers of sales orders and 35% growth by value. Gross Transaction Revenue (GTR) earned by Altitude is 2.4%, ahead of the 2.3% expected by management at this stage. Supplier numbers continue to grow, and the board has been strengthened with the appointment of Keith Edelman as an independent NED with extensive experience. The Group is demonstrating execution of the bolder growth strategy revealed in September which we defined as ‘Capture then Convert’, and can now advance from ‘on-boarding’ to ‘orders’, and ‘orders’ to ‘re-orders’. Target price 105p reiterated, with trading for FY18 confirmed as broadly in line with expectations.

KCOM (KCOM): Interims

Key data                              

  • Share price (p)                  57.7
  • Target price (p)                80.0
  • Market cap (£m)                              298.1
  • Enterprise value (£m)                    406.6

Interims highlight a familiar KCOM results recipe but sharper ingredients: strength in Hull & East Yorkshire, where the group is delivering fibre initiatives with high near term capex – but which maintains consistent and strong margins, and humble growth; challenges in Enterprise (also evident across the peer group); and expected decline in National Network Services (NNS) but at a greater scale than predicted. Management change, a switch to IFRS15, and disappointing performance, have led to changes to forecasts which left the uncovered dividend unsustainable, thus guidance has been halved – having historically been the valuation case. The £32m NNS goodwill write-off expresses an acknowledgement that the division has challenges, and highlights the stoic support H&EY has given to the national divisions since we began coverage in FY02. While the pension is something of an albatross round the neck of a sum of the parts, it is currently a net asset in balance sheet terms, albeit the next (likely negative) actuarial valuation is only due by FY20. However, our new 80p (120p) target price equates to both 9x group FY19 EBITDA (11x FY20) or a reasonable sum of the parts, and still generates a 3.8% dividend yield: upside remains from current levels.

Andrew Darley |

D4T4 Solutions (D4T4): Strong H1 weighting built on recent contract wins

Key data                              

  • Share price (p)                  204.5
  • Target price (p)                240.0
  • Market cap (£m)                              78.0
  • Enterprise value (£m)                    65.8

These impressive interims are on track with expectations – a return to a more usual H1 weighting compared with LY. The half is boosted by delivery of the large contracts signed just before the YE, as well as the previously noted £1.7m b/f from LY by IFRS 15. That sees LY sales restated from £20.1m to £18.4m and Adj. FD EPS from 11.0p to 8.8p. That revenue/profit shift into H1 and the contract wins saw a trebling of H1 revenue and a swing from H1 loss LY to £3.4m Adj. PBT this year. Moreover, it converted into FCF of £9.0m, boosting net cash to over £12m after the dividend payment. Cash is now 16% of the market capitalisation.

Lorne Daniel |

Sector: Financial & Insurance

HML Holdings (HMLH): Good interim results

Key data                              

  • Share price (p)                  30.5
  • Target price (p)                53.0
  • Market cap (£m)                              13.9
  • Enterprise value (£m)                    14.8

The group has reported a good set of interim results reflecting record half-year earnings despite an uncertain UK property market. We retain our 2019 full-year forecast and our 53p target price.

Mark Paddon |

Sector: Industrials

Gooch & Housego (GHH): FY results in line; strong order book

Key data                              

  • Share price (p)                  1 400.0
  • Target price (p)                1 675.0
  • Market cap (£m)                              345.2
  • Enterprise value (£m)                    355.9

Full-year results were in line with the company’s pre-close update, but slightly ahead of our forecasts, reflecting the recovery in subsea fibre couplers in H2. The order book has risen by an underlying 17%, supporting a strong start to the year. No changes to forecasts. The results should provide some reassurance to the share price that has been particularly weak recently and should be regarded as a buying opportunity. We maintain our 1,675p price target, which offers good upside to current levels.

David Buxton |

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