finnCap Research Company Notes - 10 October 2019
Oct 10, 2019 / Webcasts
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Sector: Life Sciences
Avacta (AVCT) : Corp
New therapeutics collaboration and option agreement
Key data
Share price (p) 19.8
Target price (p) 125.0
Market cap (£m) 22.8
Enterprise value (£m) 11.0
Avacta announced a collaboration and option agreement with ADC Therapeutics to develop drug conjugates combining Avacta’s Affimer technology with ADCT’s PBD-based warhead and linker technology. This is Avacta’s fourth therapeutics partnership and follows the $310m collaboration with LG Chem (December 2018), Tufts University Medical School (July 2018) and the long-term collaboration with Moderna Therapeutics (2015), demonstrating further the interest in the Affimer platform and the incremental value being created. Avacta remains on track to start a Phase I study for its TMAC linker with doxorubicin (pro doxorubicin) in patients with selected solid tumours. The linker is a critical element of the novel Affimer TMAC platform being developed with Tufts University Medical School, which we expect to lead to a potential licensing deal as early as 2020 as well as create other effective chemotherapeutic pro-drugs. We reiterate our target price.
Mark Brewer
020 7220 0556
mbrewer@finncap.com
Sector: Technology & Telecoms
Castleton Technology (CTP) : Corp
Interim trading update
Key data
Share price (p) 93.0
Target price (p) 130.0
Market cap (£m) 76.0
Enterprise value (£m) 80.6
Castleton has released an interim trading update to September detailing a challenging 1H20 for one-off revenue and continuing strength in recurring revenue, which grew in absolute terms. While 2H20 is expected to deliver a material improvement in group performance, we review FY20 forecasts to accommodate the pressure on product and professional services revenue, moving revenue and EBITDA (pre IFRS16) -15% in FY20, and -13% in FY21. Even as recurring revenue demonstrates its strengths and opportunities, in the near term the contemplation of moving to the cloud has changed customer buying habits and slowed decision making – meaning the long-term growth opportunities from recurring revenue growth are stronger than ever, but the instant fillip of one-off revenue, which boosted prior years, is not yet offset. As a growing and focused one stop shop for public sector Housing, and having reorganised to drive greater focus, Castleton’s main risk is now being acquired in moments of share price performance weakness. Target 130p (140p) a 5% free cash flow yield target for FY21.
Andrew Darley
020 7220 0547
adarley@finncap.com
Sector: Support Services
discoverIE (DSCV) : Corp
Q2 stronger than Q1
Key data
Share price (p) 406.0
Target price (p) 535.0
Market cap (£m) 327.6
Enterprise value (£m) 381.9
In a positive H1 update, discoverIE has confirmed it is on track to meet its full-year expectations following +9% sales growth in H1 (+5% organic) and gross margin consistent with the prior year. Organic growth was +4% in Q1 and +6% in Q2. The order book has increased by +15% (+11% organically) to £153m, of which 80% is for delivery over the next 12 months. Despite the wider economic caution, discoverIE continues to make strong progress, providing further evidence of the success of its strategy of focusing on structurally growing markets. We reiterate our 535p target price.
Guy Hewett
020 7220 0549
ghewett@finncap.com
Sector: Energy
Europa Oil & Gas (EOG) : Corp
Headwinds driving diversification efforts
Key data
Share price (p) 2.0
Target price (p) 32.0
Market cap (£m) 8.9
Enterprise value (£m) 6.0
Europa is reacting positively to changes in the business environment in Ireland and is diversifying its portfolio. It has delivered a new exploration licence in Morocco and its strategy is to seek more new ventures in the appraisal/development space. The more restrictive regulatory/operating environment in Ireland is not helping Europa’s farm-out ambitions and is also expected to delay drilling time frames. As a result, we are raising our commercial risking on the farm-out licences, which sees our risked-NAV and price target cut from 45p to 32p. There is still major upside from a successful deal, but cash gets tight next year without a successful Wressle planning appeal and the cash flow boost this would deliver in 2020.
Jonathan Wright
020 7220 0543
jwright@finncap.com
Sector: Financial & Insurance
Morses Club (MCL) : Corp
Strong earnings support transformation
Key data
Share price (p) 115.0
Target price (p) 190.0
Market cap (£m) 149.6
Enterprise value (£m) 164.8
Morses Club’s result for the six months to 31 August confirmed the group’s strong position to both build on its strength in the Home Collect Credit (HCC) market and ultimately benefit from the changes in customer behaviour by broadening the product range and acquiring further HCC loan books. The results showed strong progress in the digital offering, with close to 14% of HCC customers now signed up for the customer portal launched earlier this year, but also indicated that the level of investment needed to follow the changes in customer behaviour is significant, and will have a near-term negative impact on profitability. The level of investment needed in the industry is, however, also likely to result in more acquisition opportunities as other HCC lenders are unable to make the needed investment. We retain our 190p target price.
Kim Bergoe
020 7220 0550
kbergoe@finncap.com