finnCap Research Company Notes - 11 December 2018

Dec 11, 2018 / News

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Sector: Energy

Chariot Oil & Gas (CHAR) : Corp

Pre-close operational update

Key data                              

  • Share price (p)                  2.6
  • Target price (p)                17.0
  • Market cap (£m)                              9.7
  • Enterprise value (£m)                    -12.9

Chariot’s pre-close update points to a much stronger than expected year-end cash position of $19m after impressively quick and cheap drilling operations in Namibia. The company has relinquished its Rabat Deep licence after the earlier drilling disappointment. However, this well did demonstrate a new petroleum system offshore Morocco, which has led to a 2.4Bbbl prospect inventory over its remaining two licences. Data rooms are open in both Morocco and Brazil as Chariot seeks partners to help fund drilling in those regions. It is also negotiating a potential new licence in the Atlantic margins.

Jonathan Wright |


Sector: Technology & Telecoms

eServGlobal (ESG) : Corp

FY 20¬¬18 expectations adjusted

Key data                              

  • Share price (p)                  4.8
  • Target price (p)                20.0
  • Market cap (£m)                              44.0
  • Enterprise value (£m)                    23.9

While most of the value of eServGlobal continues to reside in the exceptional HomeSend opportunity, the original PayMobile operation is still struggling in the difficult global mobile-money markets. It has revealed that FY18 revenues are expected to fall short of market expectations, at between €7-7.5m (previously €11-11.5m), as several orders will not close before the year-end. We therefore cut our forecast to match; with the cost base continuing to be €11.0m, this will generate a loss for the year. Whilst it is disappointing that ESG will not achieve breakeven this financial year, it enters FY 2019 with €7.5m (A$12m) of recurring and deferred revenues, placing it in a better position to achieve breakeven next year (target c.€10m). A promising pipeline of new project opportunities further supports management’s view that FY 2019 will be much stronger than the current year. Meanwhile, the sale of the PayMobile business continues to be discussed with several interested parties. HomeSend remains the core value of the stock and our view remains unchanged.

Lorne Daniel |


Sector: Financial & Insurance

K3 Capital (K3C) : Corp

Cautious optimism backed by strong track record

Key data                              

  • Share price (p)                  273.0
  • Target price (p)                375.0
  • Market cap (£m)                              115.2
  • Enterprise value (£m)                    107.7

K3 reports a cautiously optimistic interim trading update backed by a strong track record of delivering on expectations. Significant YoY revenue growth is set to continue into H2 with Corporate Finance bolstered by a number of significant transactions set to complete in FY2019. Price target remains unchanged at 375p, with the current price of 272p providing good value given dividend yield, growth opportunities, a very high ROC of 88% and a proactive, technology-driven approach to winning new business.

Nik Lysiuk |


Sector: Life Sciences

Tristel (TSTL) : Corp

AGM – trading statement – all in line

Key data                              

  • Share price (p)                  235.0
  • Target price (p)                300.0
  • Market cap (£m)                              101.0
  • Enterprise value (£m)                    94.4

The company provided the market with a first-half trading update to accompany today’s AGM, which indicates a pre-tax profit (before share-based payments) of at least £2.2m for the six months ending 31 December, implying growth of at least 10% on the £2.0m reported in the comparable period. This includes the full up-front costs of acquiring Ecomed Group but consolidates only one month of trading, thereby implying underlying adjusted pre-tax profit growth of at least 15%. This is in line with our FY 2019 expectations for pre-tax profit of c.£5.5m Confirmation that the US regulatory progress and integration of Ecomed are on track are also encouraging. We leave forecasts and target price unchanged.

Mark Brewer |


Sector: Technology & Telecoms

Telit (TCM) : Corp

Automotive sale and trading update

Key data                              

  • Share price (p)                  138.0
  • Target price (p)                200.0
  • Market cap (£m)                              180.4
  • Enterprise value (£m)                    200.3

The global IoT enabler now expects the sale of its Automotive division (announced in July and initially expected in H2) to complete by the end of January. Meanwhile, the business has continued to trade well and revenue for FY 2018 is on track but we ease our adj. EBITDA expectations from $38.1m to $32.5m and now expect a small loss for the year compared with a small profit previously. Nevertheless, Telit is still on course to see ‘profit in cash’ (adj. EBITDA less capitalised R&D and capex) in H2 2018 and going into the new year. Finally, management plans to reduce the FY 2019 cost base by $10m from 2018 and we maintain our FY 2019 expectations. It has been a very difficult two years for Telit and its shareholders; however, a corner now seems to have been turned.

Lorne Daniel |


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