finnCap Research Company Notes - 13 July 2018

Sector: Support Services

Minds + Machines (MMX): Chinese expansion

Key data                              

• Share price (p): 7.0
• Target price (p): 17.0
• Market cap (£m): 49.0
• Enterprise value (£m): 37.0         

The leading owners and operator of Internet Top-Level Domains has received approval from the Chinese regulator for a new batch of gTLDs in China: .fashion, .fit, .yoga and .luxe. The company already owns a number of successful domains launched in the region, with .vip registrations having risen to 900,000. Manual renewals for .vip names in China are running in excess of 75%, making it one of the top-performing gTLDs in the country. We are not upgrading forecasts at this stage, but this is very encouraging news coming on the back of the recent ICM acquisition, and should add to the momentum in the market.

Lorne Daniel | ldaniel@finncap.com

Sector: Life Sciences

Tristel (TSTL): Trading update – at least in line & better cash

Key data                              

• Share price (p): 320.0
• Target price (p): 280.0
• Market cap (£m): 137.6
• Enterprise value (£m): 130.9

The company’s trading statement for the year ending 30 June indicates revenues in line with our forecasts (£22.2m, +9.5%) and adjusted pre-tax profit of at least £4.4m (+8%). Year-end cash, however, was £0.6m higher than forecast at £6.7m, an increase of £1.6m after paying out £1.8m in dividends. International markets continue to drive growth, up 19% and accounting for 51% of We will update forecasts and reassess our target price at preliminary results on 15 October.

Mark Brewer | mbrewer@finncap.com

Sector: Energy

Europa Oil & Gas (EOG): Southern Porcupine basin prospect inventory update

Key data                              

• Share price (p): 4.0
• Target price (p): 60.0
• Market cap (£m): 12.2
• Enterprise value (£m): 9.9

The latest prospect inventory update for its Southern Porcupine basin licences following seismic reprocessing again helps de-risk the portfolio and firms up potential drilling targets. This has led us to raise our risked NAV-based price target from 55p to 60p/sh. What gets clearer with every milestone is that Europa’s Irish portfolio contains major upside potential. Key events along the way, especially a successful farm-out, will materially improve visibility, further de-risk the portfolio and encourage investors to start pricing in this upside potential. Until then, the UK business could be a major driver of the shares given the current 38% discount to just the value of the UK portfolio. This will become increasingly evident if its new planning application for the Wressle development in East Midlands is approved in Q4 2018.

Jonathan Wright | jwright@finncap.com

Sector: Technology and Telecoms

Telit (TCM): Automotive sale underpins future

Key data                              

• Share price (p): 165.2
• Target price (p): U/R
• Market cap (£m): 211.1
• Enterprise value (£m): 230.0

Telit has confirmed the sale of its automotive division; it is being bought by Hong Kong-listed TUS International, a leading Chinese ADAS developer, for $105m in cash. With the complexities of disentangling the division from the rest of Telit’s worldwide operations, the deal will take several months to complete; however, we expect Telit to receive the cash by year-end. This will eliminate the current $25m net debt and provide great security as well as working capital for future growth. It represents very good value for one of Telit’s fastest-growing but least profitable operations, and will recapitalise as well as lift margins in the remaining business.

Lorne Daniel | ldaniel@finncap.com