finnCap Research Company Notes - 15 January 2019
Jan 15, 2019 / News
Register here to access all finnCap corporate finance research
Sector: Technology & Telecoms
Altitude Group (ALT) : Corp
Placing and acquisition – completion
Key data
- Share price (p) 74.0
- Target price (p) 140.0
- Market cap (£m) 50.9
- Enterprise value (£m) 49.6
Altitude has confirmed the acquisition of AI Mastermind (AIM), through a comfortably oversubscribed fundraise at 68p (details in our note of 11 January, Taking AIM). The extent of institutional investor support for the fundraise led to an expansion from the originally sought £7m to instead take £9m, delivering a greater working capital buffer and a stronger base to support investment in growth. The acquisition de-risks pre-acquisition revenue expectations for ChannlPro/AIMPro, derived from suppliers, while adding a strong – and still very cautiously modelled – growth opportunity in revenue from AIM members. With all focus now on the delivery of core KPIs throughout FY19, we look forward to updates on progress. Target price of 140p (formerly 105p) represents a staging post for the 12-month target price – with proof of execution granting the potential for 300p and beyond as management delivers on expectations.
Andrew Darley | adarley@finncap.com
Sector: Consumer & Other
Frontier Developments (FDEV) : Corp
Jurassic World Evolution drives earnings upgrade
Key data
- Share price (p) 910.0
- Target price (p) 1 750.0
- Market cap (£m) 350.4
- Enterprise value (£m) 326.3
We know the third franchise game, Jurassic World Evolution (JWE), has been a huge success; however, the trading update reveals a spectacular gaming and financial triumph. It has driven H1 2019 sales to c.£64m, up over 230% YoY. Sales of JWE have now exceeded 2m units just 7 months after launch, and although the bulk will have fallen in H1, guidance now suggests FY 2019 revenue will exceed £81m. In response, we lift our revenue forecast 8% from £75.3m to £81.5m. With operational gearing from a fixed cost base, earnings should rise by 13%. Greater detail will be available with the Interim results early next month. Finally, the fourth franchise development remains on track for a FY 2020 launch.
Lorne Daniel | ldaniel@finncap.com
Sector: Technology & Telecoms
Tax Systems (TAX) : Corp
Strong FY trading update
Key data
- Share price (p) 88.5
- Target price (p) 118.0
- Market cap (£m) 71.4
- Enterprise value (£m) 88.9
After September interims which revealed performance comfortably in line with unchanged forecasts and 50% of FY revenue achieved, the full-year trading update repeats the mantra “comfortably in line”. Strong performance has persisted, with delivery of growth in both recurring and non recurring revenue: existing customers are renewing as well upgrading; and 50 new customers are taking solutions. Net debt of £13.9m shows a very strong improvement on FY17 (£20.5m) and 1H18 (£17.5m), comfortably exceeding our expectations of £17.0m (including the estimated equity element of the loan notes; £15.2m without). With such cash flow strength reducing the gearing of the balance sheet at a faster pace than expected, the transfer of the enterprise value to equity continues apace, as the balance sheet establishes headroom to fund acquisitions. As one of the finnCap top picks for 2019 with potential acquisitions supporting the organic opportunities expected from the government’s Making Tax Digital requirement for businesses from 2019 (for VAT; and for corporation tax in 2020), we look forward to prelims to confirm performance, leaving forecasts currently unchanged but with clear cash generation outperformance. Target 118p reiterated.
Andrew Darley | adarley@finncap.com
Sector: Technology & Telecoms
Telit (TCM) : Corp
FY 2018 earnings in line
Key data
- Share price (p) 131.6
- Target price (p) 200.0
- Market cap (£m) 172.0
- Enterprise value (£m) 198.7
The YE trading update revealed FY 2018 earnings will be in line with previous guidance of adj. EBITDA between $30m and $35m (we continue to forecast $32.5). Revenue will be slightly ahead of our expectations, at $427m up 14% YoY – assisted by cloud and connectivity business growing >20% to $33.5m. Although H2 delivered profit in cash, the company finished the year with net debt rising from $30.2m to $34.5m. This debt should be expunged by the sale of the Automotive business to TUS International in H1. The buyer is currently raising money through a placing to complete the purchase at the end of this month. Once this is confirmed, the business should be strongly positioned for recovery.
Lorne Daniel | ldaniel@finncap.com