finnCap Research Company Notes - 16 April 2019

Apr 16, 2019 / News

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Sector: Energy

Europa Oil & Gas (EOG) : Corp

Tidy up time

Key data                              

  • Share price (p)                  2.9
  • Target price (p)                45.0
  • Market cap (£m)                              12.7
  • Enterprise value (£m)                    8.2

Europa has agreed to sell its 20% stake in UK onshore licence PEDL143 to UK Oil & Gas for £300k, payable in UKOG shares. This portfolio tidy up removes a small exploration opportunity from the portfolio that was proving difficult to get to the drilling stage and was consuming a lot of management time that will be better spent on more material exploration opportunities within the portfolio.

Jonathan Wright


Sector: Technology & Telecoms

Telit (TCM) : Corp

Much improved results highlight the opportunity ahead

Key data                              

  • Share price (p)                  170.0
  • Target price (p)                200.0
  • Market cap (£m)                              223.0
  • Enterprise value (£m)                    197.1

With less R&D being capitalised, FY 2018 adj. EBITDA came in at the lower end of the $30-35m range supplied by the January trading update. However, FY 2018 was a far better year and set of financial results than 2017, with adj. EBITDA jumping 66% on the back of 14% organic revenue growth as the IoT revolution accelerates. That earnings improvement was particularly reflected in the cash generation, with almost $30m generated from operations and used to fund further development to keep the company at the leading edge of IoT innovation. At the YE, net debt increased from $30m to $34m; however, this has been wiped out by the cash sale of the automotive division for $105m in H1 2019. Following that sale and the strategic review initiated in 2017, this is a changed business going forward under the new management team. Debt-free and well funded, it is now focused on becoming a global leader in end-to-end IoT solutions, incorporating its hardware with connectivity and services, and built on an optimised cost base, it has forged key partnerships to drive continued growth and earnings. We adjust our 2019 forecast, nudging up our revenue expectation but capitalising less R&D.

Lorne Daniel


Sector: Support Services

discoverIE (DSCV) : Corp

Growth prospects enhanced and debt reduced

Key data                              

  • Share price (p)                  416.0
  • Target price (p)                488.0
  • Market cap (£m)                              294.5
  • Enterprise value (£m)                    360.1

discoverIE has announced it is proposing to raise £29.2m equity to acquire two custom design and manufacturing businesses for £15.9m with the remainder to be used to reduce gearing. The acquisitions offer complementary products that build on the group’s existing magnetics and sensor products, expand the geographic footprint (with 80% of acquired sales in the US), further improve margins and strengthen organic opportunities in target markets. Coupled with confirmation that Q4 trading remained strong, we view this as another step forward along discoverIE’s proven growth strategy.

Guy Hewett


Sector: Industrials

Flowtech Fluidpower (FLO) : Corp

FY results in line, scope for margin and cash flow growth

Key data                              

  • Share price (p)                  122.3
  • Target price (p)                200.0
  • Market cap (£m)                              74.5
  • Enterprise value (£m)                    94.4

The FY results were in line with the pre-close trading update, with a strong boost from the Balu acquisition in March last year, with organic growth of 5.7%. Strategic focus points to a pause in acquisitions and re-emphasis on gaining integration benefits, driving margin and cash generation improvements. No change to adjusted PBT and EPS forecasts. The shares trade at low levels and a considerable discount to its peers. Our TP remains 200p, pointing to a fair value EV/EBITDA of 9.4x and P/E of 11.0x, with considerable scope for a rerating once management delivers on the targeted internal improvements.

David Buxton


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